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Comment by wolfgang42 | Hacker News Reader

I’ve heard from some people involved in the shipping industry that (based on the size of the incident) this ship is probably going to declare General Average, which is a sort of weird concept that AFAIK doesn’t really have a parallel on land. It’s basically, “we’ve lost an awful lot of cargo—everyone who had stuff on board, chip in to pay for what got lost.” From what I understand, the idea is that you don’t want to waste time in an emergency trying to figure out which cargo is OK to jettison, so the shippers whose stuff arrived safely pay the ones who didn’t for their sacrifice, but I imagine it can be quite the surprise bill.

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I may be misremembering, but from how I understood container shipping works, that is always the case with lost / damaged containers, no matter the size of the event. If only one container falls off the boat, all entities who were shipping things on that boat are required to chip in proportionally to the amount of containers they were shipping, to make the owner of that container whole.

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.

From some rudimenatary googling it's based on the value of the goods. So unless your cargo is expensive you wouldn't pay nearly as much. Unless there were expenditures there's no way you would be out more than its worth. Also because if this they'd likely load extremely valuable cargo in positions were it's not likely to be lost or jettisoned.

Shows quite nice how important it is to really understand your Incoterms. And to procure insurance to cover any risk left open.

> And to procure insurance to cover any risk left open.

Or alternatively, to be aware of which risks you are still bearing. Not all risks have to be insured.

True. But than full, or almost full, transport insurance is cheap enough even for small businesses.

> 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.

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?

I always thought part of the advantage that shipping containers brought was that they were more or less interchangeable. And that meant that they could be loaded in whatever manner best suited the whole ship. The details of which might not be known at the time when the container was booked. The carrier might be able to reserve “interior” or “top level” spaces for a different prices, but with shipments being loaded/offloaded at different ports, the logistics of loading can be quite complicated. If your container need to be offloaded at the first of three ports, you probably couldn’t have the option of an interior space. Or if you had an extremely heavy container, that should be loaded in the lower part of the ship for safety.

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.

I'm sure it's just a level of optimization that's hard to solve because of a few reasons. a) it's a fairly hard technology problem. Large container ships can carry 20k containers. If each of those has a spot, and you have to optimize, the search space is suddenly looking like 20,000!, which is just a wildly big number. So assuming you have some sort of technological solution and know where every container should go, b) you need to move all the logistics around so that containers arrive in the correct order to get loaded in the correct spots.

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.

This is such a HN thread..

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'

Do you think that doesn’t happen? Police departments absolutely prioritize certain areas over others - Places where crime is unlikely to happen but should be dealt with swiftly, places where crime is very likely to happen and they have resources on-hand. The net losers tend to be “The Average Person”, for whom police response times in event of a burglary or domestic incident is measured in tens and fifteens of minutes rather than fives.

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.

I'm not an expert on ocean shipping by any means, but I would assume that cargo value is such a low priority when it comes to determine loading strategies that you would only need to optimize around a local area of maybe 100 containers. Which would not make it a hard problem at all but it could be pretty pointless depending on how many containers go overboard in a typical "lost container" event.

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?

A big search space is not a detriment to optimization. It just keeps you from reaching provable optimality, but doesn't keep you from saving on costs compared to doing nothing.

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.

> Or if you had an extremely heavy container, that should be loaded in the lower part of the ship for safety.

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

Oh, just because you can ignore some distinctions doesn't mean that you will.

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.

3 tons is tiny. An empty shipping container weighs at least 2 tons.

The actual ISO 668 limit seems to be 30 tons.

https://en.m.wikipedia.org/wiki/Intermodal_container

I guess that would mean they have to distinguish between containers when loading them onto the ship. That's probably difficult and more expensive for everyone.

I wonder when it becomes more economical to load top level containers with cheap goods and keep the multi-million-dollar containers somewhere safer.

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.

Loading is already very complex and takes special knowledge and more and more software to balance the ship and keep the loading-process efficient. Dangerous goods are separated from the quarters as much as possible for example. I'm sure the process already includes variables like value.

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.

