Allianz: Shipping industry faces down COVID-19, political strife
Improved ship design and technology are two factors driving the long-term improvement in shipping-industry losses.
The safety of shipping vessels is critical, given that as much as 90% of world trade is transported by the global shipping industry.
Improved ship design and technology, stepped-up regulation and risk management advances such as more robust safety management systems and procedures on vessels are some of the factors behind the long-term improvement in shipping-industry losses, according to Allianz’s “Safety & Shipping Review 2020.” The sector saw the number of reported total shipping losses of over 100 gross tonnages (GT) a decade ago decline during 2019 to 41 — the lowest total this century and a close to 70% fall over 10 years.
However, the novel coronavirus crisis could endanger the long-term safety improvements in the shipping industry for 2020 and beyond, as difficult operating conditions and a sharp economic downturn present a unique set of challenges.
Pandemic problems
The shipping industry has continued to operate through the pandemic, despite crew changes and port disruptions. Any reduction in sailings due to coronavirus restrictions could see loss activity fall in the interim. However, there are unique challenges that could heighten risks. They include:
- The inability to change crews, which impacts the welfare of sailors and could lead to an increase in human error.
- Disruption of essential maintenance and servicing, which heightens the risk of machinery damage. (This is already one of the major causes of insurance claims.)
- Reduced or delayed statutory surveys and port inspections, which 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 lay-up around the world poses significant financial exposures, due to the potential threat from extreme weather, piracy or political risks.
Ship-owners 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.
Top loss locations, most affected ships
The South China, Indochina, Indonesia and Philippines maritime region remains the top loss location, with 12 vessels lost in 2019 and 228 vessels over the past decade. The region accounts for one in four of all shipping losses. High levels of trade, busy shipping lanes, older fleets, typhoon exposure, and safety issues on some domestic ferry routes are contributing factors. However, in 2019, losses declined for the second successive year. The Gulf of Mexico and the West African Coast rank second and third, respectively, in shipping losses.
Cargo ships accounted for more than a third of vessels lost in the past year. The main cause of all losses was sinking, or foundering, as it’s called in the shipping industry. Bad weather accounted for one in five losses.
Bad weather accounted for one in five losses. Issues with car carriers and roll-on/roll-off (ro-ro) vessels remain among the biggest safety issues. Total losses involving ro-ros are up year-on-year, as well as smaller incidents (up by 20%) — a trend continuing through 2020.
Smaller shipping incidents
While total losses continue to see a positive trend, the number of reported shipping incidents (2,815) increased by 5% year-over-year, driven by machinery damage, which caused over one in three incidents (1,044).
There were almost 200 reported fires on vessels over the past year, up 13%, with five total losses in 2019 alone. Mis-declared cargo is 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 mis-declared or wrongly stowed.
Geopolitical tensions, cybersecurity
Recent events in the Gulf of Oman and the South China Sea show political rivalries are increasingly being played out on the high seas. This continues to put shipping at risk of being drawn into geopolitical disputes. Heightened political risk and unrest globally has implications for shipping, such as the ability to secure crews and access ports safely.
Piracy also remains a major threat, with the Gulf of Guinea re-emerging as the global hotspot. Latin America is seeing armed robbery increase, and there is renewed activity in the Singapore Strait.
Ship-owners are also increasingly concerned about the prospect of cyber conflict. 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.
For additional insights into Allianz’s 2020 Safety & Shipping Report, please visit https://www.agcs.allianz.com/news-and-insights/reports/shipping-safety.html
Capt. Andrew Kinsey (Andrew.Kinsey@agcs.allianz.com) is a senior marine risk consultant at Allianz Risk Consulting.
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