Comcover
COMCOVER CONNECT
2015 I ISSUE 04
From Robert’s desk …
The end of the year is a busy time for all of us, but it provides an opportunity to reflect on the last 12 months.
The Commonwealth Risk Management
Policy has been in operation for nearly
18 months and, as more Commonwealth entities come to grips with it, there is a greater understanding of good risk practice.
Last month I presented at the Risk Management Institution of Australasia’s (RMIA) annual conference. The Adelaide Oval was an excellent venue and the quality of the presentations generally very high.
A common theme at the conference was that risk culture and risk appetite are universal concepts, regardless of whether an entity is public or private.
My presentation dealt with the public sector’s appetite for risk and how it is influenced by culture. Drivers for this behaviour include a general inability on the part of the public service to discuss or acknowledge when things go wrong or fail.
However, sometimes things don’t work and we can learn from that.
In a speech to the National Press Club last year, the now Prime Minister, the Hon Malcolm Turnbull MP, said one of the public service’s biggest challenges was overcoming: ‘A culture where the penalties for failure are vastly out of proportion to the rewards for success.’
As public servants know, cost savings rarely, if ever, make newspaper headlines, but cost overruns do. But not taking risks is a risk in itself—it is a well-known legal principle that failing to do something can be as negligent as actively doing something.
Failure can be useful if we learn from it and share the reasons for it. We should allow ourselves to take risks, and even fail—but fail quickly at a low cost and learn from those failures.
In that sense, it is about differentiating between blameworthy failure and praiseworthy failure.
Blameworthy failures are mistakes that result from a lack of attention to detail, administrative incompetence or poor
Comcover, the Australian Government’s self- managed insurance fund, provides insurance and
risk management services to the government sector. Comcover was established in 1998 and is administered by the Department of Finance.
process. Praiseworthy failures result from innovating and taking deliberate risks in line with the organisation’s appetite and tolerance for risk.
To do this, entities and the people within them need to know how to take risks and innovate and possibly fail. That means improving the way we identify and explain our appetite for risk.
Linked to this is the need for a positive risk culture that promotes a proactive approach to managing risk and looks at threats and opportunities. If the culture is right, when failures occur the organisation examines the underlying causes and applies controls to lessen the impact of that risk in the future.
Award winners highlighted
Two Fund Members that demonstrate positive risk cultures were winners of Comcover’s 2014 Awards for Excellence in Risk Management—the Australian Maritime Safety Authority (AMSA) and the Department of Defence.
Both teams presented at the RMIA conference, talking about their achievements and how they got there. The previous issue of Comcover Connect highlighted Defence’s Counter Improvised Explosive Devices Taskforce that is saving the lives of soldiers and civilians.
This issue profiles AMSA’s work in saving lives at sea by reducing cargo liquefaction (see pages 2-4).
Risk is in the air
I would like to share with you an example from the aviation industry that relates to risk culture.
The November issue of Boss magazine featured an interview with the CEO of Virgin Airlines Australia, John Borghetti, who referred to a corporate ‘atmosphere’ or ‘feeling’ he wanted
to create. Mr Borghetti led from the front by providing his contact details to every pilot when he first started in the job and inviting them to contact him to discuss any issue.
He said: ‘If they’re calling to waste my time, I’ll tell them. If they’re calling with information, I’ll be grateful.’
I echo his sentiment. Please feel free to contact me about issues of concern to you and your organisations. I can be contacted on (02) 6215 1628 or at .
On behalf of everyone at Comcover, I wish you and your families a safe and happy Christmas and New Year.
Robert Antich | Assistant Secretary
Risk, Insurance and Special Claims (Comcover) Department of Finance
W: www.comcover.com.au E: T: 1800 651 540
Risk management saves lives at sea
The Australian Maritime Safety Authority (AMSA) has used a strategic risk management approach to improve shipping practices, helping to ensure Australia’s mineral exports are transported safely.
AMSA’s work was recognised at the 2014 Comcover Risk Management Awards for Excellence where the entity won the risk initiative category.