Wow, this is sobering information. I shipped a car from the UK to the US several years ago. I purchased shipping insurance on the container and car. And watched nervously from afar as I tracked it online when possible. I had no idea there was any possibility I could have any liability for others losses. If I understand this correctly...

Can confirm this. The concept is not as weird as it sounds once you consider that the ship's captain is a naval officer who has duties and a social role roughly similar to that of a doctor. For any task related to navigating/operating the vessel (emergency or not), the captain's word is final and there are penalties for negligent behavior that are determined completely outside of the "corporate" chain of command. Decisions of whether or not to ditch a block of unstable containers are made with 0 interference from commercial interests.

The captain is also the one responsible for upholding the laws of whatever flag the vessel flies under.

> Decisions of whether or not to ditch a block of unstable containers are made with 0 interference from commercial interests.

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.

Sounds sort of like a post-hoc insurance plan. Everybody "pays in" by accepting the risk of lost cargo, and the payout averages out the losses on that individual ship. If a ship is large enough, then that may be sufficient spreading of the risk.

As a society we should vote for car insurance work this way too instead of feeding fraudulent car insurance industry.

Can you describe what exactly is wrong about the current car insurance industry? It sounds like this is exactly how car insurance currently works and it's a very regulated industry, perhaps only behind the financial industry and car manufacturing itself.

In the true market "ship" model you'd pay 1/10 of what you're paying now. In the government enforced model you're overpaying 10x+ fold.

I don't understand. My car insurance is run by a mutual organization and they don't collect 10 times more money for no reasons. If you reduce the income of the insurance, who is paying ?

Maybe OP is suggesting there’s a lot of fraudulent claims in auto insurance, or poor driving/maintenance practices that lead to more claims.

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.

I don't know how insurances work outside of Germany but processing insurance claims is the only thing where insurances can lose money so they will reward you for good driving/maintenance practices with lower fees. If you run a insurance company your goal is basically to become redundant. The best case scenario is to collect a monthly fee but never pay out any insurance claims. Fraudulent claims are pure losses so there is already a strong business incentive to avoid those.

I guess your tow truck drivers are more respectable than ours that cloned police’s pricey “encrypted” radios to get to accidents faster, charged insurecos hundreds for the tow, would add damage to cars and bring them to sketchy repair shops:

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.

> I guess your tow truck drivers are more respectable than ours that cloned police’s pricey “encrypted” radios to get to accidents faster, charged insurecos hundreds for the tow, would add damage to cars and bring them to sketchy repair shops:

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.

The bigger the risk that needs to be insured, the bigger the market for the insurers, and profits scale with the size of the market. Insurers are incentivised to minimise claims on their own policies, yes, but as a group they are perfectly happy with rules which increase the overall size and amount of claims, provided it affects everyone equally.

> 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.

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.

There's significant counterparty risk in that model. What happens when there is an incident and people don't have the money to pay up?

You seize their cargo.

You seize the lost 1800 containers?

The people who lost containers get paid compensation. If they don't want it, the shipping company doesn't care.

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.

Car insurance is an extremely competitive market which is the opposite of a monopoly. Food is also ‘mandated’ by basic biology but still ends up being available for cheap.

Yeah, $50 a month for liability insurance always felt like a really fair deal to me. Pleasantly tolerable fee for a day where my car hits black ice and physics takes the wheel

> Pleasantly tolerable fee for a day where my car hits black ice and physics takes the wheel

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.

What do you mean? In the EU every car insurance has to cover minimum 1 million euro in personal liability and 5 million in 3rd party liability. My own with Aviva covers 5 million euro for personal and 20 million for 3rd party. But car insurance typically doesn't pay healthcare bills since healthcare is nationalized, so it's very hard to imagine how payouts would be anywhere near those sums. You'd need to crash into multiple buggati veyrons to get close to the maximum liability limit. I'm paying £400/year.

> In the EU every car insurance has to cover minimum 1 million euro in personal liability and 5 million in 3rd party liability.

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...

>>Source on this? I've always understood you only needed third party insurance, and the EU website [0] seems to back this up.

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...

I'm not familiar with how EU/UK differentiates "personal liability" from "3rd party liability" and what all that entails. The parent said:

> $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.

