Attention: Ocean Marine Insurance Department

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ATTENTION: OCEAN MARINE INSURANCE DEPARTMENT

The total number of pages is7.

est. 1898

WEEKLY BULLETIN

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27-06 FRIDAY, JULY 7, 2006

US SEEKS TO FLY THE FLAG

The enormous growth in the global liquefied natural gas business has created an unprecedented opportunity for the US maritime industry. The world’s LNG fleet is set to double over the next few years as demand for LNG soars. In the US alone, LNG imports are expected to grow to meet 8% of the demand for natural gas, compared to less than 3% in 2003. In light of this dramatic growth, the employment of US mariners aboard LNG vessels and the use of the US flag in the LNG trade have become commercial options for the first time in many years. The global demand for skilled LNG officers has driven wages to a point where US mariners can be competitive in world markets. At the same time, the recently enacted tonnage tax puts US flag LNG carriers on a level playing field, from a tax perspective, with international flag vessels. Adding to these commercial considerations, the employment of US officers and US flag vessels carrying critical LNG imports into US coastal communities is strongly supported by considerations of national security. In the US and in many other places throughout the world, natural gas has become the preferred energy source for new power plants. Today there are some 200 LNG vessels in the world. Based on the current world order book, over the next three years an additional 130 ships will be delivered into the world fleet. Today, there are only five existing LNG receiving terminals serving the continental US, including one new offshore terminal in the US Gulf. Reflecting the anticipated growth in LNG imports, US agencies have granted regulatory approval for at least 13 new or expanded LNG terminals and many more applications are pending. Yet, even after approval by governmental agencies, many terminal projects continue to be delayed by strong local opposition. The opposition stems in large part from safety concerns associated with exposing coastal communities to the frequent movements of large LNG tankers. Despite the excellent safety record of the LNG industry, there is fear of catastrophic fires resulting from accidents, or worse, terrorist activities targeting the LNG vessels. Ways must be found to reassure the public that the importation of LNG on large tankers will not pose an unacceptable risk to their safety. (Lloyd’s List, 6/28/2006.)

US FIRST QUARTER PROFITS

US insurers have fought back strongly after the tribulations of 2005 by recording first-quarter underwriting profits up more than 20% year on year. But the industry has been warned not to expect an easy ride for the rest of the year. In the wake of the huge catastrophe losses that hit the US last year, first-quarter 2006 benefited from lower weather-related losses and saw underwriting profits jump $1.4bn to $8.4bn - the highest for any quarter since 1986 when industry figures were first collated. The first quarter’s p/c combined ratio improved to 91.2%. But tumbling investment income and higher federal taxes meant that the record underwriting performance did not translate into record profits. In fact, the industry’s net income fell compared with the first quarter last year, to $16.7bn, compared with $17.4bn a year ago. The p/c figures are compiled by ISO and the Property Casualty Insurers Association of America (PCI) and related to companies accounting for 96% of private US non-life insurers. (Insurance Day, 6/30/2006.)

‘CLEVER’ BOX SECURITY

Worried about the continuing threat of a container-borne terrorist attack, shippers and IT companies have launched a Brussels-based body to introduce new standards for box security. Dubbed the International Container Security Organization, the non-profit body aims to produce security system standards encompassing modern seals and wireless communications that are “so intelligent” the industry as a whole will adopt them. A container–based terrorist attack would have “fatal consequences” for the logistics chain, said ISCO president Christoph Seidelmann. Even one small incident could have major repercussions on world trade. The group would encompass the latest IT development and comply with the latest mandatory rules on container shipment, most of which had come from the US. “What is good for the US is good for Europe,” he added. (Lloyd’s List, 6/30/2006.)

