Shipping losses hit new low but Covid-19 threatens improved safety: AGCS

The Golden Ray capsized in St Simons Sound near the Port of Brunswick in Georgia, US. Credit: Wikimedia Commons

Large shipping losses hit a new low last year with 41 vessels lost worldwide, but total incidents were up year on year and Covid-19 endangers long-term safety improvements, according to Allianz Global Corporate & Specialty (AGCS).

The insurer’s annual Safety & Shipping Review analyses reported worldwide shipping losses for vessels weighing more than 100 gross tons. The latest study reveals that the 41 large ships lost last year is 20% less than the 53 lost in 2018, and is a fall of almost 70% over a decade.

The 2019 loss year represents a significant improvement on the rolling ten-year average of 95. More than 950 shipping losses have been reported since the start of 2010.

AGCS said the improving safety record is down to better regulation, training and technological advancement, among other factors.

The south China, Indochina, Indonesia and Philippines maritime region remained the hotspot for losses, with 12 in 2019. It has seen 228 vessels lost during the past decade, which equates to one in four of all losses.

AGCS said high levels of trade, busy shipping lanes, older fleets, typhoon exposure and safety issues on some domestic ferry routes are contributing factors. However, losses declined in the region for the second successive year.

The Gulf of Mexico, with four losses last year, and the west African coast, with three, were the second- and third-ranked loss regions. Neither region featured in the top ten in 2018.

Between 2010 and 2019, the east Mediterranean and Black Sea region recorded the second highest number of losses at 137, followed by Japan, Korea and north China with 104.

Cargo ships (15) accounted for more than a third of vessels lost in the past year, while foundered (sunk/submerged) was the main cause of all total losses, accounting for three in four (31).

Bad weather accounted for one in five losses last year. Issues with car carriers and rollon/rolloff (ro-ro) vessels remain among the biggest safety issues.

“The rise in number and severity of claims on ro-ro vessels is concerning. Ro-ros can be more exposed to fire and stability issues than other vessels,” says Captain Rahul Khanna, global head of marine risk consulting at AGCS. “Many have quick turnarounds in port and a number of accident investigations have revealed that pre-sailaway stability checks were either not carried out as required, or were based on inaccurate cargo information. Too many times commercial considerations have endangered vessels and crews, and it is vital that this is addressed onshore and onboard,” he adds.

While total losses continue to fall, down for the fourth year in a row, the 2,815 reported shipping incidents increased by 5% year on year. A rise in incidents in the waters off the British Isles, North Sea, English Channel and Bay of Biscay (605), saw it replace the east Mediterranean as the top hotspot for the first time since 2011. The region accounted for one in five incidents worldwide.

“We cannot lose sight of the fact that, while total losses have reduced significantly, the total number of incidents increased year on year,” says Baptiste Ossena, global product leader of hull insurance at AGCS. “It does not take much for a serious incident to result in a total loss and, hence, the warning signs are there,” he adds.

The research also reveals that there were almost 200 reported fires on vessels during the past year – up 13%. AGCS says misdeclared cargo was a major cause.

“Taking steps to address this issue is vital as it will only worsen as vessels become bigger and the range of goods transported grows. Chemicals and batteries are increasingly shipped in containers and pose a serious fire risk if they are misdeclared or wrongly stowed,” it explains.

The insurer also warns in its review that the consequences of Covid-19 and a sustained economic downturn could threaten long-term shipping safety improvement and trigger an uptick in losses from cost-cutting measures, fatigued crew, idle vessels and weakened emergency response.

“Coronavirus has struck at a difficult time for the maritime industry, as it seeks to reduce its emissions, navigate issues such as climate change, political risks and piracy, and deal with ongoing problems such as fires on vessels. Now the sector also faces the task of operating in a very different world, with the uncertain public health and economic implications of the pandemic,” says Mr Ossena.

Captain Khanna adds that shipowners face additional cost pressures from a downturn in the economy and trade. “We know from past downturns that crew and maintenance budgets are among the first areas that can be cut and this can impact the safe operations of vessels and machinery, potentially causing damage or breakdown, which in turn can lead to groundings or collisions. It is crucial that safety and maintenance standards are not impacted by any downturn,” he says.

AGCS’s Safety & Shipping Review 2020 identifies ten challenges for the shipping industry from Covid-19 that could impact safety and risk management.

These risks include:

  • The inability to change crews, impacting the welfare of sailors, which could lead to an increase in human error onboard vessels
  • Disruption of essential maintenance and servicing heightens the risk of machinery damage, which is already one of the major causes of insurance claims
  • Reduced or delayed statutory surveys and port inspections could lead to unsafe practices or defective equipment being undetected
  • Cargo damage and delay are likely as supply chains come under strain
  • The ability to respond quickly to an emergency could also be compromised with consequences for major incidents, which are dependent on external support
  • The growing number of cruise ships and oil tankers in layup around the world raise significant financial exposures, due to the potential threat from extreme weather, piracy or political risks.

The review warns that rising geopolitical tensions, carbon emissions rules and cyber threats continue to pose risk challenges.

It says that events in the Gulf of Oman and the South China Sea show political rivalries are increasingly being played out on the high seas, and shipping will continue to be drawn into geopolitical disputes.

“Heightened political risk and unrest globally have implications for shipping, such as the ability to secure crews and access ports safely,” says AGCS.

In addition, piracy remains a major threat, with the Gulf of Guinea re-emerging as the global hotspot, Latin America seeing armed robbery increase and renewed activity in the Singapore Strait.

Shipowners are also increasingly concerned about the prospect of cyber conflicts. There has been a growing number of GPS spoofing attacks on ships, particularly in the Middle East and China, while there have been reports of a 400% increase in attempted cyberattacks on the maritime sector since the coronavirus outbreak, reports AGCS.

Meanwhile, the aim to halve CO2 emissions by 2050 will require the shipping industry to radically change fuels, engine technology and even vessel design, it says.

“Since 1 January 2020, allowable sulphur levels in marine fuel oil were slashed. However, compliance is not straightforward and teething problems could lead to a surge in machinery damage claims,” adds AGCS.

“Ultimately, de-carbonisation will also have regulatory, operational and reputational implications. Progress on addressing climate change could stall, with the focus on the coronavirus pandemic. This must not be allowed to happen,” it warns.