Total losses in shipping at record low, but pandemic and political tensions cloud the outlook

Allianz press release on the AGCS study Safety & Shipping Review 2020:

Total losses in the shipping industry are at a record low - 41 major ships were lost worldwide in 2019. Year-on-year, they have fallen by more than 20%, compared to the average of the last decade by almost 70%, according to the "Safety & Shipping Review 2020" study by marine and industrial insurer Allianz Global Corporate & Specialty SE (AGCS). However, the consequences of the Covid-19 pandemic could jeopardise long-term safety improvements in shipping this year and beyond. Difficult operating conditions and the impending economic downturn pose major challenges for the industry.

To summarise the following points

- The number of incidents on the high seas (2,815) has risen, as has the number of engine failures. The safety of ro-ro ships is seen as a growing problem.
- The consequences of the coronavirus pandemic and an economic downturn could jeopardise the long-term improvement of safety on board and lead to an increase in losses due to cost-cutting measures, exhausted crews, grounded ships and the difficulty of being ready for deployment in emergencies.
- Rising geopolitical tensions, new emissions regulations and decarbonisation targets as well as misdeclared cargo and fires on board continue to pose major risks for shipping.

Challenges posed by Covid-19

The shipping industry has largely continued to operate during the pandemic - despite disruptions in harbours and crew changes. While less shipping traffic due to coronavirus restrictions could lead to a decrease in the frequency of damage, the study points to ten coronavirus challenges that in turn increase the risks. These include:

- The suspension of crew rotation has an impact on the well-being and performance of crews, which could lead to an increase in human error.
- Malfunctions during essential maintenance and servicing work increase the risk of machine damage - these are already one of the main causes of insurance claims.
- Reduced or delayed statutory surveys and harbour inspections could result in unsafe practices or defective equipment going undetected.
- Cargo damage and transport delays are likely as supply chains come under pressure.
- It could be difficult to activate additional support quickly in an emergency - there is a risk of major incidents that cannot be resolved by the crew themselves.
- The growing number of cruise ships and oil tankers moored around the world poses a significant financial risk due to the potential threat of extreme weather events, piracy or political risks.

Main damage locations and most affected ships

According to the report, the maritime region of South China, Indochina, Indonesia and the Philippines remains the global casualty hotspot with 12 ship losses in 2019 and 228 ships in the last ten years. A quarter of all losses occur in this region. High trade volumes, busy shipping routes, older fleets, the risk of typhoons and safety issues on some domestic ferry routes all contribute to this. However, losses fell for the second year in a row in 2019. The Gulf of Mexico and the West African coast rank second and third in the accident hotspots. Cargo ships accounted for more than a third of total losses last year. The main causes include: Three out of four ships sank, bad weather was responsible for one in five losses. Problems with car carriers and roll-on/roll-off (ro-ro) vessels continue to be among the biggest safety problems in shipping. Total losses involving these types of ship have risen compared to the previous year - at the same time, minor incidents have also increased by 20%.

Number of smaller loss events on the rise

While there is still a positive trend in total losses, the number of reported loss events (2,815) rose by 5% compared to the previous year. This is mainly due to damage to machinery, which caused more than one in three incidents (1,044). An increase in accidents in the waters of the British Isles, the North Sea, the English Channel and the Bay of Biscay (605) meant that these waters replaced the Eastern Mediterranean as a hotspot for the first time since 2011. One in five incidents worldwide occurs in this region.
There were almost 200 reported fires on ships last year, an increase of 13%, with five total losses in 2019 alone. Misdeclared cargo is one of the main causes. Measures to combat this problem are crucial, as the potential for damage is likely to worsen as ships grow in size and carry more cargo. In addition, chemicals and batteries are increasingly being shipped in containers and pose a serious fire risk if they are incorrectly declared or stowed.

Geopolitical tensions and cyber attacks affect security

Meanwhile, events in the Gulf of Oman and the South China Sea show that political rivalries are increasingly being played out on the high seas and that shipping continues to be drawn into geopolitical disputes. Increased political risks and unrest worldwide have an impact on shipping - such as ensuring the safety of crews and calling at harbours safely. In addition, piracy continues to pose a major threat: The Gulf of Guinea is once again considered a global hotspot, while armed robberies are on the rise in Latin America and piracy in the Singapore Strait is also on the increase again. Ship owners are also increasingly concerned about cyber conflicts. There have been a growing number of GPS spoofing attacks on ships, particularly in the Middle East and China. Since the coronavirus outbreak, the number of attempted cyberattacks on the maritime sector has increased by 400%.

Other risks listed in the AGCS Safety & Shipping Review:

The targets for reducing emissions will characterise the shipping industry for years to come: The goal of halving CO2 emissions by 2050 will require the industry to radically change fuels, engine technology and even ship design. Since 1 January 2020, the permissible sulphur content in marine diesel has been drastically reduced, but compliance is not easy and teething problems could lead to an increase in claims for damages in the event of engine damage.

• New technology is not a panacea, but it is an increasingly useful tool: ship security technology can have a positive impact on safety and loss frequency and is increasingly being used to address some of the risks highlighted in the report, such as reducing the risk of fire on ships through cargo temperature monitoring and drone monitoring.
• The unluckiest ships: The three most accident-prone ships last year were two Greek island ferries and a bulk carrier in North America, all of which were involved in six separate incidents each.

Source: Heidi Polke [email protected]
Daniel Aschoff [email protected]