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Examining AGCS’s 2021 Safety And Shipping Review Loss Trends And Risk Challenges For Maritime Sector - The Revealer
Insurance

Examining AGCS’s 2021 Safety And Shipping Review Loss Trends And Risk Challenges For Maritime Sector

Allianz Global Corporate & Specialty Safety (AGCS) Safety and Shipping Review identifies loss trends and highlights a number of risk challenges for the maritime sector. We bring you details of the report below.

The international shipping industry is responsible for the carriage of around 90% of world trade so the safety of vessels is critical. The sector continued its long term positive safety trend through 2020 with the number of reported total losses of over 100GT remaining stable at 49 compared with 48 a year earlier. This means annual shipping losses have halved over the past decade (2011 – 98), although 2020 represented the first time in five years that losses have not declined, suggesting the loss total could be stabilizing around the minimum achievable level.

The 2020 loss year represents a significant improvement on the rolling 10-year loss average (88), reflecting the positive effect of an increased focus on safety measures over time, such as regulation, improved ship design and technology, and risk management advance.

South China, Indochina, Indonesia and the Philippines is the global loss hotspot, accounting for a third of all losses in 2020 (16), with incidents up slightly year-on-year (2019: 14). The East Mediterranean and Black Sea (7) and Arabian Gulf (4) regions saw significant increases in loss activity to rank second and third. South-East Asian waters are also the major loss location of the past decade (224 incidents), driven by a number of factors including high levels of local and international trade, congested ports and busy shipping lanes, older fleets and extreme weather exposure. Together, South China, Indochina, Indonesia and Philippines, East Mediterranean and the Black Sea, and Japan, Korea and North China maritime regions account for half of the 876 shipping losses of the past 10 years (437).

Cargo vessels accounted for more than a third (18) of all vessels lost in 2020. The number of losses involving cargo and passenger vessels increased year=on-year.

Analysis shows cargo vessels account for 40% of total losses over the past decade (348). Foundered (sunk/submerged) was the main cause of total losses during 2020, accounting for one in two. Contributing factors include bad weather, poor visibility leading to contact, flooding and water ingress and machinery breakdown. The number of fires/explosions resulting in total losses of vessels increased again year-on-year, hitting a four-year high of 10. Collectively, foundered (sunk/ submerged) (54%), wrecked/stranded (20%) and fire/explosion (11%) are the top three causes of total losses over the past decade, accounting for 85%.

The number of reported shipping casualties or incidents declined slightly from 2,818 to 2,703 in 2020 or by around 4%. The British Isles, North Sea, English Channel and Bay of Biscay region saw the highest number of reported incidents (579) although this was down year-on-year. Machinery damage/failure was the top cause of shipping incidents globally, accounting for 40%.

The East Mediterranean and Black Sea region has seen the most shipping incidents over the past decade (4,556).

Of the 26,000+ incidents over the past decade, more than a third (9,334) were caused by machinery damage or failure – over twice as many as the next highest – collision.

Covid-19 Factors On Global Marine Trade

Despite the devastating economic impact of Covid-19, the effect on maritime trade has been less than first feared, demonstrating the resilience of the shipping industry. Global seaborne trade volumes declined only by around 3.6% in 2020, and are on course to surpass 2019 levels this year.

While the cruise industry and the car carrier segment have been worst affected by the pandemic, the industry’s three largest markets – tankers, bulkers and containers – have been quick to recover. Global container throughput in the first months of 2021 exceeded pre-pandemic levels.

However, the recovery is volatile and dependent on the success of vaccinations and the ongoing effects of the pandemic. Surges in demand for goods combined with Covid-19-related delays at ports and shipping capacity management problems have led to congestion at peak times and a shortage of empty containers, particularly in Asia, highlighting the need for effective backhaul of empty containers in the shipping sector. The global nature of the sector, and the lack of spare capacity within it, means problems in one region can have ripple effects around the world. In June 2021 it was estimated that there was a record total of 300 freighters awaiting to enter overcrowded ports.

The crew change situation is a humanitarian crisis that continues to have a major impact on the health and wellbeing of seafarers. In March 2021, it was estimated that some 200,000 seafarers remained onboard vessels with a similar number urgently needing to join ships to replace them. Extended periods at sea can lead to mental fatigue and poor decision making, which ultimately impact safety. Crewing issues came under the spotlight in the wake of the Wakashio incident in July 2020 when the vessel ran aground off the coast of Mauritius, spilling oil in the process.

With so many crew members stuck onboard vessels there are serious concerns for the next generation of seafarers.Covid-19 is impacting training and development and the sector may struggle to attract new talent due to working conditions. Any shortage could impact the surge in demand for shipping as the economy and international trade rebound.

Overall, Covid-19 has had only a limited impact on marine claims to date. Hull insurance has seen a little direct impact.

