The idea being that otherwise it's not fair to the owners of the top level containers, which have a higher chance of falling off than the bottom level containers. Everyone's share of the boat is equal.
For this reason you always want to take the insurance that is offered against this, just in case that one container contained something worth a few million, and suddenly you're on the hook to pay an amount that is a multiple of what you were shipping in the first place.
Or alternatively, to be aware of which risks you are still bearing. Not all risks have to be insured.
In general, being able to charge different prices to different customers is very beneficial to the seller. So should we expect this to change as ship operators figure out more sophisticated pricing models?
My guess is that the orchestration of how containers are loaded is complex enough that the order of stacking is best left up to the shipper and adding cost/location optimization to the equation might make things too complicated. The containers should be loaded in the manner that is the safest and most efficient for unloading.
By the way the standard ISO 668 intermodal container has a total limit of about three tonnes; the unusual, heaviest size is about ten tonnes. A container port won’t be prepared to handle anything heavier or even, in practice, the 10 tonne version. These constraints apply to the rest of the system (roads, trucks etc — they are “intermodal” after all) so anything outside these constraints (wind turbine planes, major ship engine blocks etc) isn’t containerized anyway.
In other words the point of containerization is to be able to ignore these distinctions. If you care, you ship as if it weren’t in a container
If a shipping operator can eke out a few extra percent of efficiency by taking container weight into account, they will try to do so.
Of course, they will have to balance the efficiency gains against extra complexity.
But it's not so different from eg Amazon taking what's going on inside the AWS VMs into account when deciding on how to run their data centre.
Eg you might have booked a VM with four cores, but if you are typically only using one, they'll take that into account during placement.
The actual ISO 668 limit seems to be 30 tons.
You need to do all this just to massively increase the complexity of your billing model to offer slightly different rates of insurance. I'm sure there are teams looking at ways to make this better (just stipulate in the contract that any super valuable containers arrive early so they're loaded lower), but this is a HARD problem to solve completely.
Same for the rest of what you describe: yes, a perfect system would be a lot of hassle, but making any effort at all is sure to yield benefits.
You don't need to change the billing model necessarily. The customers don't have to know that you are doing this kind of optimization.
Of course, the more you can expose incentives to your customers, the more efficient you can get.
But even if your containers arrive in arbitrary order and you have to make your decisions on where to place them 'online', ie before the next container arrives; as long as you have any choice left at all, you can try your hand at optimization techniques.
Also, consider that from the point of view of the people loading the ship, it's all insured. And if you didn't get the insurance then you understand the risk. Why would they care? They aren't the insurance company. What's their incentive?
The same effort is better invested into making sure you are not losing containers.
It's like saying 'we can optimise policing so that stabbings only happen to the right people'
Even “Even spread” would be a serious topic of debate - Even spread over what? Geographic area? Residency? Where people are likely to be at a given time? Those are three radically different answers in any commuter city.
You'd need some significant automation and integration with all the port-side trucks, forklifts, and cranes that unload and load your ship to make sure that containers arrive and depart in the right order. You could then offer customers lower insurance premiums (or let them pay more for interior space) because average loss would be reduced. But that would take a huge amount of vertical integration or an industry-wide cooperation effort and cost sensitivity that I don't think is present.
But I also assume that overall, unless we talk about unique items like artwork, not enough containers are lost to put much weight on the value of the contents compared to everything else.
The captain is also the one responsible for upholding the laws of whatever flag the vessel flies under.
Or rather, the commercial interest operates in the long run and influences the mechanisms through which decisions are made.
The concepts of eg general average or making the captain's word final were developed very much in correspondence to commercial necessity.
In some sense your analogy to a doctor is apt. Individual medical decisions might not look much at costs, but the system as a whole ignores costs at its own peril.
Actually a mutual insurance policy, since the insurers and insured are the same group of people.
Or, you can take the total lost cargo, divide it by the total value shipped, and send a QuickBooks invoice to everyone.
So long as the risk pool is large enough, and everyone involved is fairly trustworthy, it makes sense. Definitely unparalleled on land, to my knowledge!
Yeah my point is/was that you can just use regular insurance. That's my point. Or at least I don't see why not. Presumably the shipping industry has a reason.
Long story short: your travel insurance has all those complicated things, and you pay for it. And you also pay for the convenience of not seeing that complexity.
The cost of explicitly covering only costs incurred on accidents, like in the shipping industry OP case, would give you a much much lower cost on your travel insurance (technically no longer an insurance). But then you would have to pay irregular amounts on irregular occasions. You also pay a premium to get a fixed budgetable amount.
If they ship millions of containers, surely they can work out an efficient solution.
Yes, at some point they need a lawyer and what not. But not every single time somebody wants to ship a container. They work it out once and that's it. Even if the lawyer costs 100 million dollars, if they ship millions of containers every year, they can scale the cost down to one dollar per container in the end.