HYUNDAI FORTUNE

More than 50 underwriters have instructed law firms to represent their interests in the cargo which was stowed on the Hyundai Fortune, the huge containership that was severely damaged by explosion and fire off Aden in March. Clients are said to have had cover for more than $100m worth of goods. Some of the claims for damage and lost time could run for years. A large surveying operation has been carried out at Salalah, Oman, which was the port of refuge and where around 3,300 containers were discharged, at the north European hub ports and at the ports of final destination. Now cargo interests are proceeding to claim under their insurance policies where cargo has been affected. Most underwriters are expected to treat as a total loss cargo which remains on board. Many bill of lading carriers are involved and potential claims are building up against the likes of Hyundai Merchant Marine, MOL, Yang Ming, APL, OOCL and MISC. The length and complexity of the issue will depend on whether there is merit in a recovery action against one or more parties that could take years to resolve. Hyundai Merchant Marine is reported to have begun tonnage limitation proceedings in Seoul in an effort to limit its liability. (Lloyd’s List, 6/30/2006.)

GROWING GLOOM

Executives at both shipowners and container lines are palpably nervous because near-term capacity growth is likely to outstrip all but the most optimistic demand growth forecasts. A tidal wave of new-build ships is beginning to crash down on the main east/west trades. According to BRS Alphaliner, the world fleet of VLCS (Very Large Container Ships more than 7,500 TEU) will almost triple, from 86 to 232 units, in the next three years. The impact on capacity will be dramatic. MergeGlobal forecasts that global TEU capacity will average 12 percent growth through 2010 – yet global TEU trade demand is forecast to average only slightly better than 7 percent growth during the same period. Logically, if capacity grows faster than demand, then container rates should fall in markets large and small. In such an environment, containership lines are worried about their ability to merely recoup higher fuel expenses, much less to continue the margin expansion of recent years. It seems that containership lines — and, by extension, many shipowners — will be in a tough spot during the next several years. Growth in port-to-port capacity will rob most containership lines of pricing power, leading to a compression of profit margins — especially if energy prices continue to rise. In view of supply/demand trends we are not optimistic about profitability trends in the commoditized port-to-port business. However, carriers that can meaningfully address shippers’ door-to-door problem stand to gain market share and boost profitability. (American Shipper, 7/2006.)

JAPAN MAY GO IT ALONE WITH OIL POLLUTION FUND

Japan is considering establishing its own marine oil pollution fund in a move which could have serious implications for the existing international regime. A joint feasibility study into the potential benefits of a national fund is understood to have been triggered by the Japanese government and the nation’s oil industry. The study aims to establish whether there is a more effective way of compensating victims of pollution from tankers and other vessels. Japan has been a staunch supporter of international agreements on liability and compensation for oil pollution damage caused by oil spills from tankers. The nation was an original member of the International Oil Pollution Compensation Funds. It is a party to the 1992 Civil Liability Convention, which governs the exposure of shipowners, and the 1992 Fund Convention, where contributions are essentially sourced from the oil industry. Japan is also one of the relatively few number of states that have become members of the Supplementary Fund, a third tier of compensation. But there is growing unease about Japan’s position in a regime where large oil importers such as the US and China are absent. As a major oil receiver, Japan is the largest contributor to the 1992 fund. (Lloyd's List, 6/28/2006.)

FAKE PARTS

German component makers have warned against a rising threat from product piracy, particularly in Asia. Both consumer brand articles and, to a increasing extent, components and whole machines are being counterfeited. “Product piracy often occurs in the after-sales and spare parts business,” said Lüder Hogrefe, managing director of Raytheon Anschütz. “The false products are being sold through “channels that we cannot follow” and result in serious product liability problems for the manufacturers, in addition to financial losses because of fewer sales. “Imagine that a ship runs aground on the river Elbe because of a false part in our bridge system,” he added. “Then we are the ones who have to prove that the part was not produced by us.” (Lloyd’s List, 6/30/2006.)

