The Cardano Black Box Series Part 3: R.M.S. Titanic

On 10 April 1912, R.M.S. Titanic left Southampton and embarked on her maiden voyage to New York. There were an estimated 2,224 people on board this White Star Line ship, of which 908 were crew members1. The first class was a floating luxury hotel enjoyed by some of the wealthiest people in the world while the third class was filled with emigrants looking for a better future in America. The American banker J.P. Morgan, owner of the White Star Line, was also planning to board the Titanic but cancelled his ticket two days before departure.

Titanic was the jewel of the industrial revolution, the most modern ship of its time, and nothing short of a modern marvel. She was the second ship in a line of three Olympic-class ocean liners built for White Star Line. Titanic was designed and built by the best shipyard in the world, Harland and Wolff in Belfast. With her 269-meter long and 28-meter wide hull, she was the largest man-made moving object ever built and her three engines delivered a top speed of 24 knots. No expense was spared in building R.M.S Titanic. As with most of White Star Lines ships, the Titanic was built on a cost-plus contract and featured the latest thinking in ship safety. Titanic and her sister ship, R.M.S. Olympic, were marketed as ‘unsinkable’.

There was fierce competition for the wealthiest passengers on the lucrative Atlantic route and Joseph Bruce Ismay, Chairman of White Star Line, understood the commercial value of Titanic winning the prestigious Blue Riband2 on her maiden voyage. Captain Eduard John Smith, an experienced veteran with a good track record, felt the pressure on his shoulders.

The first four days of her maiden voyage went smoothly without any noticeable events. The fire in the coal bunker that had been burning, without cause for concern, for ten days before departure had finally been put out. On the evening of 14 April, the sky was clear and the sea was calm. Titanic had two lookouts standing in the crow’s nest scanning the horizon for other ships and icebergs. The lookouts had to rely on their eyesight as no binoculars were issued. The radio operators had received ice-berg warnings from several other ships in the area, but those were largely ignored by the captain. The Titanic steamed ahead at 22 knots while her passengers and crew settled in for the night.


Save our souls

At 11:35 pm the lookout, Frederick Fleet, spotted an iceberg 400 meters ahead. He called the bridge and proclaimed “iceberg, right ahead!”. The engines were immediately reversed and the rudder turned hard left. There was not enough distance to clear the iceberg and 5 minutes later Titanic sideswiped the iceberg, damaging 91 meters of the hull and rupturing six of the sixteen watertight compartments. Thomas Andrews, the ship’s architect, inspected the damages and realised that he had made a design mistake the bulkheads separating the watertight compartments were not high enough. He told the Captain that he estimated that Titanic would sink within two hours and the Captain gave the order to abandon ship 25 minutes after the collision. The radio operators begun to send SOS and chaos broke out due to the crew not being drilled on lowering the lifeboats on this new ship.

At 2:20 am the once unsinkable ship had broken in half and disappeared below the surface. 1,500 people lost their lives in the dark and ice-cold Atlantic 600 km southeast off the coast of Newfoundland. Those who jumped into the water would die within approximately 30 minutes, but it would take almost two hours after Titanic went down before the Cunard liner RMS Carpathia arrived at the scene which rescued just over 700 survivors.

Titanic only had lifeboats for just over half of her passengers and crew on board. The code of conduct, was women and children first – more than 93% of women and children in the first and second class survived. In contrast, of the women and children in the third-class, only 42% survived. 80% of the men on the Titanic lost their lives. Captain Smith refused to leave his ship and so did the ship architect, Thomas Andrews. After safely getting his mistress a seat in a lifeboat, millionaire Benjamin Guggenheim told another passenger that he wouldn’t dream of using his powers and fame to win a place in a lifeboat. “Never forget that Benjamin Guggenheim died as a gentleman”. The Chairman of White Star Line, J. Bruce Ismay, was among the survivors. Many men who survived the Titanic were later considered cowards by the press and the public. Masabumi Hosono, the only Japanese survivor, was officially dubbed a coward in Japan and lost his government job for not going down with the ship.


How could the unsinkable ship sink?

There are many myths and theories on what happened that unfortunate night in 1912. Based on what is known today, there seems to be a chain of events leading up to the disaster. These events can be related to the construction of the ship, naval practices at the time and most importantly, the corporate culture of White Star Line.

Ship construction

Tests conducted on a piece of a hull plate salvaged from the wreak of Titanic showed that the steel contained high levels of oxygen and sulphur which made the steel brittle at low temperatures. A Charpy test was conducted in a laboratory simulating the ice-cold Atlantic. The Titanic steel broke in half, showing little deformation. Modern ship quality steel was heavily deformed in the same test, but did not break in two. In addition, the wrought iron rivets holding the hull plates together were also brittle and prone to snap, in the cold temperature. When the Titanic sideswiped the iceberg, it is thought that the hull plate cracked instead of buckling, and the brittle rivets around the edges of the hull plate may have snapped. It is also suggested that the fire in the coal bunker next to the hull of the ship had structurally weakened the steel where she struck the iceberg.

