Shipping losses decline but ‘perfect storm’ looms - Allianz

Jun 16 2017

Large shipping losses have declined by 50% over the past decade, largely driven by development of shipowners’ more robust safety environment, according to Allianz Global Corporate & Specialty’s (AGCS) fifth annual Safety & Shipping Review 2017.

There were 85 vessels reported as total losses in 2016, down 16% compared with 101 a year earlier.

Last year set safety records in the sector with the lowest number of losses in the past 10 years, preliminary figures show. The number of shipping incidents (casualties) also declined slightly year-on-year, by 4% with 2,611 reported, according to the Allianz review, which analyses reported shipping losses of over 100 gt.

“While the long-term downward loss trend is encouraging, there can be no room for complacency,” said Baptiste Ossena, AGCS’ global product leader hull & marine liabilities. “The shipping sector is being buffeted by a number of interconnected risks at a time of inherent economic challenges.”

Environmental scrutiny is increasing with record fines for vessel pollution. New ballast water management rules that come into force in 2017 are welcomed, but the cost of complying could have a significant impact on an already-stressed shipping industry.

Political risk is increasing, with activity in hotspots, such as Yemen and the South China Sea having the potential to affect vessel routes. The threat of offshore cyber-attacks is also significant. “A ‘perfect storm’ of increasing regulatory pressure combined with narrowing margins and new risks is gathering,”Ossena warned.

More than a quarter of shipping losses last year (23) occurred in the South China, Indo-China, Indonesia and the Philippines region – the top hotspot for the last decade. Loss activity remained stable but was still almost double the East Mediterranean and Black Sea region (12), which was the next highest. Loss activity was also up in the Japan, Korea and North China; East African Coast; South Atlantic and East Coast South America; and Canadian Arctic and Alaska maritime regions.

Cargo vessels (30) accounted for more than a third of all vessels lost. The most common cause of shipping losses remains foundering, accounting for over half of all losses in 2016, with bad weather often a factor. Over a third of shipping casualties during 2016 were caused by machinery damage. This was also responsible for driving a 16% increase in incidents in the East Mediterranean & Black Sea region (563), enough to see it replace the UK, as the top incident location over the past decade. Piracy incidents worldwide and shipping incidents in Arctic Circle waters declined year-on-year. However, risk challenges remain, such as the rise in crew kidnappings in parts of Asia and West Africa and the impact of an expected increase in Polar transits.

“Crew negligence and inadequate vessel maintenance are two potential areas of increasing risk, particularly if shipowners opt to recruit crew with less experience and training, or choose to stretch maintenance work to the longest possible intervals in order to save money,” said Duncan Southcott, AGCS global head of marine claims. According to AGCS, negligence/poor maintenance is already one of the top causes of liability loss in the shipping sector and an increase in maintenance-related claims was seen. Implementing rigorous inspection and maintenance regimes is crucial, Allianz stressed.

Safety-enhancing technology is already impacting shipping – from electronic navigational tools through to shore-based monitoring of machinery and even crew welfare. Technology has the potential to significantly reduce both the impact of human error – which AGCS analysis showed accounted for around 75% of the value of almost 15,000 marine liability insurance claims over five years; equivalent to over $1.6 bill, plus machinery breakdown.

For example, telematics is already successfully deployed in the automotive sector, improving driver behaviour. The shipping sector could also benefit. Insurers, including AGCS, are in the early stages of working with shipowners to use voyage data recorder (VDR) analysis to improve safety. “VDR data is already used in accident investigation, but there are also important lessons to be learned from analysing everyday operations, as well as crew behaviour and decision-making in near-misses,” said Capt Rahul Khanna, head of marine risk consulting at AGCS. 

However, the issue of over-reliance on technology is ongoing and incidents continue to result, particularly around navigation. “Crews and officers must understand the shortcomings and limitations of technology,” said Capt Khanna. “Sometimes replacing common sense decisions with digital inferences is not such a good idea.”

The threat of cyber-attacks continues to be significant. Most attacks to date have been aimed at breaching corporate security rather than taking control of a vessel. “The shipping sector doesn’t have a particularly heightened risk awareness when it comes to cyber. As no major incident due to a cyber-attack has taken place yet, many in the industry are still complacent about the risks,” said Capt Khanna.

Other risk topics identified in the review, include:

  • Structural integrity of vessels: This remains an issue in the wake of a number of incidents and losses resulting from breaches in recent years, particularly concerning vessels that have been converted.
  • The potential for a $4 bill loss: Larger vessels, the rising cost of wreck removal, environmental sensitivities and greater liability and regulation means such a scenario may no longer be unlikely.
  • Autonomous shipping could be operating on fixed regional routes in the near future. Safety considerations will be crucial to development with concerns about collisions and challenges around regulatory and liability issues.  

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