Tuesday, June 13, 2017

Marine Insurance Giant Illustrates Ten Year Decline in Vessel Losses and Assesses Current Risks

Enhanced Safety Regulation and Decline in Piracy Saves Ships and Lives
Shipping News Feature
WORLDWIDE — Large shipping losses have declined by 50% over the past decade, mostly driven by the development of a more robust safety environment by ship owners, according to a report from a specialist insurance group, the Allianz Global Corporate & Specialty SE’s (AGCS) fifth annual Safety & Shipping Review 2017. There were 85 total shipping losses reported in 2016, down 16% compared with a year earlier (101). The number of shipping incidents causing casualties declined slightly year-on-year by 4% with 2,611 reported, according to the review, which analyses reported shipping losses over 100 gross tonnes. Captain Andrew Kinsey, Senior Marine Risk Consultant at AGCS said:

“We continue to see improvements in maritime safety, but the price of safe navigation is constant vigilance. The maritime sector is entering a period of considerable change and unrest from economic pressures, technology and political factors. There is a perfect storm of increasing regulation and narrowing margins.”

More than a quarter of shipping losses in 2016 (23) occurred in the South China, Indochina, Indonesia and Philippines region – the top hotspot for the last decade, and a place we have had cause to write reports on several times in past years. Loss activity there 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 Japan, Korea and North China; the East African Coast, the South Atlantic, the East Coast of South America as well as the Canadian Arctic and Alaska maritime regions.

Cargo vessels (30) accounted for more than a third of all vessels lost. Passenger ferry losses increased slightly (8), driven by activity in the Mediterranean and South East Asia. Standards remain an issue in some parts of Asia with bad weather, poor maintenance, weak enforcement of regulations and overcrowding contributing to loss activity.

The most common cause of global shipping losses remains foundering, accounting for more than half of all losses in 2016, with bad weather often a factor. Over a third of shipping casualties were caused by machinery damage, which was also responsible for driving a 16% uptick in incidents in the East Mediterranean & Black Sea region (563), enough for it to replace the British Isles as the top incident location over the past decade.

Safety-enhancing technology has shown a great impact on shipping by significantly reducing both the impact of human error, which AGCS analysis shows accounted for approximately 75% of the value of almost 15,000 marine liability insurance claims over five years, equivalent to more than $1.6 billion, as well as machinery breakdown. Additionally, technology is instrumental in assisting with offshore crew health problems, which can often be difficult to address due to location.

One new threat is of particular concern - cyber attacks. Most attacks to date have been aimed at breaching corporate security rather than taking control of a vessel. As no major incident resulting from a cyber attack has taken place, many in the industry are complacent, ‘however, IT security should not be put on the backburner - if hackers were able to take control of a large container ship on a strategic route, significant economic losses would occur,’ added Kinsey. The development of autonomous freight vessels means that this issue really needs to start having serious consideration.

Meanwhile, an established threat seems to be receding. According to the International Maritime Bureau (IMB), incidents of piracy in 2016 continued their downward trend. The bureau recorded 191 incidences of piracy in 2016, down 22% from 2015 (246) and the lowest total recorded since 1998. The reduction reflects the success of measures to contain the threat of Somali pirates in the Gulf of Aden and Indian Ocean, including the introduction of armed guards aboard vessels, and the presence of a multinational naval task force. There were just two recorded incidents off Somalia in 2016, compared with 160 in 2011.

Despite this positive trend, the threat of Somali pirates has not gone away. In March 2017, pirates captured an oil tanker off the coast of Somalia and demanded a ransom, the first such seizure of a large commercial vessel since 2012. Then, on June 1, 2017, armed pirates attempted to board another tanker in the Gulf of Oman.

2016 also saw the escalation of crew kidnapping, showing a threefold increase on 2015, according to the IMB. Pirates kidnapped 62 people for ransom in 15 separate incidents during the year. Just over half were captured off West Africa, while 28 were kidnapped from areas around Malaysia and Indonesia.

The collapse of one of the world’s largest shipping companies, Hanjin Shipping, in the past year, followed recently by the troubles of the Rickmers group, exposed the perilous state of some parts of the sector. Bankruptcies are rising and when debt levels are high and earnings low, ship owners often seek to make cost savings from maintenance budgets, training and crewing levels, all of which can spike loss activity.

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 is observed. This trend means that implementing rigorous inspection and maintenance regimes is crucial to reduce what is actually a series of very preventable risks.

Photo: A study of the wreck of the HMS Buffalo by Paul Deacon, Maritime Artist.