A vessel is declared to be a wreck when it cannot be salvaged or if the cost of repair would make no commercial sense. Liable for the removal and disposal of a ship’s hull, bunkers and cargo, if any, are Protection & Indemnity Clubs (WftW 110), in particular the International Group (IG) that consists of the thirteen largest P&I clubs providing ca. 90% of the world’s capacity. The IG and its captive, Hydra, currently have a collective deductible of US$ 100m, on top of which four reinsurance layers provide a total marine capacity of US$ 3.1bn.
Lloyd’s latest report on wreck removal for the years 2014-15 draws attention to the spiralling cost of claims. The disposal of a container vessel, Lina, grounded off the New Zealand coast in 2011, is estimated to have cost US$ 240m, the removal of the Costa Concordia over US$ 1.5bn. Although these were the only claims that exceeded the IG’s retention, such losses obviously put a strain on reinsurance capacity. In response to these events rates have increased substantially, total capacity remaining unchanged.
The increasing size of ships, especially container vessels, is an important cost factor for wreck removal. Not only is there more substance to dispose of, but a large wreck is difficult to stabilize, refloat or break up. It is also a hazardous and time-consuming business to unload hundreds or even thousands of containers from a ship that may have a severe list (Schlagseite), expecially in bad weather conditions.
The Nairobi convention on the removal of wrecks, ratified by Germany and the UK on April 14th 2015, recognizes that coastal states have an „exclusive economic zone“ extending 200 nautical miles from their shores. Within this area they can insist on wrecks being removed at the expense of their owners. Furthermore, for a wreck within 12 nautical miles of its coast a state can apply its own laws as to how it should be removed and any cargo dealt with. This is a significant cost driver, particularly when there is the risk of pollution. It would, for example, have been far cheaper to cut up the Costa Concordia and remove it in pieces, but for understandable environmental reasons the Italian government insisted that it must be refloated.
Although geographical, nautical and weather conditions are important factors in causing shipwrecks, an IG study of the 24 most expensive wreck removal claims since 2012 indicates that 21 were due mainly to human error. For this reason the IG and…