Shipping sector in complacency warning amid record total loss figures

While the global shipping industry saw a record low in the number of total losses, there are dire warnings that a range of risks still threaten the safety of both vessels and crews.

Allianz Global Corporate & Specialty (AGCS), the marine insurance specialist insurance operation of the Allianz group has issued its Safety & Shipping Review 2022, which warned the growing number of costly issues involving larger vessels, crew and port congestion challenges resulting from the shipping boom, and managing challenging decarbonization targets, means there is no room for complacency.

“The shipping sector has demonstrated tremendous resilience through stormy seas in recent years, as evidenced by the boom we see in several parts of the industry today,” said Captain Rahul Khanna, global head of marine risk consulting at AGCS. “Total losses are at record lows – around 50 to 75 a year over the last four years compared with 200+ annually in the 1990s. However, the tragic situation in Ukraine has caused widespread disruption in the Black Sea and elsewhere, exacerbating ongoing supply chain, port congestion, and crew crisis issues caused by the Covid-19 pandemic.

“At the same time, some of the industry’s responses to the shipping boom, such as changing the use of, or extending the working life of, vessels also raise warning flags. Meanwhile, the increasing number of problems posed by large vessels, such as fires, groundings and complex salvage operations, continue to challenge ship owners and their crews.”

The annual AGCS study analyses reported shipping losses and casualties (incidents) over 100 gross tons. During 2021, 54 total losses of vessels were reported globally, compared with 65 a year earlier. This represents a 57% decline over 10 years (127 in 2012), while during the early 1990s the global fleet was losing 200+ vessels a year. The 2021 loss total is seen as more impressive by the fact that there are an estimated 130,000 ships in the global fleet today, compared with some 80,000 30 years ago.

According to the report, there have been almost 900 total losses over the past decade (892). The South China, Indochina, Indonesia, and the Philippines maritime region is the main global loss hotspot, accounting for one-in-five losses in 2021 (12) and one-in-four-losses over the past decade (225), driven by factors including high levels of trade, congested ports, older fleets, and extreme weather. Globally, cargo ships (27) account for half of vessels lost in the past year and 40% over the past decade. Foundered (sunk/submerged) was the main cause of total losses over the past year, accounting for 60% (32).

While total losses declined over the past year, the number of reported shipping casualties or incidents rose. The British Isles saw the highest number (668 out of 3,000). Machinery damage accounted for over one-in-three incidents globally (1,311), followed by collision (222) and fires (178), with the number of fires increasing by almost 10%.

“The shipping industry has been affected on multiple fronts by Russia’s invasion of Ukraine, with the loss of life and vessels in the Black Sea, disruption to trade, and the growing burden of sanctions,” explained the report. “It also faces challenges to day-to-day operations, with knock-on effects for crew, the cost and availability of bunker fuel, and the potential for growing cyber risk.

“The invasion has further ramifications for a global maritime industry already facing shortages. Russian seafarers account for just over 10% of the world’s 1.89 million workforce, while around 4% come from Ukraine. These seafarers may struggle to return home or re-join ships at the end of contracts. Meanwhile, a prolonged conflict is likely to have deeper consequences, potentially reshaping global trade in energy and other commodities. An expanded ban on Russian oil could contribute to pushing up the cost of bunker fuel and impacting availability, potentially pushing ship owners to use alternative fuels. If such fuels are of substandard quality, this may result in machinery breakdown claims in future. At the same time, security agencies continue to warn of a heightened prospect of cyber risks for the shipping sector such as GPS jamming, Automatic Identification System (AIS) spoofing and electronic interference.”

“The insurance industry is likely to see a number of claims under specialist war policies from vessels damaged or lost to sea mines, rocket attacks and bombings in conflict zones,” explained Justus Heinrich, global product leader, marine hull, at AGCS. “Insurers may also receive claims under marine war policies from vessels and cargo blocked or trapped in Ukrainian ports and coastal waters.”

Fire on board vessels continue to be a major concern according to the report.

During the past year, fires on board the roll-on roll-off (ro-ro) car carrier Felicity Ace and the container ship X-Press Pearl both resulted in total losses.

There have been over 70 reported fires on container ships alone in the past five years, the report said. Fires often start in containers, which can be the result of non-/mis-declaration of hazardous cargo, such as chemicals and batteries – around 5% of containers shipped may consist of undeclared dangerous goods. Fires on large vessels can spread quickly and be difficult to control, often resulting in the crew abandoning ship, which can significantly increase the final cost of an incident.

“When large vessels get into trouble, emergency response and finding a port of refuge can be challenging,” warned AGCS. “Specialist salvage equipment, tugs, cranes, barges and port infrastructure are required, which adds time and cost to a response. The X-Press Pearl, which sank after it was refused refuge by two ports following a fire – the ports were unable or unwilling to discharge a leaking cargo of nitric acid – is one of several incidents where container ships have had difficulty finding a safe haven. Meanwhile, the salvage operation for the car carrier Golden Ray, which capsized in the US in 2019, took almost two years and cost in excess of $800 million.

“Too often, what should be a manageable incident on a large vessel can end in a total loss. Salvage is a growing concern. Environmental concerns are contributing to rising salvage and wreck removal costs as ship owners and insurers are expected to go the extra mile to protect the environment and local economies,” says Khanna. “Previously, a wreck might have been left in-situ if it posed no danger to navigation. Now, authorities want wrecks removed and the marine environment restored, irrespective of cost.”

While the Covid-19 pandemic resulted in few direct claims for the marine insurance sector, the subsequent impact on crew welfare and the boom in shipping and port congestion raises potential safety concerns.

“Demand for crew is high, yet many skilled and experienced seafarers are leaving the industry. A serious shortfall of officers is predicted within five years,” said the report. “For those who remain, morale is low as commercial pressures, compliance duties and workloads are running high. Such a work situation is prone to mistakes – 75% of shipping incidents involve human error.”

AGCS added with demand for shipping high, some owners are also extending the working life of vessels. Even before the pandemic, the average age of vessels was rising.

“Although there are many well-managed and maintained fleets composed of older vessels, analysis has shown older container and cargo vessels (15 to 25 years old) are more likely to result in claims, as they suffer from corrosion, while systems and machinery are more prone to breakdown. The average age of a vessel involved in a total loss over the past 10 years is 28.”

While total losses declined over the past year, the number of reported shipping casualties or incidents rose. The British Isles saw the highest number (668 out of 3,000). Machinery damage accounted for over one-in-three incidents globally (1,311), followed by collision (222) and fires (178), with the number of fires increasing by almost 10%.

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