Wednesday, June 12, 2019

Shipping Losses at Lowest Level This Century with Cargo Vessels Representing One Third  

Improved Safety in Global Fleet but Challenges Ahead

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Shipping News Feature WORLDWIDE – Large shipping losses are now at their lowest level this century having declined by over 50% year on year, according to Allianz Global Corporate & Specialty SE's (AGCS) Safety & Shipping Review 2019. The annual study analyses reported shipping losses over 100 gross tonnes (GT) during the 12 months prior to December 31, 2018. It also identifies some of the key risk management challenges the maritime industry faces moving forward.

In 2018, 46 total losses of vessels were reported around the shipping world, down from the 98 reported 12 months earlier, driven by a significant decline in activity in the global loss hotspot, South East Asia, and weather-related losses (10) halving after quieter hurricane and typhoon seasons.

While this plummet in total losses is encouraging, the number of reported shipping incidents overall (2,698 in 2018) shows little decline, less than 1% year-on-year. Machinery damage is the major cause, accounting for more than a third of the 26,000+ incidents over the past decade, twice as many as the next highest cause, collision. Machinery damage is one of the most expensive causes of marine insurance claims, accounting for over $1 billion in five years. Baptiste Ossena, Global Product Leader Hull & Marine Liabilities, AGCS, commented:

“Today’s record low total loss activity is certainly influenced by fortunate circumstances in 2018, but it also underlines the culmination of the long-term improvement of safety in the global shipping industry.

“Improved ship design, technology, tighter regulation and more robust safety management systems on vessels have also helped to prevent breakdowns and accidents from turning into major losses. However, the lack of an overall fall in shipping incidents, heightened political risks to vessel security, complying with 2020 emissions rules and the growing number of fires on board bring challenges.”

The South China, Indochina, Indonesia and Philippines maritime region remains the top loss location. One in four losses occurred here in 2018 (12), although this is significantly down from 29 a year earlier. The East Mediterranean and Black Sea (6) and the British Isles (4) rank second and third. Despite signs of improvement, Asia will remain a hotspot for marine claims due to its high level of trade, busy shipping routes and older fleets. However, newer infrastructure, better port operations and more up-to-date navigation tools will help to address challenges.

Cargo ships (15) accounted for a third of vessels lost around the world in the past year. The most common cause of ship losses remains foundering, which has accounted for over half (551) of the 1,036 lost over the past decade. In 2018, 30 cases were reported.

Fires continue to generate large losses on board with the number of reported incidents (174) trending upwards. This has continued through 2019 with a number of recent problems on container ships and three significant events on car carriers. Misdeclared cargo, including incorrect labelling/packaging of dangerous goods is believed to be behind a number of fires at sea. On board fire-fighting capability can be limited.

If considerable outside assistance is required, significant damage can occur to the ship before this happens, greatly increasing the size of any salvage claim. Meanwhile, the loss of hundreds of containers over board from a large vessel in early 2019 provides a reminder that damaged goods is the most frequent generator of marine insurance claims, accounting for one in five over the lustrum.

Regulation limiting sulphur oxide emissions from January 2020 is likely to be a game-changer for the shipping industry, with wide-ranging implications for cost, compliance and crew. Large ports globally are even deploying so called ‘sniffer drones’ to detect environmental rule-breakers, ships not using more expensive low-sulphur fuels may face significant penalties. Captain Rahul Khanna, Global Head of Marine Risk Consulting, AGCS, said:

“It is important shipping plays its part in a more sustainable environment. However, despite the fast approaching deadline, there is still a lack of international standards and concern over the availability and compatibility of low-sulphur fuel

“Insurers are concerned about a potential increase in machinery breakdown claims with the introduction of low sulphur fuels if the transition is not well-managed. There is also potential for disruptions and delays to voyages if there is a lack of compliant, compatible fuel in port.”

Political risk has heightened around the globe and increasingly poses a threat to shipping security, trade and supply chains through conflicts, territorial disputes, cyber-attacks, sanctions, piracy and even sabotage, as evidenced by recent attacks on oil tankers in the Middle East. The growing number of migrants at sea and an increase in stowaways on commercial vessels also has serious consequences for ship owners, leading to delays, diversions and pressure on crew. Piracy incidents increased in 2018 to more than 200, Nigeria is now the top global hotspot as covered in one of our other stories today.

Photo: Courtesy of the Indian Coast Guard. The Maersk Honam which was struck by a devastating fire in March 2018.

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