Freakonomics of the Shipping Business

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Source Article found below: By Hellenic Shipping News – 06/22/2017

Have you ever thought of the reasons behind marine accidents? I particularly wonder whether the rules of irrationality and moral hazard are at work here, too. To examine this, let’s first connect the money to marine accidents.

There are several types of marine accidents, like a ship sinking or catching on fire. Let’s divide accidents into two groups: public accidents and anonymous accidents. A public marine accident is a ship-to-ship accident or an accident around the vicinity of land (e.g. around ports, channels, or rivers). Anonymous marine accidents are the opposite. There is nobody in the vicinity of the accident. The ship’s crewmembers are the sole witnesses. In the absence of other evidence, we must take their word on what happened. With anonymous accidents, ships are usually sunk, founder, and/or explode in deep waters.

After the accident, the marine insurance carrier compensates the shipowner. In the maritime industry, we have two main types of insurance: private insurers that cover hull and machinery (hence, “H&M”) and protection and indemnity through non-profit organizations (“P&I clubs”). (Of course, there are many other insurance types for particular risks). P&I covers those costs excluded by H&M. Both types provide broad coverage and shipowners can recoup most of their losses from them, including the total value of the ship.

Paul Bennett investigated the marine insurance sector and concluded that:

It is economically rational for an individual shipowner to take less care once insured because they know that the costs of any accident will be shared amongst all. But if all shipowners took this view the result would be extremely high premiums for everyone—an irrational outcome based on entirely rational decision-making.

The collective actions of shipowners can result in the misfortune of higher premiums for everyone. That is what we call ‘Tragedy of Commons’! Moral hazard is one of the popular topics in the business of insurance. Insurance companies worried that protecting their clients from risks (like fire, or car accidents) might encourage those clients to behave in riskier ways or carelessly. According to some studies, car accidents increase with an insurance coverage. Is it only valid for protection against disasters or car accidents? Probably not!

Do shipowners really care about the misfortune of higher premiums, especially when everything goes wrong? Hugo Tiberg’s statement gives us a clearer picture:

Fraud is rampant in Maritime Law and Insurance. There are a number of reasons for that. Ships and cargoes are comparatively easily disposed of either into the anonymity of the international theatre or by being scuttled into the unfathomable vastness of the ocean depths.

“The anonymity of the international theater”—that is a perfect definition of maritime fraud: man-made marine accidents.

Emrah Bulut and Shigeru Yoshida performed an interesting study in 2012 (The ttle of their work itself is mind-blowing – Are marine accidents really accidents: Fallacy of random marine accidents in dry cargo fleet). Their objective was to investigate the relationship between the freight market and marine accidents. We expect some intentional loss of ships based on morality problems indicated by Bennett and Tiberg. The theory behind this particular study was to see if marine accidents increase with the decline of freight rates, and vice versa. If there were any correlation between them—a negative correlation in particular—it would mean that man-made marine accidents exist.

The following figure shows two datasets: freight rate data, the Baltic Dry Index, and anonymous marine accidents from World Casualty Reports of Lloyd’s Register:

The correlation between these two data series is -0.85. It seems that most anonymous marine accidents are not ‘statistically’ accidental!

Have you ever read the best seller, ‘Freakonomics’ of Steven D. Levitt and Stephen J. Dubner? In the first chapter, they talk about Sumo wrestlers and statistically significant match-fixing in sumo tournaments! The man-made marine accident phenomenon is a kind of Freakonomics’ story. Nobody is able to identify it criminally while statistics point’s out the presence. A very optimistic defense can be based on the cost of being safe. When market collapses, the relative impact of operation costs (including seafarer wages and safety related costs) may increase and shipowners tend to reduce costs while taking risks. However, it is still very optimistic and insufficient to explain the reason of foundered ships in the middle of seas without a rational reason except for the economic stimulus.

Moral hazard is not extraordinary in business life. Executives tend to focus on short-term since they are rated according to short-term performance (i.e. Short-termism). Brokers, experts, consultants and many other intermediaries of the industry work based on the commission. If there is a transaction, they earn a commission. Then, it is not surprising to recognize that experts tend to fix contracts as soon as possible, and it does not big challenge whether the shipping market rises or declines. That is what we call ‘Commission Bias’. Finally, most of our financial assessment methods and instruments including discounted cash flow or net present value method lead us to be short-termer. Therefore, there is a structural motivation for not being moral or professionally careful at all. We need to rethink about ethics, morality and more importantly, incentives drive people.
Source: Okan Duru, Ph.D., Assistant Professor at Nanyang Technological University, Singapore


President Trump Orders Tougher New Rules for Americans Going to Cuba

Source link below:


We still don’t know exactly what this means for Americans cruising to Cuba on their own boats, but President Trump has just reinstated some travel restrictions making it harder for Americans to plan their own trips there. In a six-page directive, which he signed after making a speech in Miami’s Little Havana, President Trump ordered the Treasury and Commerce Departments to write the new restrictions in the next 30 days. The new regulations will end some of the more relaxed travel policies that President Obama had started in an effort to normalize relations between the two countries.