I don't know about the rest of the EU, but for Germany at least, your assumption is dangerously wrong.

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.

Like I said in my other comment, my wording wasn't correct.

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.

Why would I care about the damage done to my car if I'm knowingly paying for liability only on a sub $2000 car? When physics takes the wheel, I can't control who else I hit and how fast

I apparently didn't catch the part of your previous remark where you alluded to the value of your car, but to be fair, the car insurance industry isn't both heavily regulated and immensely profitable because most people truly understand what they're buying, as a mandatory legal requirement more often than not.

Food is cheap and available in America -- the cheapest in the world as a fraction of income -- because of government intervention. For example, the continuous re-authorization of the Farm Bill means that corn is sold at below the cost to produce.

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...

1) Food is cheap and available in other countries without such government largesse

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.

Out of genuine curiosity which country do you think isn’t involved in their country’s food supply? I can’t imagine any government staying out of something so core to a nations id. I’m asking though, I’m not sure!

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.

[1] https://www.usda.gov/foodwaste/faqs

> Out of genuine curiosity which country do you think isn’t involved in their country’s food supply? I can’t imagine any government staying out of something so core to a nations id. I’m asking though, I’m not sure!

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.

Food is cheap and available in other countries without such government largesse BECAUSE the USA keeps costs down by being the breadbasket of the world and keeping continuous overproduction going.

Indeed in its most blatant form it's called dumping. [1]

[1] https://www.iatp.org/news/us-dumping-corn-in-canada-growers-...

Yes, though dumping is a bit of a silly concept.

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?)

Yes if dumping was a continuous practice then we'd all be living off the largess of the dumpers, but it's a temporary practice used to drive out competition before jacking up the prices once dominance is restored. De Beers provide an excellent case study in the application of this tactic.

That tactic never really works in big, open markets.

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.)

Farms are only getting a small fraction of the price of food (https://www.ers.usda.gov/data-products/price-spreads-from-fa...). When you combine this factor with your stat, it doesn't seem like subsidies are a significant factor in the price of food to individuals.

Bulk rice for example costs ~500$ per metric ton so 22 cents per lb for 1696 calories, removing a 25% subsidy bumps that to 29 cents. Even buying in “bulk” adds overhead, but you’re paying a premium on S&H not so much the food.

That’s roughly how people can live on “a dollar a day” you can get a days worth of food for well under 1$.

You are right that subsidies make up 25% of farm income, but that doesn't mean that food is anything like eg 25% cheaper than without subsidies.

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.

Quebec has quite an interesting system. Everyone must pay in the same national car insurance. You are unable to sue anyone for what happened to you on the road, if you get hurt, the insurance pays you a standard amount for the injury and that's it. So it overall reduce the burden on the court system and the insurance self-finance itself, there's no need for profits. Quebec has the lowest cost car insurance in Canada (and may be North America?)

Oh, interesting. I expect this is also easier in a country with single-payer health care. In the US, the majority of the cost of car insurance is for long-term medical care that may be needed after a crash.

NZ does the same thing for accident insurance of all kinds. Not perfect but generally works really well. The insurer does a huge about of work in accident prevention and even covers visitors accident, even ones like ski injuries.

Makes it really easy to do sport there and great for public health as a result.

> So it overall reduce the burden on the court system and the insurance self-finance itself, there's no need for profits.

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.

I have no idea what the comment you replied to had to complain about.

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.

But with cars it's different as the individuals are responsible for their action. Not some shipping company. Why should I pay for reckless/drunk drivers?

Car insurance plans often cover a lot more than just the driver’s own actions and mistakes. Common line items are insurance for personal injury and property damage caused by other uninsured drivers (because good luck getting your medical bills paid by garnishing the other person’s wages), and damage from weather, natural disasters, falling objects, animals, and vandalism.

When I ran my quotes, about 3/4 of the premium was for liability. The rest (fire; theft, fixing my car if it was my own fault, hail, etc) made up the balance.

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.

You still need insurance for liability.

Depends on the jurisdiction and its enforcement.

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.

> 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

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.

Yeah, a “total loss” to me is a fire where the car is worth $100 to a scrapper. To insurance, if every fender and bumper gets dented, it’s a total loss, but I’m happy to continue driving it, and it still has $2k+ in parts.