A critical design flaw of the Titanic was that the top of the bulkheads, separating the water tight compartments, did not rise more than a few feet over the waterline. As the front compartments were filling up with water, the water would spill over the bulkheads into the other compartments as the front of the ship pitched deeper into the sea. This design flaw increased the rate of sinking compared with not having any watertight bulkheads at all. A slower rate of sinking would have allowed the rescuing ships to arrive and safely evacuate passenger and crew before she sunk. For safety, Titanic was designed with a double bottom, but she only had a single wall on the sides.

Naval practices

Technology had developed rapidly, enabling naval architects to create very large ships that could steam ahead at more than 20 knots. But most of the naval practices were still from the time of the sailing ships. The lookouts consisted of two men in a crow’s nest scanning the horizon with their bare eyes. The basic early warning system left little time for manoeuvre as these massive ships moved at high speeds, particularly at night. The radio telegraphs were not operated 24/7 on most ships at the time. SS Californian, a nearby freight ship, had shut down its radio after stopping for the night due to icebergs. She did not hear the SOS signals that were relentlessly transmitted from Titanic’s radio room.


Culture and leadership

The crucial factor for the disaster could be found in the culture and leadership of White Star Line and the judgement of the captain. Titanic was designed to carry two rows of lifeboats, but just before the maiden voyage one row was removed to make the deck more aesthetically pleasing for its first-class passengers. With a lifeboat capacity around 50%, Titanic still exceeded the outdated British Board of Trade regulation at that time. The lifeboat drill that was scheduled to take place on the morning of 14 April was inexplicably cancelled by Captain Smith.

A ship considered unsinkable, an experienced Captain without a history of deadly accidents, a focus on pleasing first-class passengers and the commercial value of winning the Blue Riband on Titanic’s maiden voyage created a cultural cocktail that ultimately led Captain Smith to ignore the iceberg warnings and continued to steam ahead at 22 knots in the middle of the night. 1500 people, including himself, had to pay for this fatal decision with their lives.

International maritime regulation

As consequence of the Titanic disaster, the new regulation of Safety of Lives at Sea (SOLAS) came into force. This requires ships to have enough lifeboat capacity for everyone on board. Over time, the design specification for the bulkheads separating the water-tight compartments was added to SOLAS and double hull became the standard. Since World War II, welding has replaced riveting in ship building making the hull structurally stronger. Naval practices changed shortly after the accident – ships were mandated to have their radio manned 24/7 and the United States send ice patrols to study and observe the ice conditions in the North Atlantic. These changes have prevented many accidents and saved many lives. Despite modern regulations and technology, the corporate culture and judgments of the captain are still central to maritime security today.

100 years after the Titanic, on 13 January 2012, a cruise ship Costa Concordia capsized when hitting an underwater rock off the Italian island of Giglio. The accident was caused by Captain Francesco Schettino’s decision to depart from the fairway and sail very close to Giglio. The Captain, later nicknamed “Captain Coward” by the press, did not stay on the ship because he “slipped off the ship” and “fell into a lifeboat”.3 He left his crew and passengers, including his mistress, on board. Built in 2005, Costa Concordia was equipped with all the latest available technology, but as the U.S. Coast Guard master mariner and author John Konrad said, “All the technology in the world can’t replace a good captain.”


Lessons for the pension sector

The board of trustees are the captain of the scheme and they are accountable for the financial outcomes. The scheme captain might find themselves under pressure from the scheme sponsor, as much as Captain Smith felt the pressure from White Star Line.
A sponsor default is the proverbial iceberg for a DB scheme. Once it is obvious that the sponsor will default, it is too late to escape the problem. A good understanding of the sponsor covenant strength will act as an early warning system that will buy the trustees more time to react.

Certainly, regulations are important to safeguard scheme members and but we should not fool ourselves into believing that merely complying with regulations means that the members are safe. If Titanic would have just relied on the regulation of the time, it would carry even fewer lifeboats for her passengers and crew. We should keep this in mind next time when we discuss technical provisions and overly optimistic recovery plans.

Perhaps the most important lessons for DB schemes is that a sound risk culture at all levels is crucial. Approaching Integrated Risk Management (IRM) as a genuine learning exercise where carefully crafted scenario are used to identify and understand risks which will help the trustees to make better decisions. Steaming ahead with a fixed asset mix leaves little room for navigating in difficult financial times. To paraphrase John Konrad, all the theories and regulation in the world cannot replace a good board of trustees.

1. [From British Board of Trade report on the disaster]
2. [The Blue Riband was awarded the fastest passenger liner crossing the Atlantic Ocean in regular service]
3. [Source: Wikipedia]

Stefan Lundbergh, Director of Cardano Insights, is the co-author of this piece. He regularly speaks at conferences and writes pieces about the pensions industry.

Nicole Xu, Researcher, Cardano Insights, is the co-author of this article.