The system to only ask for money in case of accidents doesn't actually make it cheaper or less complicated. There simply is the inherent "cost" (a ka expected loss) of accidents, that you have to pay one way or another. There may also be people who don't want to pay, and then you still need your lawyer.
My travel insurance is very cheap, by the way.
Insurance is an old and established business, many learnings already exists. The industry presumably is quite good at estimating and pricing risks.
This discussion is going circular. The "estimating and pricing risks" IS the premium. Which is all anyone in this thread has been saying.
I agree that insurance is cheap for the piece of mind. Which is why I have all kinds of insurance. Still most people get nothing out of an insurance, and some people get more than they've paid.
I'll try to summarize it in another way:
For regular insurance, what is paid in by buyers is X. And what is paid out is X - premiums (overhead, risks, estimates, etc etc etc). That is much less than 100%.
In the case of the shipping scenario, ~100% of what is paid in, is paid out to affected parties.
That seems pretty effective, albeit all participants now own the risk, but save on all other premiums.
If you think there's a better way, I'm sure you can take a smaller premium than the alternatives and make a lot of money.
Eg the shipping operator doesn't have to trust the customers: possession in nine tenths of the law, and the former already possess the latter's cargo.
Similar, the declaration of value is somewhat self-enforcing: if you declare a high value, you get paid out more if your stuff drops into the ocean. But you also pay a bigger share, if someone else's containers drop in the ocean.
Makes it really easy to do sport there and great for public health as a result.
Profit is seldom a significant part of costs. Slate Star Codex went into that quite a bit in the context of healthcare.
Cost explosions usually come when controls on costs are missing.
Competition can be one way to control costs, but it's not the only one. Eg tap water in most places or the Quebec insurance you mention are low cost, too.
However: an industry being heavily regulated often means that it's not well run for the customers. Just the opposite.
The insurance arrangements in global shipping are likely under lighter regulation than most countries' car insurance.
Btw, in general insurance doesn't have to work on the basis of formal averaging. Averaging can just be a useful and simple shortcut in certain situations (or when the law requires it).
But in principle, each individual insurance contract is an independent bet and can be valued individually.
Goldman Sachs or someone at Lloyds will be happy to sell you insurance for arbitrary one-off risks, as long as you are happy to pay them enough.
See eg Warren Buffett's March Madness competition https://bleacherreport.com/articles/1931210-warren-buffet-wi...
In essence, if you could have predicted enough basketball results, Warren Buffett would have given you a billion dollars.
That was a special, one-off risks to Warren Buffett if every there was one. But it's rather simple to price and write an insurance contract for.
Food is highly government-subsidized in America. In fact, subsidies accounted for 25% of all farm income in America in 2016 [2].
[1] https://www.ibtimes.com/us-spends-less-food-any-other-countr...
[2] https://modernfarmer.com/2019/01/congress-finally-passed-a-n...
That’s roughly how people can live on “a dollar a day” you can get a days worth of food for well under 1$.
The exact impact depends on many details. By default, you would mostly expect food subsidies to increase the price that agricultural land fetches.
Most subsidies would only have an impact on prices, if they encourage more growing overall.
Of course, there's also subsidies and regulations for producing less food. (The EU has a lot of these, too. It's almost impossible to grow more grapes for wine.) The US has the famous corn ethanol subsidy. And some tariffs on food imports.
2) The subsidies alone wouldn't keep prices down if the the evil capitalists were able to control prices as effectively as you seem to imagine.
I’m very much opposed to the farm bill in current form, but because I oppose the industrial agricultural practices which it supports - and the processed food such dirt cheap corn yields. I think food could stand to be more expensive for all but those least able to afford it. America wastes 30-40% of all food produced according to the FDA [1]. The waste alone is enough to feed most of the human population. But I digress.
With that said my understanding of the farm bill is that one of the pillar purposes of its creation by FDR in the new deal was to control the cost of food.
I suggest looking around the world in space, but also looking through history in time.
Around the world: look at countries that don't produce much food of their own, but import a lot instead. Those countries might still have food regulation, but they won't have a local food growers lobby asking for subsidies.
Throughout history: Have a look at eg the British Corn Laws and the aftermath of their repeal. https://en.wikipedia.org/wiki/Corn_Laws
> With that said my understanding of the farm bill is that one of the pillar purposes of its creation by FDR in the new deal was to control the cost of food.
Much of the New Deal was meant to increase the price of (agricultural) products.
[1] https://www.iatp.org/news/us-dumping-corn-in-canada-growers-...
Dumping is much bedeviled by economic policy makers, but it's never actually been a problem for any recipient country to get good stuff for less.