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).

> But with cars it's different as the individuals are responsible for their action. Not some shipping company. Why should I pay for reckless/drunk drivers?

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.

I'm part of an organization called CommonEasy that does this with sickness insurance. The group is a couple of hundred people that basically self-insure for up to two years of income loss. Ten bucks a month is for the organization, the rest is put in a savings fund. Should you leave, you take your savings with you.

> I'm part of an organization called CommonEasy that does this with sickness insurance. The group is a couple of hundred people that basically self-insure for up to two years of income loss. Ten bucks a month is for the organization, the rest is put in a savings fund. Should you leave, you take your savings with you.

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?

That's just self insurance, legal in most places with a few requirements. Most large car hire companies practice it.

What about insurance fraud? A container isn't going to jump off the ship so that it can collect from the others.

You sign a contract with a shipping company, and you can choose not to sign it. Can you choose not to use a country's road system?

> sort of like a post-hoc insurance plan

Actually a mutual insurance policy, since the insurers and insured are the same group of people.

Wouldn't it make more sense to pay the insurance up front, though? Or at least reserve money for it up front?

Depends on how well it's averaged. If you want to create a proper ex-ante insurance policy, you need underwriters, you need lawyers, you need adjusters, you need to determine premiums, collect premiums, pool the money, and then distribute it. These people all need to be paid, and so you must charge a premium over the actual cost.

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!

Why does doing it upfront require so many people, and doing it afterwards doesn't? You could just have a standard formula for upfront insurance?

Who's going to figure out how much to charge? :)

The standard formula?

Got a link? ;) Actuaries hate him!

Well the industry would have to make a one-time investment to determine the formula.

Upfront you don't know how much, if anything, will be lost.

But everybody knows the value of their goods?

Do you have a point? Because it sounds like you're suggesting regular insurance, which answers your original question.

But to take regular insurance, you don't need all those complicated things. I have for example a travel health insurance that only requires me to send a fixed amount of money to their bank account, instant insurance.

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.

> But to take regular insurance, you don't need all those complicated things. I have for example a travel health insurance that only requires me to send a fixed amount of money to their bank account, instant insurance.

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.

Why does it have to be a premium for getting 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.

> 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.

Not everyone involved needs to be trustworthy.

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.

If you have a million containers you’ll be transporting every year insuring all of them is pointless you may as well just be your own insurer and take the hit when things go wrong. It largely will work out cheaper as there is no middle man and you have loads of money from your successful business to dip into should you lose a few.

And you can reach out to a (re-)insurer to cover losses that exceed some threshold.

Doesn't matter who does the insuring (external company or shipping company itself), the point is still that it would be better to have the insurance up front, instead of this risk of additional costs of arbitrary height?

P&I clubs. Just learned about these a few days ago. Interesting part of the shipping industry I hadn’t heard about.

For more info on the nautical origins of the word "average," check out this episode of The History of English Podcast:

https://historyofenglishpodcast.com/2020/04/06/bonus-episode...

Interesting! I assumed “General Average” came from the mathematical sense, but it turns out it was the other way round. Etymonline has a good summary: https://www.etymonline.com/word/average

Sounds like a horrible idea since the insurance pool is limited to the size of the ship. Hopefully at least it’s averaged by value rather than number of containers so that if someone is shipping corn and a container of iPhones gets jettisoned they don’t get a bill for their life savings.

Yes, the idea is that everyone loses the same percentage of what they had (including the ship owner—the value of the ship before and after the incident is also included in the calculation). General Average long predates modern containerized shipping, so doing it by container count wouldn’t have been a thing anyway.

A larger pool would require more frequent payouts to other vessels, or collecting regular premiums.

Aren't there supposed to be some sort of insurance for this type of a thing?

Wikipedia traces the origins of General Average to 800 BC, so it rather predates the modern insurance industry—it’s basically a group insurance policy where you only have to pay the premium if something happens. Nowadays if you’ve insured your container that will also cover GA for the shipment, but if you shipped uninsured you have to pay it yourself.