Marine liability insurers are expected to face passenger liability claims from cruise ships. Cargo insurers have seen an uptick in perishable goods claims. However, the surge in demand for shipping, coupled with the pandemic, has put shipyards under pressure. There is an increased cost of hull and machinery claims due to delays in the manufacture and delivery of spare parts, as well as a squeeze on available shipyard space. The costs of salvage and repairs have also increased. Potentially, insurers could see an uptick in machinery breakdown claims if Covid-19 has affected crews’ ability to carry out maintenance or follow manufacturers’ protocols. Machinery breakdown claims could arise from the reactivation of the cruise ship industry if maintenance protocols have not been followed – there have also been fires onboard vessels in lay-up.

26,000 shipping incidents over the past decade

The blocking of the Suez Canal by the Ever Given container ship in March 2021 is the latest in a growing list of incidents involving large vessels. Container ships, car carriers and bulk carriers have grown larger in recent decades as shipping companies seek economies of scale and fuel efficiency, a trend that is likely to continue with environmental pressures. Despite the Covid-19 pandemic, ever-larger vessels are on order.

Larger vessels present unique risks. Responding to incidents is more complex and expensive. Port facilities and salvage equipment to handle large ships are specialized and limited. Approach channels to existing ports may have been dredged deeper and berths and wharfs extended to accommodate large vessels but the overall size of ports has remained the same. If the Ever Given had not been freed, salvage would have required the lengthy process of unloading some 18,000 containers, requiring specialist cranes.

The wreck removal of the large car carrier, Golden Ray, which capsized outside the US port of Brunswick with more than 4,000 vehicles on it in 2019, has taken well over a year and cost several hundreds of millions of dollars.

The number of fires onboard large vessels has increased significantly in recent years. There was a record 40 cargo-related fires or one every 10 days in 2019. In 2020, the number of incidents declined slightly but was still above the average. Vessel size has a direct correlation to the potential size of the loss. Car transporters/RoRo and large container vessels are at higher risk of fire with the potential for greater consequences should one break out.

Container ship fires often start in containers, which can be the result of non-declaration or misdeclaration of hazardous cargo, such as self-igniting charcoal, chemicals and batteries. When mis-declared, these might be improperly packed and stowed on-board, which can result in ignition and/or complicate detection and firefighting.

The other contributing factor is the fire detection and fighting capabilities relative to the size of the vessel.

Major incidents have shown container fires can easily get out of control and result in the crew abandoning the vessel on safety grounds, thus increasing the size of the loss. An International Union of Marine Insurance working group on container ship fire safety is working on a draft of recommendations to the International Maritime Organization (IMO) in respect of improved fire detection and firefighting capabilities onboard container ships.

Other industry organizations are also taking action. The problem of mis-declared cargo is not so easily addressed because the problems are often within the supply chains. Container losses at sea also spiked last year and have continued at a high level in 2021, disrupting supply chains and posing a potential pollution and navigation risk. The number of container losses is the worst in seven years.

More than 3,000 containers were lost at sea in 2020, while more than 1,000 alone fell overboard during the first months of 2021. This compares with an average of just 1,382 containers lost each year from around 6,000 container vessels in operation. The rise in container losses may be driven by a combination of factors, such as larger ships, more extreme weather and a surge in freight rates and mis-declared cargo weights (leading to container stack collapse) and the surge in demand for consumer goods. There are growing questions for how containers are secured onboard ships.

There have also been a number of losses involving very large ore carriers (VLOCs), particularly converted ones. VLOCs can pose a higher than usual exposure due to the risks of cargo liquefaction, structural failings and the added challenge of salvage and wreck removal. Repeated deviations from the cargo loading plan can lead to structural fatigue in the long term and result in catastrophic consequences.

The environmental Situation

Since January 1, 2020, the cap on the sulphur content of ships’ fuel was cut to 0.5% (from 3.5%). Known as IMO 2020, the mandatory limit is expected to reduce emissions of harmful sulphur oxide (SOx) emissions from shipping by 77%. To date, the transition to low-sulphur shipping has been smoother than many predicted, although insurers have seen a number of machinery damage claims related to scrubbers, which remove SOx from exhaust gases for vessels using heavy marine fuel, and arising from the use of “blended” low-sulphur fuels. In some cases, the use of low-sulphur fuels has led to severe damage, and some significant claims from the cost of repairs and loss of earnings because critical spare parts were not available.

Arctic shipping continues to gather momentum. In the last five years, cargo traffic along the Northern Sea Route (NSR) has grown almost fivefold, reaching 33mn tons in 2020 and it is predicted that this could increase to 100mn tons by 2030. However, climate change concerns may hamper further development. A growing number of companies have pledged not to ship goods through the Arctic Ocean on environmental grounds.

Sailing in Arctic waters poses a number of risks, including unpredictable and extreme weather conditions, long periods of darkness, and the remoteness of routes from infrastructure and emergency response services. In the

event of an accident, the cost of salvage and environmental impact could be considerably higher than in non-Arctic waters. Analysis shows there were 58 reported shipping incidents in Arctic Circle waters during 2020 – up by 17 year-on-year and the highest total for three years.