Cuba flag

The New York Times reports that as part of the new regulations, Americans will not be able to plan their own private trips to Cuba. Americans who go as part of authorized educational or people-to-people tours will be subject to strict new rules to make sure they are not going just as tourists. American citizens who make such trips must work with a tour company licensed by the U.S. government, and they cannot spend any money at any hotels or restaurants controlled by the Cuban military But embassies in Washington and Havana will remain open, and cruises and direct flights between the U.S. and Cuba will continue.

We’ll continue to update this situation as we learn more about what it means for American cruising boat owners.

For more:

A Village Falls into the Sea


In the middle of the map, climate change can feel like an abstraction. Is a warmer, wetter summer an anomaly in the weather pattern, or part of a greater change? Is this an early heat wave just a seasonal spike?

At the edges of the map though, the impact is very real. Solid ground is literally disappearing. At Sierra, Rachel Rivera visits Shishmaref, an island village north of Nome, Alaska, and witnesses the effect that global warming — and the resulting rising sea level — has had on this remote Native Alaskan settlement.

Long accustomed to living under the most extreme weather conditions, Inupiaq communities on Alaska’s Arctic coast are facing their toughest challenge yet. The Arctic is warming twice as fast as the rest of the planet. Average air temperatures are more than 6°F warmer than they were at the beginning of the 20th century, and the lack…

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Leviathan II whale-watching tragedy caused by breaking wave

Article by

Read the whole story and see all the pictures at the below link.

The crew of a whale-watching boat tried and failed to avoid a large breaking wave that sank the vessel, killing six off the Canadian coast.


Image credit

Five Britons were among those who died when the the Leviathan II capsized near Tofino, British Columbia, in 2015.

The Transportation Safety Board (TSB) has released a report with guidance on how to prevent such accidents.

They include having tour boat operators do more to manage hazards like the breaking wave that led to the tragedy.

Clinton Rebeiro, who headed the investigation, said the vessel’s crew checked weather conditions before departing in October 2015 and found them “acceptable”.

Passengers were also given a safety briefing.

Once on the south-east side of the Plover Reefs, Leviathan II was operating in an area where the conditions were favourable for the formation of breaking waves.

At about 15:00 local time (19:00 GMT) “the master and the deckhand heard a noise. The master reached for the throttles to turn the vessel and minimise the impact but the wave struck Leviathan II’s starboard quarter before his actions could be effective”, Mr Rebeiro said.

“It rose up, pivoting uncontrollably on the wave, leaving it beam on, or sideways, to the wave and thus vulnerable to capsizing.”

Capsizing took only an instant. Most of the passengers were thrown into the frigid sea water, skidding down the deck and striking objects along the way. Some became trapped underneath the vessel. No one was wearing life-jackets.

“There’s no doubt in this case that had the passengers been wearing life jackets or some sort of personal floatation device, it would definitely have helped many who struggled to stay afloat in the water and it might have prevented some of the fatalities,” said TSB chair Kathy Fox.


Hazardous conditions caused by climate change put Arctic research study on ice

June 13th 2017 – National Observer

The Canadian Press

An Arctic climate change study has been canceled because warming temperatures have filled the sea off northern Newfoundland with hazardous ice up to eight metres thick.

artic ice2

Image Credit Scientific American


Instead of cruising north with a team of scientists, the Canadian Coast Guard icebreaker Amundsen has been busy freeing fishing boats and helping other ships surrounded in ice that usually doesn’t travel so far south at this time of year.

David Barber, the expedition’s chief scientist, says the irony is that climate change itself has put the climate change research project on ice.

“I have been in the Arctic for 35 years and this is one of the most incredible experiences I have ever had,” he said Monday. “Normally these conditions aren’t so bad. This is climate change fully in action — affecting our ability to make use of marine resources and transport things.”

Barber said warming temperatures have made the ice in the high Arctic thinner. When buffeted by storms and high winds, the ice can move much more freely and travels south on ocean currents.

The expedition of 40 scientists was planning to travel to Hudson Bay, but the Amundsen had to be diverted to help ships caught in the Strait of Belle Isle and along the coast of Newfoundland.

Barber, a University of Manitoba Arctic ice expert, said the heavy icebreaker helped rescue stranded fisherman and carved a path for tankers carrying diesel fuel to remote communities.

At times, the ice was so thick the ship had to repeatedly back up and ram its way through the frozen barrier.

“Typically we run into this when we overwinter in the High Arctic,” he said. “To be doing that off the Newfoundland coast in June was completely unheard of.”