Australia is the largest exporter of iron ore, exporting about
613 million tonnes a year—half the world’s production. Australia relies almost exclusively on shipping to export mineral resources.
The liquefaction of bulk-ore cargoes is an extreme risk that can occur during transportation when iron-ore fines come into contact with moist air or water. Combined with vibration, that results in a loss of cohesion between the ore particles.
The ore changes its characteristics and acts like a liquid, potentially destabilising a vessel and causing it to capsize, often suddenly.
From 2009 to 2013, 70 lives were lost and nine ships sank due to cargo liquefaction by a range of minerals, including iron ore.
AMSA’s key priorities are maritime safety, protecting the marine environment and ensuring the safety of ships and crew—summarised in its vision statement: Safe and clean seas, saving lives.
Recognising the challenges and risks of liquefaction of iron- ore fines, AMSA adopted a risk management approach to improve shipping practices to help ensure safe transportation of Australia’s major mineral exports.
AMSA has taken a lead role to highlight the risk to the international maritime community; develop better testing, shipping and handling processes; and ensure the processes were implemented.
AMSA identified critical concerns in addressing the problem:
• Regulatory bodies disagreed on cargo properties.
• There were no tests that could accurately determine
if a particular iron-ore fine would liquefy and material properties were not understood.
• Insurers applied their own requirements unilaterally to address perceived risk.
• There was inconsistent application of ineffective controls by different countries.
• Seafarers’ lives were being put at risk and fatalities were occurring.
AMSA needed to convince the international maritime community of the need to recognise that iron-ore fines posed specific hazards when shipped; existing testing requirements were inadequate and burdensome; and there was an urgent
need to implement a new approach to protect lives.
AMSA was aware that advancing changes to international maritime handling and shipping practices for mineral ores could take years.
AMSA established a technical working group led by Australia and worked with the International Maritime Organization
(IMO) Secretariat, insurers, industry bodies, international iron ore producers and critical member countries (Brazil being the most important) to develop a research and consultation path
to build knowledge and identify effective controls.
The research led to better understanding of the mechanics of liquefaction of mineral ores and development of a ‘real-world test’ that is accurate, reliable, and can be easily conducted on bulk-ore cargoes.
AMSA mobilised an international team of stakeholders to build support for proposed changes with other administrations and persuade IMO to allow early implementation.
The IMO Secretary General described the effort and activity to establish requirements for safe carriage of iron-ore fines as unprecedented.
A key benefit of improved handling and transit processes has been the immediate enhancement of safety for seafarers and vessels. Only one ship carrying iron-ore fines has foundered since improved shipping and handling practices were adopted.
The benefit to Australia’s resources sector is significant. The work has ensured 613 million tonnes of cargo has regulatory certainty at national and international levels. It has reduced uncertainty and costs associated with transport, including insurance premiums, ensuring a level commercial playing
field for a vital Australian commodity and financial contributor to Australia’s economy.
AMSA’s work has fostered a greater sense of cooperation between nations and increased cooperation between industry and the Australian Government. Industry stakeholders now have a greater understanding of IMO processes, how they
can influence outcomes, and how they can support AMSA representations through technical, scientific, commercial and market research.
Another major benefit is that research conducted during the project is relevant to all ore bodies shipped in bulk, such as coal and bauxite, ensuring greater risk mitigation and better safety and economic outcomes for countries that rely on the mineral resources sector.
AMSA embarks on myth busting
Myth busting was the key challenge for the Australian Maritime Safety Authority’s (AMSA) Ship Safety team when it embarked on a program to save lives by stopping ships sinking because of liquefaction of mineral cargoes.
Alex Schultz-Altmann, AMSA’s Manager, Ship Inspection and Registration (Ship Safety), said in an interview with Comcover Connect, there was a common assumption iron ore was a
‘group C’ cargo—supported by its category in the mandatory International Maritime Solid Bulk Cargoes Code—which meant it was not subject to liquefaction. The assumption was wrong, but it was a complex process to dispel the myth.