Most complaints about dumping are just protectionism against lower cost producers. (Though not all, as the example with subsidies shows. But if foreign tax payers are happy to pay for cheap goods for us, who are we to complain?)
See eg Herbert Dow and the Bromine cartel. https://fee.org/articles/herbert-dow-and-predatory-pricing/ (or any other write-up on the story that you prefer.)
Hope that day doesn't come because, ironically, liability won't cover your losses. It may, in full or part, cover the incidental loss of others impacted, but not your own.
As the party at fault in an accident, you are on the hook for the total amount of damages, no caps or limits, in cases of negligence, intent or "inherent danger" (if you drive a car, hit a pedestrian, and no fault can be found with anyone, the car's driver is on the hook because of the "inherent danger" of the car). The car insurance only covers up to the pre-agreed limits in cases of inherent danger and negligence. For intent, they have to make the victim whole and then get the money back from you.
Healthcare cost will be initially covered by the healthcare provider of the victim in all cases, but if you are found to be legally at fault, the healthcare provider will collect the bill from you or your liability insurance as the party at fault. To the full amount they can extract, no limits. They won't do that for just a few scratches, because usually they don't know what that bill was for until their client tells them about it. But for larger bills, they will inquire and then come to collect. If the collection exceeds the limits of your liability insurance, a court determines intent or you did something else the liability insurance doesn't cover (e.g. non-named driver in limited contracts, knowingly driving a dangerous vehicle, using a vehicle insured as private use in a commercial (Uber) setting) you will pay...
Oh, and in Germany, only liability insurance covering the 3rd party's damages is necessary, the rest is voluntary. Your limits sound about right.
And as for the insurance not paying out if you were negligent or actually acted in an intentional way - that's literally every insurance ever. Your home insurance won't pay out if you leave an open fire inside the house and then go for a walk either - that's negligence. Or if your burning house causes damage to someone else, they will pay them to make them whole, and then try to recover money from you. That's just standard procedure.
I'm just saying that while in the US having to decide your liability limit is a worry of most motorists, I don't know or even heard of anyone ever worrying about this in any EU country I've ever lived in - the minimum limits set by law are very very high already, and most insurers offer even higher ones as standard.
Source on this? I've always understood you only needed third party insurance, and the EU website [0] seems to back this up.
> it's very hard to imagine how payouts would be anywhere near those sums.
If you kill someone or permanently incapacitate them, you could be on the hook for their lifetime loss of earnings. Here's [1] a family being awarded €650,000 following the death of their mother. Agreed, it's still hard to rack up €20 million and I don't know what the precedent is if you run over a billionaire, but in theory I believe the payout here is uncapped.
[0] https://europa.eu/youreurope/citizens/vehicles/insurance/val...
[1] https://www.personalinjuryireland.ie/news/fatal-car-crash-in...
Sorry, I suppose I worded it incorrectly. The minimums mandated by the EU are 1 million euro for damages to property, and 5 million euro for damages to persons, and actually, having found the document, even that is not entirely correct - it's 1.2 million euro for damages to property, and 1.2 million for damages to persons per victim up to 6.2 million euro per claim
https://eur-lex.europa.eu/legal-content/EN/TXT/?uri=COM:2016...
> $50 a month for liability
...so I presumed a resident of the US.
US car insurance policies vary from state to state, so I'll just say how I understand it in layman IANAL terms.
In my state, personal injury protection (PIP) and property damage liability (PDL or commonly just "liability") coverage are the minimum requirements to legally drive a vehicle. There's also bodily injury liability (BIL), but since my state is what's called a "no-fault state", it's not a hard requirement unless you're a taxi (although my coverage bakes it in; I understand this to be applicable towards passengers).
The parent also said:
> Pleasantly tolerable fee for a day where my car hits black ice and physics takes the wheel
In this case, liability coverage as I understand it won't cover damage to the insured's vehicle while driving, which falls under "collision" and is entirely optional for a vehicle that is outright owned (i.e. no lien on the title) in any US state, as far as I'm aware.
So PIP would cover your injuries, PDL would cover damages to the property of others, "collision" covers your property while driving, and this other thing called "comprehensive" covers your property when not driving...and if that doesn't cover all the medical/property bills, then involved parties are free to sue each other.
When your insurance company has a lot of customers, you don’t care about your big claim’s contribution to rate increases because it will be pennies/month. (Yes, I understand your rates can go up if you’re at fault, but you can also stop driving, drive without insurance (in some places) or reduce your policy).
While this ship has thousands of containers, they probably run through a handful of shipping agents that won’t be in business for long if they make fraudulent claims.
https://nationalpost.com/news/toronto-cop-part-of-organized-...
For some reason, health care expenses related to motor vehicle accidents are paid by the at-fault’s insurer instead of the public health system, so there’s lots of fraud there too. And more product for insurers to sell.
