Estimated incident cost savings in shipping due to inspections
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The effectiveness of safety inspections of ships has been analysed from various angles, but until now, relatively little attention has been given to translate risk reduction into incident cost savings. This paper provides a monetary quantification of the cost savings that can be attributed to port state control inspections and industry vetting inspections. The dataset consists of more than half a million ship arrivals between 2002 and 2007 and contains inspections of port state authorities in the USA and Australia and of three industry vetting regimes. The effect of inspections in reducing the risk of total loss accidents is estimated by means of duration models, in terms of the gained probability of survival. The monetary benefit of port state control inspections is estimated to range, on average, from about 70 to 190 thousand dollars, with median values ranging from about 20 to 45 thousand dollars. Industry inspections have even higher benefits, especially for tankers. The savings are in general higher for older and larger vessels, and also for vessels with undefined flag and unknown classification society. As inspection costs are relatively low in comparison to potential cost savings, the results underline the importance of determining ships with relatively high risk of total loss. Highlights ► Incident cost savings due to ship inspections are quantified in monetary terms for five ship types. ► The data are a unique combination of more than half a million ship arrivals with insurance values. ► Insured values comprise hull and machinery, cargo, and third party and pollution liabilities. ► Port state control inspections save on average 70–190,000 dollars (median: 20–45,000 dollars). ► Savings are higher for older and larger vessels, and undefined flag and classification society.