Mr Schultz-Altmann likens ore liquefaction to beach sand, which changes its properties the closer you are to the water line. ‘Iron ore is fine and granular when it’s dry. At the wet dry stage, it supports a lot of weight. Then, as the water pressure wells up, you sink and it moves easily.’
Simplistically, that is what can happen to iron ore when you add water. Its density changes, it liquefies and that can cause a bulk carrier to list or overturn.
Iron ore’s propensity to liquefy was a surprise but, once the AMSA team understood that, it needed the science to prove it. Initially there was some industry pushback because of a fear of unnecessary over-regulation.
Mr Schultz-Altmann and his team worked with industry to develop a ‘real-world test’ that could be calibrated against large-scale, detailed laboratory testing to determine the threshold moisture level (TML) and safe benchmarks to carry specific mineral cargoes.
‘We can discount cargoes that won’t liquefy and therefore do not need testing. For other ores, we err on the side of caution. The test is quite conservative,’ he said. ‘The TML tests are repeatable, we know it works, and we can prove it. It is almost fail-safe.’
The mineralogy of iron ore is assessed and, where necessary, it is now routinely tested to determine its TML before it goes into stockpiles awaiting shipment.
While the process was developed, AMSA worked concurrently with members of the International Maritime Organization (IMO), with the assistance of Australian industry, to have
the test and associated science accepted globally. At first, Brazil, another major iron ore exporter, was resistant. After discussions with AMSA officers Brazil agreed to a joint research programme and, once the science was verified
by the Imperial College in London, the mood shifted from loggerheads to agreement, with active support internationally for the test and revised carriage requirements.
‘AMSA worked with the IMO on building a co-operative approach with stakeholders,’ Mr Schultz-Altmann said.
It required more than just understanding the science; it had to be implemented in a practical way. ‘The international industry and governmental co-operative effort was quite spectacular,’ he said.
After iron ore, the global co-operative approach moved to manganese ore, which was dealt with relatively simply and quickly.
Coal was next with research indicating that of 105 Australian and international grades tested, only 14 posed no liquefaction risk. A greater number of coal exporters and varied coal blends mean the process is more complex than for iron and manganese ores.
But Mr Schultz-Altmann is confident there will be a
recommendation by September 2016 to change the IMSBC Code requirements for shipping coal. The recommendation would then go to IMO’s safety committee for finalisation.
Ship owners’ mutual insurers, known as protection & indemnity clubs, are supporting the process and providing technical advice to regulatory authorities that are ‘struggling’. The environment is now a lot more collaborative than when the process started in 2012.
The AMSA Ship Safety team’s next target is bauxite. On 1
January 2015, the Bulk Jupiter sank off the Vietnamese coast while transporting 46,400 tons of bauxite from Malaysia to China. Only one of the 19 crew was rescued.
Mr Schultz-Altmann says not all bauxite is prone to liquefaction, ‘it depends on the material’s mineralogical properties, essentially what it’s mixed with’. Australia is one of the world’s largest shippers of bauxite but research has shown materials currently shipped from Australia do not
have a risk of liquefaction. However, work is ongoing as other miners consider exporting.
The AMSA team is gaining a greater understanding of bauxite and was successful, with the cooperation of international partners and industry, in having a correspondence group established at IMO to examine solutions to be presented at the IMO Carriage of Containers and Cargoes subcommittee’s next meeting.
Mr Schultz-Altmann says industry has been very active and supportive in the process. Initial fears AMSA and its international partners were creating barriers to trade have been allayed by a realisation that understanding the risk (including being able to determine the TML of material) and putting controls in place makes ships safer, which saves lives and reduces the risk of higher insurance premiums.
Despite having the backing of proven science, AMSA and other stakeholders had to engage in high-level diplomacy, which occurred at three levels: competent authorities, that is, the countries’ regulatory organisations that classify bulk cargoes and approve shipping methodologies; government- level foreign affairs and trade portfolios; and industry engagement.
‘We needed to structure the message so it was the same at all three streams,’ Mr Schultz-Altmann said.
He says a key factor in AMSA winning the risk management award was the speed with which it was able to achieve such a complex, global agreement.