Shipping losses decline but emerging risks threaten maritime industry and insurers

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Shipping losses continued their downward trend with 94 losses reported worldwide in 2013, coming in below 100 for only the second time in 12 years, according to Allianz Global Corporate & Specialty SE’s (AGCS) second annual Safety and Shipping Review 2014, which analyses reported shipping losses of over 100 gross tons.

Losses declined by 20% from 2012 when there were 117 reported losses. The 2013 accident year also represents a significant improvement on the previous 10-year loss average with total worldwide shipping losses declining 45% since 2003.

“More than 90% of global trade is carried by sea so the safety of international shipping vessels and routes is critical to the health of the global economy,” said Tim Donney, Global Head of Marine Risk Consulting. “While the long-term downward trend in shipping losses is encouraging, there is more work to be done to improve the overall safety of these vessels as well as their cargo, crew and passengers, especially in Asian waters.”

The most common cause of losses in the past year was foundering (sinking or submerging), often driven by heavy weather, accounting for almost 75% of all losses, which was a significant increase from both 2012 (47%) and the previous 10-year average (44 percent).

The report also shows that over the past decade the waters around the UK have been the location of the most casualties, while January is the worst month for all casualties (including total losses) in the Northern Hemisphere with 23% more losses compared to the quietest month of June. The English Channel is still one of the busiest shipping channels, and with the increase of trade, will face yet more potential risks.

Emerging Risks

An increasingly difficult operating climate for ship operators has forced a number of innovations, including larger ship sizes to capitalise on economies of scale, the use of alternative fuels and changes in ship designs. At the same time, more economical trading routes are fast appearing in Arctic regions during the summer months, but these present their own set of challenges.

Emerging risks identified in the 2014 report include:

• Rise of LNG-fueled vessels: Use of liquefied natural gas to power ships is expected to dramatically increase by 2020. There are safety concerns however, as the industry will see the rise of ports that have never previously handled LNG providing bunkering stations on dock. “We need to ask what risks LNG-fueled ships will present to the industry. The concern is storing the LNG as fuel and handling it onboard. LNG handling expertise is not easily available – there needs to be a change in mindset and training,” said Capt. Rahul Khanna, Senior Risk Consultant, Marine, AGCS.

• Vessel size: Last year marked the arrival of the largest container vessel on record, over 400m long and boasting capacity in excess of 18,000 teu. This trend is set to continue. AGCS estimates capacity grows by around 30% every four to five years, meaning the arrival of 24,000 teu carriers can be anticipated around 2018.

“The claims arising out of maritime emergencies of these ‘mega ships’ can be huge. For example, just think of the business interruption of ports and terminals if an accident was to block the entrance,” said Dr Sven Gerhard, Global Product Leader, Hull & Marine Liabilities, AGCS. “In addition, salvage might require unprecedented efforts and complex operations – in some cases it may take many months, or possibly a year or longer, to remove all the containers, particularly if the accident were to happen in a remote location. The large loss potential has increased for events which are not extraordinary on these big ships. And these are unchartered waters for salvors.”

• Arctic trading routes: Shipping casualties in Arctic Circle waters have increased to an average of 45 per year during 2009-2013 from only seven during 2002-2007. Damage to machinery caused a third of these incidents, higher than the average elsewhere, reflecting the harsher operating environment.

Capt Khanna added: “Risk parameters are constantly changing, and securely mapping the potential routes which the global shipping trade will navigate, is becoming extremely difficult to monitor and predict. With the Arctic opening up as a major trading route, these emerging risks could combine to create the perfect storm – what would happen if another Costa Concordia should founder on the shores of the Arctic? Risk assessment and training is crucial for all ship owners in the future.”

Piracy attacks still a concern – different models pose new challenges

In 2013, piracy attacks declined 11% to 264 reported incidents worldwide according to International Maritime Bureau statistics – 106 of these occurred in Indonesia, which has seen a 700% increase in attacks since 2009. Most of these attacks remain low level opportunistic thefts carried out by small bands of individuals but one third of incidents in these waters were reported in the last quarter of 2013, and there is potential for such attacks to escalate into a more organized piracy model unless they are controlled.

An emerging piracy hotspot with more organized crime is the Gulf of Guinea with 48 incidents in 2013, accounting for 18% of all attacks worldwide. Piracy attacks in Somalia have declined dramatically with only seven incidents in 2013 compared with 160 attacks in 2011. The report suggests the piracy model could be broken in Somalia in a couple of years if naval patrols continue.

 

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