WAREHOUSES SEEKING TO JOIN

Public warehouses find themselves in a Catch-22 situation: Their shipper customers that belong to the Customs-Trade Partnership Against Terrorism are required to verify the security of import warehouses they use. But because public warehouses aren’t allowed to join C-TPAT, the security verification is difficult. So the International Warehouse Logistics Association is asking the federal government to allow warehouses to join carriers, importers and manufacturers in C-TPAT, a program in which companies commit security improvements in exchange for reduced likelihood of Customs delays. Customs and Border Protection’s objections to including the estimated 300 warehouse companies that would want to join C-TPAT center on necessity and cost, O’Connor said. Customs is under pressure from Congress to finish validating the 6,000 some companies that are already C-TPAT members. So adding warehouses to the mix would increase the workload. (The Journal of Commerce, 7/3/2006.)

COMMITTEE MEETING, MINUTES AND NEWS

Pleasurecraft Committee – Wednesday, July 26, at 11:00 a.m.

Technical Services Committee – Tuesday, September 12, at 10:00 a.m.

CALENDAR OF EVENTS – 2006
August / – / 4th Association of Marine Underwriters of San Francisco (AMUSF) is having its 77th Annual Golf Tournament and Dinner
– / 8th & 9th AIMU/AMIF Fieldtrip, New England Maritime locations
September / – / 17th to 21st IUMI 2006 Tokyo, Japan,
– / 29th MICA/AIMU Seminar, “COGSA” St. John’s University, New York, 8:30 a.m. to 12:00 noon
– / 29th MICA Annual Dinner, New York Marriott Marquis, NYC
November / – / 16th AIMU Annual Meeting & Dinner (black tie), Grand Hyatt
Hotel, NYC
December / – / 1st MICA Christmas Luncheon and Educational Workshop, Bridgewaters, NYC
– / 1st Association of Marine Underwriters of San Francisco Annual Dinner, St. Francis Hotel

BRIEFLY NOTED:

1. Do Not Interfere in Insurance – America’s largest reinsurance association has once again urged Congress not to interfere with the private insurance market. The debate between lawmakers and insurers is continuing to rage in the US, and in the latest round of talks the Reinsurance Association of America (RAA) has told Congress that market conditions do not warrant the creation of a federal reinsurance program. (Insurance Day, 6/30/2006.)

1. Box Capacity - Container lines could find themselves short of tonnage later this year as they struggle to handle an unprecedented volume of cargo being shipped from Asia to Europe. Earlier fears that a glut of newbuildings would swamp the trade have vanished. Instead, ocean carriers say they are experiencing bumper liftings, with most ships operating close to full capacity and even tighter conditions in prospect as the peak season approaches. (Lloyd’s List, 6/30/2006.)

1. Marseilles Repair Facility - Spanish ship-repairer Union Naval Barcelona will open for business in the port of Marseilles on September 15 under the name Union Naval Marseille Shiprepair. The repairer, part of the Boluda towage and shipping group, has also confirmed that it will take control of leading Marseilles repairer Compagnie Marseille Reparation at the same date. (Lloyd’s List, 6/29/2006.)

1. Fail Over Place of Refuge Proposal - The majority of European Union member states are resisting attempts to create independent authorities designed to prevent another Prestige oil spill disaster, claims the Euro MP who proposed the idea. The proposal was picked up by the commission from the European parliament’s “Mare” report into the Prestige disaster. But member states are understood to be unhappy with creating bodies that would not be under their control. (Lloyd’s List, 6/29/2006.)

1. New Trafficking Routes - The dramatic increase in seizures of cocaine and other illicit drugs, and tougher enforcement measures, is forcing organized crime cartels to look for new trafficking routes, a new report warns. Colombia posted the largest amount seized, 188 tons, followed by the US with 166 tons. Similarly, 55% of cocaine shipments from Colombia destined for the US market, it says, “is trafficked to Mexico by sea, another 30% by land from Central America, and 15% comes by air.” The agency also notes that according to US information, “about 70% of cocaine leaving Peru is hidden in legitimate maritime cargo.” (Lloyd’s List, 6/28/2006.)