That doesn't sound bad. If you ship a lot, you may save money on the insurance fees and only chip in in the event something actually gets lost. The insurance fees would obviously include the actual premiums (income) of the insurers, which you save the money on, so in the long term it should cost you less, shouldn't it?

Actually a pretty cool idea. Otherwise you'd have people bribing the captain to make them throw out their stuff last, increasing fare prices for everyone, but in a hidden way.

I mean if I have important or. valuable cargo, let’s say MacBook Pros, it seems efficient and beneficial to have some clothes thrown out first before my container.

If three people died trying to save your MacBook Pro, that'd be bad. Which is why the idea is based around not caring what's in a given container.

Not if they spend so long moving aside your laptops to find the clothing that the entire ship sinks. With General Average they can sort out the problem ASAP and then do the math later to repay you so that you and the clothing manufacturer both only lose 10% of your cargo’s respective values.

Couldn’t this just...still be happening? Wouldn’t this general average concept only provide better cover for a secret bribing system?

Indeed you can still bribe the captain for throwing someone else's cargo out, but that wouldn't bring you any benefits, except of some hassle. In the event of cargo being thrown out, you will have to pay your part of the loss, regardless of if it was your crate that was thrown out or someone else's. If it was your crate, you will get its value replaced (minus your part of the lost value ofc). As there is no damage, why would you want to bribe them?

Declare your cargo as hardly worth anything, then actually send gold bars, and bribe the captain...

Then the port mysteriously loses your cargo, and compensates you the full $500 you said it was worth.

Declare your cargo as being gold, then actually send lead bars, and bribe the captain to dump it.

That sounds weird, shouldn't the owner of the ship be responsible?

With this general average there is no incentive to the operator to operate safely. Spending time to properly securing containers, not overloading etc.

The rules only take effect if the loss was reasonably incurred. So declaring General Average opens up the operator to an investigation of the question, "was the cargo stowed according to industry standards".

See: https://comitemaritime.org/wp-content/uploads/2018/06/YAR-20...

Ah ok fair enough! Thanks for the explanation.

Additionally, there are many methods by which shipped goods are insured/paid/credited under Admiralty Law [0]. This part of law is particularly 'old' and traditional, so it's fairly complicated, but a fascinating thing to look into.

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.

[0] https://en.wikipedia.org/wiki/Admiralty_law

[1] https://en.wikipedia.org/wiki/Chartering_(shipping)

How does this work when one type of cargo is more valuable than others? If you lost a couple crates of bananas, and I lost a couple Ferraris, presumably you don't owe me a Ferrari now? :)

No, everyone else whose stuff survived owes me 90% of two crates of bananas and you 90% of a pair of Ferraris. (I should have edited in that it’s based on percent of value while I had a chance, this seems to have caused more confusion than I expected.)

I think the question should have been phrased “If your crate of bananas was recovered, and I lost a couple Ferraris, presumably you don't owe me a Ferrari now?”

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.

Yeah, I’m not doing a great job of explaining it but that’s more or less how it works. I think the way it actually happens is that the banana guy pays $499.50 and gets his bananas back, but that’s effectively the same thing. Also there are administrative costs and the value of this ship is also involved in the calculation, but that’s a bit in the weeds.

Makes sense, thanks!

This reminds me of the way exodus parties across deserts used to use a simple risk-sharing mechanism against potential theft/pirates. Put simply, it was agreed upon that those on the extreme ends of a migrating party were more vulnerable to attacks from desert pirates. So, they would be compensated by the rest of the group (in the case of any such events) for shouldering the riskier positions in their migration.

> surprise bill

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?

If you have insurance, yeah, they’ll take care of everything for you. But if you didn’t buy insurance for your container, imagine getting a letter that says “your container arrived safely, but you have to pay an extra $1,000 because some other peoples’ didn’t. Oh, also, that’s only an estimate that you have to pay a deposit on, it could take months to sort everything out and get an actual total.”

Reminds me of a Nassim Taleb talk I saw at a blockchain conference in 2018, where he talked extensively about Hammurabi's Law.

See:

- https://www.youtube.com/watch?v=Da0aXfshlxM and

- https://fs.blog/2017/11/hammurabis-code/.

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