The international shipping industry produced just over one billion tons of greenhouse gases (GHG) in 2018, almost 10% more than in 2012. Today’s existing fleet and technology will not get the shipping industry to the IMO’s GHG target of a 50% cut in emissions by 2050. Meeting these targets will require substantial investments in research and development and big changes in ship design and propulsion, which will have implications for risk and supply chains. Ships will be significantly different in 20 years’ time. However, an understanding of risk needs to be key to the transition to low-carbon shipping. As seen with large container ships, advancements that do not focus on risk can lead to unintended consequences.

Delay, supply chain and port risk accumulation issues

Maritime supply chain resilience is in the spotlight after a series of recent events. The Ever Given incident sent shockwaves through global supply chains that are critically dependent on seaborne transport with the repercussions lasting for months. It compounded delays and disruption already caused by trade disputes over the past year, extreme weather in the US and, of course, the fact the shipping industry was already dealing with the disruption caused by the pandemic and surges in demand for containerized goods and commodities.

Recent years have also seen major delays to shipping from floods and droughts on key inland shipping routes, including the Mississippi in the US and Rhine in Europe. Climate change volatility is increasingly impacting shipping. Going forward, the shipping industry needs to be more proactive in addressing and mitigating the impacts of extreme weather. More accurate weather forecasting and technology will help shipping companies plan ahead and take action to avoid losses, such as to delay departure, seek shelter, or reroute to an alternative port.

Potential claims scenarios resulting from delays and disruptive weather include spoilage of refrigerated cargoes in container shipments, hull claims from bulk shipments where vessels face longer waiting times at anchor because of high water levels and flooding of stock in RoRo shipments from storms if primary storage areas are at maximum capacity.

Impact of Political Risks on Maritime Transport

Political risks are also impacting maritime transport and supply chains  In 2020, a trade dispute between China and Australia resulted in more than 60 vessels being stranded at sea for up to nine months, unable to deliver their cargoes of thermal coal and unable to change crew.

Conflicts in the Middle East and piracy in Africa also continue to threaten. Last year’s devastating explosion at the port of Beirut in Lebanon in August 2020 added to industry concerns over the storage of hazardous goods and concentrations of risk at ports. Ammonium nitrate, which caused the explosion, is a widely used chemical and can be found in ports and warehouses across the world. However, it should be stored away from combustible materials and away from populated areas or critical services. The explosion, which resulted in the total losses of at least three vessels in the port – together with the Tianjin explosion in China in 2015 – also highlight the concentrations of risk in the world’s largest ports. Beirut is a major gateway to the Middle East, processing around two-thirds of Lebanon’s external trade. Meanwhile, the EU, the US and China have billions of dollars of trade flowing through their ports every quarter. Such exposure in a busy port can have huge consequences. And for insurers, this represents a massive accumulation of risk that requires modelling.

Security and sanctions concerns mount

The Gulf of Guinea has emerged as the world’s piracy hotspot, accounting for over 95% of crew numbers kidnapped worldwide in 2020. Last year, 130 crew were kidnapped in 22 separate incidents in the region – the highest ever – and the problem has continued in 2021.

Vessels are being targeted further away from the shore – over 200 nautical miles (nm) from land in some cases. The Covid-19 pandemic could exacerbate piracy as it is tied to underlying social, political and economic problems, which could deteriorate further. Former hotspots like Somalia could even re-emerge.

The crippling ransomware attack against the Colonial oil pipeline in the US in May 2021 should be a wake-up call for the maritime industry. As a critical part of the global supply chain, the shipping industry could increasingly become an attractive target for criminals and politically motivated attacks. All four of the world’s largest shipping companies have already been hit by cyber-attacks.

Shipping and logistics firms experienced three times as many ransomware attacks last year as in 2019. Geopolitical conflict is increasingly played out in cyberspace.

Recent years have seen a growing number of GPS spoofing incidents, particularly in the Middle East and China, which can cause vessels to believe they are in a different position than they actually are. Concerns have been growing about a potential cyberattack on critical maritime infrastructures, such as a major port or shipping route. Although an accident, the Suez Canal blockage shows the disruption a momentary loss of propulsion or steering failure can cause. Increased awareness of – and regulation around – cyber risk is translating into uptake of cyber insurance by shipping companies, although mostly for shore-based operations to date.

The burden of international sanctions continues to rise, posing both a compliance and safety risk. In a worrying development, some vessels have been switching off Automatic Identification Systems (AIS) as they seek to hide their location and defy US sanctions. This can obviously have a detrimental impact, given the potential for a serious incident to occur, such as a collision.

 

Edet Udoh

We are The Revealer, a general online news platform based in Nigeria. Our focus amongst others is to provide credible, factual, well researched and balanced news and articles for our teeming readers in business, governments, politics, engineering, science, religion, technology etc. Edet Udoh is the Managing Editor. He is an experienced media person. He has worked extensively with the Champion Newspapers, The Authority Newspapers and the Blueprint Newspaper before starting Revealer Online News platform in 2018. He can be reached with this email address: edetudoh2003@gmail.com or via these phone numbers 08061246427 and 08170080488

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