High Compensation Claim Frequency is not Only Related to Ship Building Quality

An article published in a foreign media disclosed that “According to the Nordic Association of Marine Insurers (Cefor),China has 90% higher compensation claim frequency than Japan and South Korea”. The reporter interviewed some insiders to find answers.

“I don’t think that high compensation claim frequency is a product of shipbuilding peak period”,Feng Jiapei, the Associate Director of Hong Kong Shipowners’Association said, “it should be said that the peak period of Chinese ship building industry was caused by the development of Chinese economy and shipping industry, low RMB exchange rate, improvement of Chinese ship building technology and the ship building quality generally accepted by the international community. In the past half year, many Hong Kong ship owners turned to Japan to order ships, this is because of low JPY exchange rate rather than problems with Chinese ship building quality. The industry recognized that in terms of quality and stability, Japan is first, followed by South Korea and China. There is some gap between ships built in China and those built in Japan and South Korea,but the gap is not big.”

An expert in the industry said: “during these past few years, Chinese ship building industry made advances in output scale, but quality has not slipped due to high demand. On the whole, there was no big gap in quality between ships built in China, Japan and South Korea, especially in late period when it was difficult for shipowners to accept ships, there was no excuse for ship yards not to stress quality. Besides, during the late period, some shipowners found excuses to lodge compensation claims in order to postpone or even abandon ships, leading to high compensation claim frequency. ”

Hu Keyi, the Chief Engineer of Jiangnan Shipyard said that: “For ships completed in 2007, there may be some quality problems. But there was no compensation claim caused by major accidents involving ships build by Jiangnan Shipyard and the other two large shipbuilding groups.”

Partner of ReedSmith Richard Butler, lawyer Li Lianjun indicated that the correlation data proposed by Northern Europe Marine P＆I Club met psychological expectation of the public. “If Japan and South Korea has 90% higher compensation claim frequency than China, that will be inconceivable. In fact, there is no quality problem with ships built by Chinese shipyards.”

“We accept most of the report from Cefor. However, it is unfair, or at least not rigorous to conclude that China has 90% higher compensation claim frequency than Japan and South Korea based on the comparison of these data.” Feng Jiapei told the reporter, “the illusion of high compensation claim rate is caused by different computing methods. Generally, ship quality, ship management and maintenance, deductible excess will affect claim frequency. Relatively high deductible excess for ships built in Japan and South Korea reduces claim frequency to certain extent.”

Cefor 2015 annual report conducting analysis on compensation claim frequency from the aspect of ship building countries causes public denunciation. Prior to this, Chinese shipyards mainly built bulk cargo ships,South Korea mainly built oil tankers and Japan is skilled in building chemical tankers and LNG ships. Analyzed according to ship types, compensation claims for ships built in China are mostly related to 10000 tons and 20000 tons bulk cargo ships, chemical tankers, oil tankers and container ships. Compensation claims related to mechanical equipment of ships built in China are much higher due to the fact that China built more small ships than Japan and South Korea.

In general, most excellent Chinese ship yards can stand the test of market, and deserves the title of major shipbuilding nation (ships of CEFOR built by Chinese,Japanese and Korean shipyards respectively take 42%,33%, 14% of market shares,other countries take 11%).In fact, putting aside the flaws of CEFOR computing methods, we should study high claim frequency in different ways, especially we should not ignore the problems of supporting industries. Some cases show that it is the problems with supporting industries that sometimes impedes the internationalization development of Chinese ship building industry, and causes the fact of higher claim frequency for ships built in China than those in Japan and South Korea.