How Shipping Incidents Affect the Supply Chain

The global supply chain has been featured in the news extensively over the past several years and has become increasingly a part of the public consciousness. There are many possible sources of disruption from human interference, to COVID fall-out, all the way to acts of God such as storms and hurricanes. With the way that our current globalized market operates, every remote corner of the world is potentially a link in the chain, and events whether major or relatively minor can have a trickle-down effect on international transportation. Below, we will take a look at some of the most recent and most noteworthy examples of ocean shipping-centered incidents, and what lessons can be learned.

ONE Apus

On November 30, 2020, the ONE Apus was traveling from China to Long Beach, California, when it hit heavy weather northwest of Hawaii.

Due to what they believe may have been parametric rolling, violent seas knocked 1,816 containers overboard and damaged nearly 1,000 containers, causing an estimated $90 million in cargo loss. This incident, considered one of the worst non-total loss events in history, came during the height of supply chain chaos, as the shipping industry was already scrambling to keep up with consumer demand. 

The severity of the loss, the difficulty in recovering/offloading collapsed containers, and the role of parametric rolling (the phenomenon that causes excessive rolling during a storm) gave shippers much to think about. It highlighted the increased hazards involved with shipping cargo via containerized ocean freight, especially with the recent increase in the size and capacity of these cellular container vessels, referred to as ultra-large container vessels (ULCVs).

The industry has seen the size and capacity of these ULCVs continue to grow over the past 20 years which has resulted in a greater accumulation of risk and exposure on a per vessel basis. The incident involving the ONE Apus occurred nearly one month after another ONE vessel (ONE Aquila), which was the same size and capacity as the ONE Apus, lost more than 100 containers overboard during heavy weather while traveling the same route. Other notable incidents involving ULCVs losing containers overboard during heavy weather include:

• The MSC ZOE which lost ~350 overboard during heavy weather while navigating in the North Sea in January 2019
• Also in the same time frame, the vessel EVER Liberal lost ~36 containers overboard with another ~21 damaged on deck while encountering heavy weather off the coast of Japan.

Ever Given

On March 23, 2021, strong winds and high speeds lodged the 20,000 TEU vessel, the Ever Given, sideways into the Suez Canal (one of the busiest trade routes in the world), blocking all traffic.

Roughly 12% of global trade passes through the canal each day, so for six days, the container ship froze shipping, preventing an estimated $10 billion worth of trade each day. 

Not only were there immense financial implications, but this incident caused unavoidable port congestion with over 300 cargo ships blocked, and massive delays in the supply chain as vessels were forced to wait for the passage to clear or reroute around the continent of Africa. Transit costs surged, and shippers scrambled to make alternative arrangements. 

Aside from the direct interruption to the flow of trade caused by the canal blockage, it also highlighted the vulnerability of the global supply chain and demonstrated how quickly the supply chain can become negatively impacted given the aggregation of risk carried onboard these vessels designed to carry 20K + containers. From an insurance claim perspective, the shipping of temperature-sensitive cargos (e.g. pharmaceuticals) aboard these vessels presents an exponentially higher risk given the potential of extended delays such as was seen with the Ever Given. These ULCVs are also a target for terrorists looking to disrupt the supply chain.

This 120-mile passage with such a heavy concentration of global trade was blocked for six days despite the best efforts of salvage crews, dredging operations, and the canal authority. Additionally, they were only able to free the ship with the aid of rising tides from the full moon. Without this fortunate timing, the recovery efforts may have been protracted, further compounding the effects for likely another month or more. With the concentration of values transiting certain canals, ports, or chokepoints, it is important for us to understand what incidents we may be exposed to, and the measures we have to prevent, address and counteract them.     

Ever Forward

The grounding of the Ever Forward is one of the most recent large shipping incidents to affect the industry. While the direct impact on the flow of goods through the supply was not as great as the others, there are still many lessons to be learned. 

On March 13, 2022, the cellular container vessel the Ever Forward, with nearly 5,000 containers on board, ran aground in Maryland's Chesapeake Bay after departing from the Port of Baltimore. Unlike the two previous incidents, the Coast Guard has yet to determine what caused the vessel to run aground. 

The salvage operation lasted 35 days in total. The first two attempts to refloat the vessel were unsuccessful, and so tugboats and barges resorted to removing approximately 500 containers in an effort to lighten the load and refloat the vessel. After extensive efforts, they were eventually successful, again with the help of the high tides brought about by the full moon. 

