VGM: Here to stay?

Insurance CarrierWill the SOLAS VGM requirement ever go away? The short answer is: probably not.

Why ask this question? Many people appear to be calculating their preparedness for VGM on July 1 based on the news coverage of a concerted fight to derail the VGM requirement or the fact that many governments have made no comment on the implementation of the rule. Looking deeply at the underlying pressures to implement the VGM requirement yields a strong conclusion that the VGM is necessary and is not something that the carriers are perpetrating on their own or could move away from if they wished.

Let’s first look at some basic principles in shipping.   Ships float on the water and will have to face a number of powerful elements when they are at sea. Rule #1 in shipping is: know how much weight you are putting on the vessel and where. There is no other rule that comes before this rule.

All of the liner carriers will explain with tone of complete seriousness just how complicated and important calculating the ship’s load plan is. The obvious rejoinder is “Why bother if the information is not known to be accurate?”

Furthermore, the mega ships exacerbate this issue on two counts. First, the mega ships now have more containers above the water line than below the water line in contrast to the smaller vessels currently servicing the major trade lanes. Secondly, the significantly larger volumes of cargo means significantly more unanticipated weight as a result of having so many more containers on board the ship. The IMO reported that based on their research the average container is under declared by 6000 lbs. That would mean 54 million lbs of unreported weight on an 18,000 TEU mega ship or 2700 TEU averaging 20,000 lbs / TEU. That’s like having a small vessel’s worth of undeclared cargo on board. That’s a lot of weight!

So, do we know that the cargo weights given are known to be inaccurate? Clearly, there are many shippers who do weight their cargo accurately and provide accurate information. Many of these shippers have a vested interest in accurately declaring their cargo weight as they sell their goods based on weight and the shipping documents need to match the commercial invoice and be in line with other support documents. However, research conducted by the major insurance providers overwhelmingly evidenced large scale under or mis-declared cargo weights.

This leads us to look more closely at the vessel insurance providers. These are the companies that pay out when there is an accident involving cargo in the custody of the carriers.   The insurance industry is well respected for doing empirical research with the sole goal of mitigating risk. Their conclusion was and is that risk can only be mitigated if substantial additional steps are put in place on a global basis to insure that accurate cargo weights are declared.

The less empirical method for researching the extent of cargo weight mis-declaration is to listen to the level of outcry by the shipping community over the need to now provide a verified and accurate cargo declaration. Simply put, if securing an accurate cargo weight had been part of the standard operating procedure of the majority of shippers, then there would be little or no cry now of how painful securing that accurate assessment will be.

Let’s go back to the insurance companies because these are the real impetus behind the SOLAS VGM requirement. They have worked well with the carriers and the IMO and a number of major governments to put in place this requirement. The carriers have been given an option: either take steps to secure accurate cargo weights or face steeply higher insurance premiums or potentially loose their insurance all together. The carriers would violate their charter hire agreements or commercial lending or bond requirements if they went without insurance. They would also violate their charter hire and financial agreements if they now operate outside of the SOLAS convention that sets all of the ship operations requirements for safe and proper ship management.

In short, the carriers have no option at this point but to follow SOLAS including the VGM. This is not first and foremost a government initiative. It is a commercial initiative that is being more heavily enforced by some governments than others.

The real question should be “is there a way that we can benefit as an industry from the VGM requirement?” This is the question that we will examine more closely in the next blog.



Trade Tech

Intro to the VGM Nation Blog

MOL Comfort

The international maritime shipping industry is experiencing an unprecedented amount of change in a short amount of time. The SOLAS VGM requirement to verify all container weights strikes at the core of the business. The realization that cargo weights have been grossly misdeclared has raised questions about the safety of megaships, their insurability and finance options. The industry must be prepared to comply, as SOLAS VGM will be implemented as scheduled on July 1st, 2016. However, local enforcement is expected to be more gradual.

This blog will discuss SOLAS VGM.

  • Why it exists.
  • What the issues are.
  • What the impact on the supply chain is.
  • What the best practices are.
  • How business processes are affected.
  • How to comply most efficiently.