Shipping losses declined in 2017, says Allianz report

Since ancient times, people and goods have moved from place to place by sea, and that continues into the 21st century. What are the key issues for the shipping industry today? How have they changed over the last 12 months? The answers are in a new report from Allianz Global Corporate & Specialty (AGCS) “Safety and Shipping Review 2018.”

Shipping transports approximately 90% of global trade with more than 50,000 merchant ships trading internationally, according to data from the International Chamber of Shipping, which makes vessel safety critical to the industry’s loss statistics.

The AGCS report notes that the maritime industry saw the number of total shipping losses decline slightly to 94, the second lowest total over the past decade. Over the past decade, total losses declined by 38%, which the report says is driven by improved ship design, technology and advances in risk management and safety, as well as lower shipping activity.

Related: Marine insurance: Tech improves safety but overreliance causes concerns

Geographic issues

The number one area worldwide for major shipping incidents for the last 10 years has been the South China, Indochina, Indonesia and Philippines maritime region, with almost a third of 2017’s losses, the report says. In addition to heavy ship traffic in the area, the seas are also prone to bad weather. For example, in 2017 Typhoon Damrey contributed to six of the year’s 30 losses.

AGCS found that cargo ships accounted for more than half of all vessels lost during 2017, primarily due to a rise in sinking incidents. Fishing and passenger vessel losses are down, year-over-year, but losses involving bulk carriers and tankers increased. Bulk carriers accounted for 5 of the 10 largest reported total losses by gross tonnage, the industry measure of the size of vessel.

The report also noted heightened political tensions around major shipping routes in the Middle East and the South China Sea pose a risk of disruption. In addition, piracy incidents have dropped to a 22-year low, but hotspots remain. Indonesia is the main location for attacks by pirates, but there has been an increase in the number of attacks in the Philippines and in Venezuela, where incidents occurred on an average of one a month.

Related: Tech-savvy pirates bring new threats to shipping industry

Behavioral and cultural risk

Despite significant improvements in maritime safety, the report notes, fatal accidents at sea persist, driven mainly by human error. Captains and crews are under increasing commercial pressure and schedules have become tighter, which can have what the report calls “a detrimental effect on safety and decision-making.”

AGCS suggests that better use of data and analytics can address these issues in many ways. For example, hull stress-monitoring sensors could be linked to ship navigation in bad weather, providing real-time information on structural integrity. At the same time, continual training is necessary to ensure that crews reach the right balance of technology and human intervention in the appropriate situation.

Another area in which technology and human error go hand in hand is cyber security. Major cyber attacks, such as NotPetya, which caused around $3 billion of economic losses, have spurred shippers to get more serious about cyber, the report says, as well as increasing interest in cyber business interruption insurance. One way some shippers are minimizing the risk of cyber threats is by separating IT systems for different functions, such as navigation, propulsion and loading.

Fighting fires

The report notes that major fires on container vessels are one of the most significant safety issues. Container ship fire exposures include the adequacy of firefighting capabilities as vessels become larger, misdeclaration of cargo, salvage challenges and the time take to access a port of refuge.

“Modern ultra large container vessels don’t currently have large enough crews to fight large shipboard fires in the traditional sense,” explains Capt. Andrew Kinsey, Senior Marine Risk Consultant. The key, however, is to avoid the fires in the first place. “This is where accurate declaration and proper stowage of dangerous goods cargo is critical,” adds the 23-year veteran of the US. Merchant Marine and U.S. Naval Reserve. “As a result of the Maersk Honam fire Maersk launched an in-depth review of their cargo stowage procedures with the help of the National Cargo Bureau. In addition, The New York-based National Cargo Bureau has created a container inspection safety initiative. This will allow for the collection of data that can be used to analyze cargo stowage conditions to promote safety.”

Self-driving vessels

AGCS finds that autonomous shipping is progressing, similar to autonomous motor vehicles, but legal, safety and security issues are seen as limiting the growth of crewless vessels for the foreseeable future. Autonomous shipping could improve maritime safety, the report says, but it won’t remove human error completely. Automation also raises questions about fault and liability for shipping accidents similar to those for motor vehicles. Is the accident the responsibility of the manufacturer, the software provider, the onshore bases, the crew or some other intervening force?

New kinds of losses, such as cyber or product liability are likely to replace traditional claims, the report says, and may affect technical management and maintenance of ships as well. One of the main challenges AGCS sees for the insurance industry in the future will be dealing with more technical shipping claims, resulting from greater use of new technology.

Related: Is the insurance industry ready for self-driving boats?

Cruise ship size and risk

Cruise ships pose some significant risks that need to be mitigated by both their design and the training and preparedness of the crew, says Kinsey. “The logistics of evacuating a ship with more than 6,000 passengers and 2,000 crew is a daunting challenge, but one that must be, and has been, addressed by cruise ship operators.” He notes that the challenge is not just the orderly removal of that many people, but the other conditions that could be present, such as excessive list as was the case of the Costa Concordia or fire. “In addition, some of the new design features such as the large atriums that are being incorporated pose design challenges when you are looking at firefighting systems” he adds.

Vessel classification societies have strict design guidelines that vessel must be designed and maintained to with regards safety and firefighting systems. However, Kinsey says, “Not all vessels are maintained and inspected to the same level. The Paris MoU White, Grey and Black lists provide a fascinating snapshot of this.”

As explained by the Paris MoU website, the “White, Grey and Black (WGB) list” presents the full spectrum, from quality flags to flags with a poor performance that are considered high or very high risk. It is based on the total number of inspections and detentions over a three-year rolling period for flags with at least 30 inspections in the period. The most recent list is effective from 1 July in any year — 30 June the next year.

Ship owners and insurers can use the list to assess the potential risk of owning, operating and insuring a vessel flying under a particular country’s flag.

For the foreseeable future people and goods will continue to move by ship. With a greater awareness of trends and developments, the shipping and insurance industries will be better able to manage the risks and minimize losses.

For a copy of the full report, visit the AGCS website.