1. Lloyd’s to Raise Capacity – Lloyd’s looks likely to go for significant underwriting expansion next year, after RJ Kiln & Co revealed it has applied to increase its overall managed capacity to more than £1bn. This would represent a 25% increase on its 2006 stamp. Kiln is seeking a total of £1.005bn capacity for 2007. Its flagship syndicate 510 would increase by 17.6%. The syndicate is a market in marine and special risks, with conventional marine coverage in the main fields supplemented by political risk and by consequential loss coverage linked to the needs of marine clients. Much of the extra push will go on direct property and reinsurance lines. (Lloyd’s List, 6/27/2006.)

1. Debut to Innovative X-Bow - French offshore vessel operator Bourbon has taken delivery of the first vessel to make use of the X-Bow, a new backward-leaning, bulbous bow design developed by Norway’s Ulstein group. It claims that the design, which takes its inspiration from the forms of ancient Viking vessels and the whale, reduces pitching and slamming as well as noise and vibration, providing greater stability and fuel efficiency. (Lloyd’s List, 6/27/2006.)

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AIMU & AMIF

2006

FIELDTRIP

TUESDAY & WEDNESDAY

AUGUST 8 & 9

PROGRAM

TUESDAY, AUGUST 8

8:30 a.m.Bus leaves from Pier 11 at the end of Wall Street, New York City

“E-PORT” a heavy lift / project / break bulk terminal. They recently lifted the Brit Concorde off a runway at JFK, barged it to the deck of the Carrier Intrepid.

Senesco Marine, Rhode Island, Shipbuilding corporation. A leader in the double hulled barge market new vessel construction, repair or alteration.

Overnight stay at Foxwoods Great Cedar Hotel (one dinner, one breakfast included in package)

WEDNESDAY, AUGUST 9

8:30 a.m.Depart Foxwoods

Tour of Conley Container Terminal, South Boston, MA. The terminal allows for fast, continuous and simultaneous loading and unloading of multiple container vessels. State-of-the-art ten lane gate facility with computer tracking system.

Very Important – Everyone must present government issued photo ID to get into Conley Terminal. A passport or picture ID drivers license will suffice.

Between visits – Educational video’s from the History and A & E Channel about maritime themes will be shown.

DRESSComfortable and Casual

Please reserve me a seat on the AIMU/AMIF 2006 Fieldtrip.

Name:

Company: Phone:

E-mail: Cell #:

COST

2 people to a room & 2 meals$275 per person (Roommates name )
1 person to a room & 2 meals $325 per person

Method of Payment: Company Check  Credit Card  Other 

Credit Card Type: American Express  Visa  MasterCard  Diners 

Credit Card No.: Exp. Date:

Signature: Name on Card:

Billing Address:

Phone: 212-233-0550, Fax: 212-227-5102, Cell: 646-483-7130, E-mail:

Mail check to: AIMU, 14 Wall Street, 8th Floor, New York, NY 10005

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PORTS OF THE WORLD

SAVANNAH, GEORGIA, U.S.A.

REMARKS:
PILOTAGE: Compulsory, except for tugs with barges under 10 000 gt.
ACCOMMODATION:Garden City Terminal: Total terminal area of 485.6 ha with turning basin of 457.2 m x 487.8 m. Seven berths for container, breakbulk and project cargo operations and two berths for liquid bulk. 153 acre James D. Mason Intermodal Container Transfer Facility located adjacent to Garden City Terminal. Ocean Terminal: Terminal area of 84.2 ha consisting of eleven berths. Dedicated breakbulk facility specializing in forest and solid wood products, steel, ro/ro, project shipments and heavy-lift cargoes. Open storage area of 33.6 ha. Georgia Kaolin International: Bulk kaolin facility using Colonial Oil Berth, eight silos of 3000 t cap each. Private Wharves: Private cargo facilities are situated at the East Coast Terminal, 518 m wharf length, 9.75 m to 10.36 m depth alongside, four warehouses of 27 870 m2 and four mobile cranes, two of 82 t cap and two of 50 t cap; Newport Terminals, 91.4 m berth length, 4.87 m depth MLW and Stone Container Corp, 73.15 m berth length, 5.33 m depth MLW.