This incident was fortunately limited in the direct impact that it had on the broader market in several ways. There were only around 5,000 containers being carried on the Ever Forward at the time of the incident. This is significant because the vessel has a maximum potential capacity of 12,000 TEUs, compared to the One Apus’ capacity of 14,000 TEU, and the Ever Given’s 20,000 TEU capacity. Additionally in the favor of limited market disruption, the shipping channel was not blocked or impeded by this grounding and they were able to conduct business in the nearby ports without interruption. Where this incident does show shipping vulnerabilities is in the intense efforts to free the vessel. There was no severe weather noted, and no catastrophic human error. From all that we can tell based on reliable reporting, the vessel strayed out of the marked channel into shallower waters, most likely due to an error in navigation. Expenses were incurred, shipping delays experienced, and general average declared. Not only was the transportation of goods disrupted significantly for the vessel and cargo, but it is evident that these types of incidents can happen anywhere, with or without extraordinary circumstances.   

Responding to Shipping Incidents

Although some of the above incidents can be attributed at least partially to human error, a large component will be unpredictable and uncontrollable from sources such as heavy weather, outside factors, and sometimes minor mistakes that result in major complications. The best loss prevention plans will take into account what can be controlled, and learn to expect the unexpected.  

As even larger container vessels are introduced and shippers continue to load ships to capacity, the threat of the loss of containers overboard becomes even more present. This, in conjunction with rough seas and parametric rolling, will give shippers and shipowners much to think about in regards to securing containers, stowage, loading plans, and vessel operations.

The size of ships has been steadily increasing since containerization, but in the last 20 years, there has been an explosion in ship size. Major ocean carriers have been pushing for larger and larger ships in a series of escalations to capture economies of scale.

For some carriers such as Hapag-Lloyd, the average carrying capacity of a ship in their fleet doubled from vessels built in the 2000s to those built after 2010. The increased ship size did increase the shipping line's profitability, but the profit margins remained razor-thin. Ships had to sail at around 90% capacity or more in order to make money for the shipping lines. This affects the market in many downstream ways. 

It meant enlarging any supporting infrastructure that serviced these mega-ships including ports, channels, canals, intermodal supply, etc. There was more consolidation of cargo into fewer, but larger, facilities that could keep pace with increasing ship size by increasing cargo handling as well. This does achieve market efficiency but also amplifies the effect of any potential disruption to the supply chain. If, for example, there is a port strike in Montreal or a large backlog in LA/Long Beach, the effects can have a greater ripple effect on the market than in a more diversified setting. 

Prior to the pandemic, the majority of these ULCVs sailed at less than full capacity, whereas since the pandemic and the increased volume of cargo being moved through the global supply chain, these vessels are now sailing with nearly max capacity, possibly without being suitably sea-trialed under extreme weather conditions. 

As a result, we are seeing shipping incidents that are made more extreme by ship size and carrying capacity, with also the salvage process and the supply chain interruption greatly amplified as well. Incidents that may have had limited impacts in the past are now amplified in how they are felt in the market. The temporary closure of one port for example would have a limited impact, but when the port is the port of Shanghai, and many of the world’s ULCVs are calling on that port to keep up with global demand for goods, the impact can be much more severe.   

Another point is how agencies, such as the International Maritime Organization (IMO), are addressing the issue through regulation, including the proper declaration of commodities and shipping weights for the cargo that is shipped in these containers. These incidents continue to draw attention to the lashing and securing methods utilized onboard these ULCVs and what other loss prevention measures can be taken to mitigate risk to these containerized cargoes when heavy weather is encountered at sea.  An issue that has been scrutinized closely during some of these investigations is whether the vessel strictly followed the vessel’s cargo securing manual (CSM) which provides guidance on the proper stowage and securing of cargo. Under the 1974 SOLAS Convention, cargo units and cargo transport units (e.g containers) are required to be loaded, stowed, and secured throughout the voyage in accordance with a Cargo Securing Manual (CSM) approved by the Flag State Administration and drawn up to a standard at least equivalent to the guidelines developed by the IMO.

Innovation, collaboration, and efficiency will continue to be huge pushes for the shipping industry into the future. Data and technology are expected to play big roles in any changes that are ultimately made to improve the overall safety of containerized cargo as there has recently been an emphasis on more tech-forward thinking.

Through understanding past incidents and the current environment of the shipping industry, we will hopefully work towards a safer and more effective future.