Barber said the delay caused by the ice prompted the cancellation of the expedition, but scientists put the time to good use. They will share information about the ice conditions with the Coast Guard and shipping companies.

The Coast Guard said last week that some fishing boats that had been stuck in thick ice had returned safely to shore. Five fishermen were flown to safety by a military helicopter after their boat started to take on water.

Scientists said the ice conditions are another indicator that climate change is not something that is going to happen — it is already here.

Barber said the shifting of thick ice will have implications for ship movements in other areas of the Arctic, including Baffin Bay and parts of the Northwest Passage.

He suggested the federal government needs to be more prepared for the changes through better monitoring of ice conditions and ensuring that Canada’s fleet of aging heavy icebreakers is up to the task.

“It was a real eye-opener for me — just how unprepared we are for climate change when it comes to ice hazards,” he said. “This is a wake-up call for all of us in the country.”


First 12-cylinder Wärtsilä 31 Engine Ordered

Article By Eric Haun – Marine Link

Wärtsilä said it has booked an order in April 2017 to provide its Wärtsilä 31 main engine, the propulsion machinery and the auxiliary engines for a new state-of-the-art pelagic trawler under construction at a Norwegian shipyard. The vessel has been ordered by Research Fishing Co based in Lerwick, Shetland Islands. There is an option for a second vessel.

new trawler rendering

Rendering of a new trawler to be built for Reseach Fishing Co (Image: Wärtsilä)

In specifying the Wärtsilä solutions, the customer cited the need for the latest technologies in order to optimize the total efficiency of the vessel. The Wärtsilä 31 engine has been recognized by Guinness World Records as being the world’s most efficient four-stroke diesel engine. This will be the first 12-cylinder version of this engine ordered.
In addition, Wärtsilä will supply the gearbox, the controllable pitch propeller with the Wärtsilä ProTouch propulsion control system, as well as one eight-cylinder and one six-cylinder Wärtsilä 20 auxiliary engines. Delivery of the Wärtsilä equipment is scheduled to commence in November 2017.
“The Wärtsilä 31 engine is in a class of its own regarding fuel efficiency and total cost of ownership. Its efficiency reduces exhaust emission levels, and provides extended intervals between service requirements. We are proud to have been selected to provide a complete package of solutions for this extremely modern fishing vessel,” said Stefan Wiik, Vice President, Engines, Wärtsilä Marine Solutions.
“This vessel has been designed to meet our needs well into the future. For this reason the machinery onboard has to be the best available, and we believe that by selecting Wärtsilä this requirement is achieved,” said Gary Williamson, Skipper & Co owner.
When delivered in the autumn of 2018, this 79.8 meter long Skipsteknisk designed vessel will operate in Scottish fishing grounds.

US Navy commissions USS Gabrielle Giffords

This story was originally written by Naval Today

The U.S. Navy commissioned its 10th littoral combat ship, the USS Gabrielle Giffords (LCS 10), at Pier 21 at the Port of Galveston, Texas, on June 10.

Adm. William Moran, Vice Chief of Naval Operations, delivered the ceremony’s principal address before officially commissioning the ship into service.

uss gabriel giffords

Photo courtesy of U.S. Navy

Following the commissioning, Dr. Jill Biden, the ship’s sponsor and wife of former Vice President Joe Biden, gave the time-honored Navy tradition of ordering the crew to “man our ship and bring her to life!”

The crowd sounded its approval as the crew ran aboard the ship to man their assigned stations and complete the ceremony of bringing the ship into active service to end a story that began more than five years ago.

In 2012 the Secretary of the Navy announced the future ship’s name, and USS Gabrielle Giffords became the 16th ship to be named for a woman and only the 13th ship to be named for a living person since 1850.

The ship is commanded by Cmdr. Keith Woodley, a native of St. Thomas, U.S. Virgin Islands, who leads the core crew of 50 officers and enlisted personnel.

During the ceremony Woodley praised the crew for their dedication and hard work in getting the ship ready for service.

“This is not just a new ship. This is a new class of ship and that makes it even more challenging for the crew,” said Woodley. “They have risen to that challenge and performed exceptionally well in getting this ship ready for service.”

Most other Navy surface combatant ships have a crew of 300 or more sailors, but littoral combat ships like Gabrielle Giffords have more automated systems and much smaller crews than their counterparts. Gabrielle Giffords’ crew is just 73 at the ship’s commissioning.

The 3,200-ton Gabrielle Giffords was built by Austal USA in Mobile, Alabama. The ship is 421 feet in length and has a beam of 103 feet and a navigational draft of 15 feet. The ship uses two gas turbine and two diesel engines to power four steerable waterjets to speeds in excess of 40 knots.

USS Gabrielle Giffords will now depart Galveston and begin her transit to her homeport at Naval Base San Diego.

Panama-based cargo ship collides with fishing boat near Kochi port, 2 dead – 1 missing

Tragedy struck off the Kochi coast early on Sunday morning when an Indian fishing boat, Carmal Maths, was hit by a cargo vessel called Amber. The fishing boat had 14 people onboard, and while 11 of them swam to safety or were rescued, two others were killed in the accident. One of the fishermen has been declared missing.

Amber L

Around 2.30am on Sunday, Amber L – a Panama-registered bulk carrier cargo ship – collided with the Indian fishing boat which was anchored around 20 nautical miles from the Kochi coast.

According to reports, Naval ship Kalpeni and a helicopter have been carrying rescue operations following the incident.

The Marine Enforcement Wing Rescue Boat has recovered the bodies of two people: Thambidurai, a native of Kualchil in Tamil Nadu, and a worker from Assam whose name has not been revealed yet.

A third, unnamed person is reported missing.

At least two others who were on the boat have been admitted to the Fort Kochi hospital for injuries.

Note: This is a developing story.

Netherlands, Poland receive first US LNG shipments

Article Credit – LNG World News Staff

The Netherlands and Poland have both received a cargo from Cheniere’s Sabine Pass LNG export terminal in Louisiana, the first ever US LNG cargoes produced from shale gas to reach the two countries.

The 140,000-cbm Arctic Discoverer docked on Thursday at the Dutch Gate terminal located in the port of Rotterdam.

artic discoverer

Arctic Discoverer at the Gate LNG terminal (Image courtesy of Gate)

The LNG tanker “is unloading the cargo,” Stefaan Adriaens, Commercial Manager at the Gate terminal confirmed to LNG World News on Thursday morning.

This is the first ever cargo of US LNG to land in Northwest Europe.

Adriaens did not provide any further information on the LNG shipment. “For us as terminal, (this is) an unloading just as any other unloading,” he said.

At the same time, in Central Europe, Poland is also receiving its first cargo of the chilled fuel from the US.

The 162,000-cbm Clean Ocean arrived at Poland’s first LNG import terminal in Swinoujscie on Wednesday and was still discharging its cargo on Thursday morning.

In its efforts to diversify the supply sources of natural gas and reduce dependence on pipeline imports from Russia, Poland secured the spot cargo delivery of U.S. LNG in May this year.

The agreement was signed during the Polish secretary of state and chief of the cabinet of the president, Krzysztof Szczerski‘s visit to Washington.

So far, US LNG cargoes landed only in the southern part of Europe. Italy, Malta, Spain, Portugal and Turkey received Sabine Pass cargoes since February last year when the plant started shipping the fuel.

Currently, there are only three liquefaction trains in operation at the Sabine Pass facility and in the lower 48 states.

A growing number of US LNG shipments are seen heading to Europe in the future as more liquefaction projects located along the US Gulf Coast come online.

The U.S. is expected to become the world’s third-largest LNG supplier by 2020 behind Qatar and Australia.

Bulk carrier Tong Shun breached after resting bottom at berth in Santos port, Brazil

Article credit –  Viliyana Filipova Maritime Herald

Bulk carrier Tong Shun suffered water ingress after touching the bottom at berth in Santos port, Brazil. The half-loaded vessel was docked to load 30,850 tons of soy near warehouse 21/22 in the port, but stuck on the bottom at the berth with depth of 13.20 m. In result part of the hull breached and some ballast tanks started flooding. The accident was reported to local authorities and divers were sent at the scene to assess the damage. The cargo handling operations were stopped during estimation of the breaches. Moreover, local authorities laid oil booms around the vessel, as a precaution in case of oil leak. Technicians were also sent at the scene of troubled bulk carrier Tong Shun to check if all ballast pumps are working correctly.

Tong Shun

Image Credit: Navio graneleiro encalha em terminal do Porto de Santos, SP (Foto: G1 Santos)

Sao Paulo Ports Authority and Brazilian Navy, informed that it sent experts to the vessel and opened an Administrative Inquiry on Accidents and Facts of Navigation (IAFN). The investigation has an initial duration of 90 days and may be extended for the same period if there is a need.

“So far, there is no report on the conditions of the hull. There is no reported oil pollution from the vessel”, says the statement of the company operator of the dock.

The further salvage will be considered after assessing the damages and the seaworthiness of the ship. There were no reported injuries and water pollution during the incident.

Bulk carrier Tong Shun (IMO: 9646211) has overall length of 229.00 m, moulded beam of 32.00 m and maximum draft of 13.00 m. The deadweight of the ship is 81,162 DWT and the gross tonnage is 44,090 GRT. The vessel was built in 2014 by Jiangsu Jinling Ships in their yard in Yizheng, China.