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Cefor: More Insurance Claims on Chinese-Built Ships

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By MarEx 2016-04-25 21:18:36

The Nordic Association of Marine Insurers, or Cefor, has released its 2015 report on trends in marine insurance, and in its opening section, the association chose to highlight a trend of relatively high rates of hull & machinery claims for Chinese-built ships. 

Cefor cautioned that it is usually hesitant to publish statistics by factors like builder, class, flag or engine maker, as correlation does not imply causation. "Claims statistics are influenced by numerous factors," the association said. "We are not suggesting that the country of build is the only explanatory factor. Nevertheless, the observed differences are considerable and unlikely to be purely incidental."

From 2007-2015, China, Japan and South Korea built 90 percent of the bulkers, container vessels, and crude and product tankers insured by Cefor members, and the study focused on these vessel types. The time period was marked by rapid growth in China's market share: by 2015, Chinese-built ships made up 42 percent of the vessels in the scope of the study. 
 
The data show that "claims frequency has been 89 percent higher for vessels built in China and elsewhere in the world, compared to vessels built in Japan or South Korea" – in other words, an owner was nearly twice as likely to make a hull & machinery claim on a Chinese-built vessel over that period, as compared with a South Korean- or Japanese-built vessel.

Machinery claims led the way, with claims frequency for Chinese vessels running at roughly twice the rate for South Korean vessels and roughly three to six times the rate for Japanese vessels (depending on year of claim). 

For larger claims, the difference is less stark, but still noteworthy. Claim frequency for values over $500,000 was 75 percent higher for Chinese ships than for Korean and Japanese vessels. For claims over $2 million, it was 52 percent higher. 

Smaller ships showed the greatest differentiation between those built in China and those built in Japan and South Korea; Chinese-built container ships under 20,000 dwt showed a claims rate of over 60 percent. Cefor suggests that the difference is least between larger Chinese-made bulkers and their South Korean and Japanese counterparts, with claims for bulk carriers over 75,000 dwt approximately the same. 

The association closed with a note that the data should not be interpreted as conclusive evidence regarding the quality of Chinese shipbuilding. "China has made major strides in modernising its shipbuilding industry in the past few years. The statistics of the past might therefore not be indicative of vessels built in the future. As outlined at the outset, we are not in a position to reach conclusions concerning the cause of the high claims frequency for vessels built in China. However, irrespective of the cause, it will be interesting to follow the performance of these vessels as they grow older," Cefor said.

Notwithstanding Cefor's caution, concerns about the quality of Chinese shipbuilding have been circulating in the industry for some time. “In China, building what are supposed to be two identical ships in two adjacent slips, you get two different vessels,” said Basil Karatzas, a Manhattan ship broker, speaking to the Times in January. “In Japan, they can build 10 ships and they are all the same.”