Since the at-fault insurer pays, there’s a lot of incentive for fraud for the “victim”. Some call it the auto-lotto.
Because we created lots of arbitrary fault-determination rules so insurers can’t fight eachother to assign fault, it’s not difficult to stage an accident where someone else is at-fault.
In my country the insurance company has a list of approved garages and sets the price. Nobody is going to pay a tow truck for preemtively moving a car, they might arrest them for taking without consent.
If a car really needs a tow for safety purposes, the police will organise that based on their pre-existing contracts and paid for a known price (by the insurance company, or the car owner)
If the car is abandoned the council will eventually shift it and claim the cost back as littering
If the car is safe though it's upto the owner to contact their insurance company and arrange for them to come out and shift it.
Multiple companies racing to the scene sounds like something from the 1800s with fire brigades sabotaging each other.
I don't think they can even make fraudulent claims.
Whether a container gets thrown over board or not is a binary outcome.
How much value to declare upfront is self-policing:
If you declare a high value and someone else's containers gets thrown overboard, your share of the averaged losses is bigger.
The people who didn't lose containers are the ones who have to pay up their share of the losses. If they don't pay, you seize their cargo.
Huh, that's an interesting combination. Should you need to make a claim, does it come out of your own savings first before the group coverage starts?
As with all real insurance plans, you are insured against the actions of others as much as you are against your own actions. This is obviously true in the 12 states + Puerto Rico with no-fault policies.
You may well be distracted at some point and crash into someone else, which is why both of you have insurance. It's crazy to think you can't possibly ever make a single mistake - ever. You can and you will, which is why you're legally required to carry insurance.
My car is worth $4k tops, so I cancelled the rest. The odds of a total loss are low, so a $500 or $1k deductible combined with the likely scenario of a $2k-$3k repair bill made it very meh to bother paying another $400/yr for.
It's even worse than that. If you have significant damage, there's a good chance they'll "total" your car. This means they'll write you a check for the appraised value (minus your deductible), and scrap the car. And it's awfully hard to find a worthwhile replacement for the book value of your old one, so even with insurance you're not avoiding the bill.
Another thing that irks me about insurance is that when you raise your coverage limits the premiums go up significantly. I can't imagine the long tail of extreme damages form a significant part of their actuarial tables, so it feels more like price discrimination based on your own assets that you don't want to lose. But really the entire point of insurance is to protect against the vanishingly small long tail - the idea of liability coverage limits should be done away with (if someone causes a million dollars in damage and can't pay, their insurance company shouldn't be able to walk away!), and the main cost-saving lever should be your deductible.
A family member made money on a not-at-fault accident where they would pay $2700 to a repair place, but they took a cheque for $1900 and got it fixed for $950 (parts and labour).
And even where it is, most states have minimum requirements that haven’t been updated in decades.
https://drivinglaws.aaa.com/tag/liability-laws/
That person that runs you over may legally only have $25k in insurance to cover your death. Your estate will have to go after their non-estate of debts>assets to get any more.
But in mine, it’s much better to have have insurance than not, and the minimum coverage is $200k at least.
https://historyofenglishpodcast.com/2020/04/06/bonus-episode...
With this general average there is no incentive to the operator to operate safely. Spending time to properly securing containers, not overloading etc.
See: https://comitemaritime.org/wp-content/uploads/2018/06/YAR-20...
To give a taste, with tramp shippers there are largely three classes of contracts, called charters [1]:
1) Demise charter hires a ship with no administration or technical maintenance included. The charterer gets possession and full control of the ship with legal and financial responsibility of it. The charterer pays for operating expenses, like fuel, crew, port expenses, and P&I and hull insurance. Demise chartering is common with tankers and bulk-carriers.
2) Voyage charters hire a ship and crew for a voyage between ports. The charterer pays the ship owner per-ton or lump-sum. The owner pays port costs (but not stevedoring), fuel costs, and crew costs. Payment for vessel use is called freight. A Voyage charter specifies laytime for loading and unloading cargo. If laytime is exceeded, the charterer pays demurrage. If laytime is saved, the charter party requires the shipowner to pay despatch.
3) Time charter is the hiring of a ship for a period of time; the owner still manages the ship but the charterer chooses ports and directs the ship where to go. The charterer pays for fuel, port charges, commissions, and a daily hire to the owner of the vessel.
It seems like the “fair” thing to do would be to pretend the entire cargo was lost, and the value of the remaining cargo is distributed in proportion to the value of each person’s cargo.
So if $500,000 of Ferraris were lost and $500 of bananas were recovered the Ferrari guy would get $499.50 and the banana guy would get $0.50.
That policy sounds like something that would be common in shipping for a long time, and something that insurance companies would long have had covered against, no?
See: