Allianz Safety and Shipping Review identifies loss trends and highlights coronavirus, climate, security and technology-related challenges for the maritime sector.

Given the global shipping industry is responsible for transporting as much as 90% of world trade, the safety of its vessels is critical. The sector saw the number of reported total shipping losses of over 100GT decline again during 2019 to 41 - the lowest total this century and a close to 70% fall over 10 years. 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 losses.

Shipping losses declined by almost a quarter year-on year from 53 in 2018, although late reported losses may increase the 2019 total further in the future. Bad weather was reported as a factor in one in five losses. The 2019 loss year represents a significant improvement on the rolling 10-year average of 95 - down by over 50%.

South China, Indochina, Indonesia and the Philippines maritime region remains the main loss hotspot, accounting for almost 30% of losses over the past year with 12 vessels. These waters are also the major loss location of the past 10 years, driven by factors including high levels of local and international trade, congested ports and busy shipping lanes, older fleets, exposure to typhoons and ongoing safety problems on some domestic ferry routes.

However, the number of losses in this region has declined for the second successive year. The Gulf of Mexico (4) and the West African Coast (3) - neither of which featured in the top 10 loss regions last year â€" rank as the second and third most frequent loss locations.

Cargo vessels (15) accounted for more than a third of all total losses during 2019 with the majority occurring in South East Asian waters. The number of losses involving ro-ro vessels
(3) increased year-on-year. Foundering is the most frequent cause of loss of all vessels, accounting for three in four during 2019. Contributing factors included bad weather, flooding and water ingress, engine trouble and vessels capsizing. Fire/explosion continues to be a significant problem onboard vessels, resulting in five total losses during 2019.

While total losses declined significantly over the past year, the number of reported shipping casualties or incidents actually increased by 5% to 2,815. There were over 1,000 cases of machinery damage/failure (1,044) - already the top cause of shipping incidents over the past decade - accounting for more than one-third of all incidents reported in 2019.

Incidents on passenger vessels and Ro-Ros increased. The British Isles, North Sea, English Channel and Bay of Biscay maritime region replaced the East Mediterranean to become the main incident hotspot for the first time since 2011, accounting for one in five incidents (605).

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CORONAVIRUS IMPACTS

The shipping industry has largely proved resilient to the

coronavirus outbreak, keeping the life blood of global

trade and essential supplies flowing. However, while many

of the risks of the sea have been reduced for those vessels

waiting at anchorage or in lay-up – the reduction in

sailings could be a positive for claims frequency – new

challenges have evolved. One of the biggest issues has been the

inability to change crews easily because of pandemic restrictions. Relief of crew

is essential in ensuring the safety, health and welfare of

seafarers. Extended periods on board vessels can result in

mentally and physical fatigued crew, which is known to be

one of the underlying causes of human error, estimated to

be a contributing factor in 75% to 96% of marine incidents.

The sustained economic downturn will have implications

for shipping risks , as vessels are laid-up and companies

take steps to manage costs. Past downturns have shown

that crew and maintenance budgets are often among the

first areas to be cut. It is important that the industry does

not undo its good work of previous years and let safety

and risk management standards slip.

Damaged goods and containers is already one of the

most frequent causes of insurance claims

in the shipping industry, accounting for more than one in five claims,

according to AGCS analysis and the pandemic has

heightened the risk environment around high-value and

temperature-sensitive goods in particular as supply chains

have come under pressure, cargo-handling companies have

shut down abruptly and ports operated under restrictions.

The coronavirus outbreak has also made it

difficult for vessels to obtain essential spares and consumables, such

as oils and lubricants, and carry out maintenance and

repairs. This could have a detrimental effect on the safe

operation of engines and machinery, potentially causing

damage or breakdown, which in worst-case scenarios can

lead to groundings or collisions.

The cruise ship industry, which generates more

than $150bn in global economic activity and

supports over one million jobs worldwide,

effectively went into hibernation as a result of the

pandemic. With the biggest cruise ships worth

in excess of a billion dollars, accumulations of

risk are a potential issue while restrictions are

still in place. As of April 2020, some 95% of the

global cruise fleet was in lay-up, with many

vessels anchored in hurricane-exposed areas in

North America and typhoon-exposed areas in

Asia. Emerging from lay-up poses another

challenge. The monthly cost of cruise ship lay-up

can be in the millions of dollars and the extent of

upkeep and crewing will affect the speed with

which a vessel can be brought back into service.

As the price of oil plummeted amid concerns for

the coronavirus economy, demand for floating

storage hit record levels. Many tankers have

been idling around major oil ports and

terminals in the US, Europe and Africa, with

potential exposures to extreme weather,

piracy and political risks. Tankers have also

been chartered for use as floating storage,

which will need to be subject to certain

maintenance and contractual requirements.

LOSS TRENDS IN FOCUS

Issues with car carriers and ro-ro vessels

remain among the biggest safety issues for the

shipping industry. The number of total losses

involving ro-ros has increased year-on-year, while

reported incidents (188) are up by 20%. These,

and similar vessels, can be more exposed to fire

and stability issues than others, and can require

additional emphasis on risk management. Many

can have quick turnarounds in port and a

number of accident investigations have revealed

that pre-sail away stability checks were either

not carried out as required or were based on

inaccurate cargo information. In many cases

cargo was not fully-secured prior to sailing.

While major losses have trended down, attritional

claims are becoming more of an issue for

insurers, in part due to increasing complexity.

Litigation, particularly in the US, can drag on,

while any environmental issues can also take

time to resolve, adding significantly to claims

costs. In addition, the frequency of higher value

claims has been rising, as has severity from

navigation and machinery issues.

Container ship fires continue to be an issue.

Vessels become larger every year – capacity has

increased by 1,500% over 50 years – which can

impact fire prevention and salvage in the event of

an incident. Awareness of this problem has been

growing, but is still a major concern and a focus of

insurers. Technology could play a role in reducing

the risk of fire on board vessels, including

temperature monitoring of cargo, water spray and

CO2 fire suppression in cargo holds, more active

firefighting on deck, including water curtains,

water screens and fixed water monitors and even

integrating fire suppression systems in drones.

A National Cargo Bureau (NCB) study found the

majority of containers it inspected had issues

with mis-declared or improperly stowed cargo.

Of the 500 containers inspected, more than half

failed with one or more deficiencies, including

the way cargo was secured, labelled or

declared. This is an issue that needs to be

addressed by the whole supply chain. Too much

cargo is being loaded that is not properly

documented and appropriately stowed,

increasing the threat of fires and risking lives. In

response, a number of major container ship

operators are taking steps to tackle the issue,

including more stringent cargo verification and

inspections and higher penalties and fines for

infringements. Technology and machine

learning is also increasingly being deployed to

help better review cargo manifests and identify

issues. However, this is a problem that will only

get worse if action doesn't continue, as vessels

become bigger and the range of goods

transported continues to grow. Chemicals and

batteries are increasingly shipped in containers,

and these pose a serious fire risk if they are misdeclared

or wrongly stowed.

CLIMATE CHALLENGES

From January 1, 2020, allowable sulphur levels in

marine fuel oil were slashed under the

International Convention for the Prevention of

Pollution from Ships (MARPOL) Annex VI,

more widely-known as IMO 2020, as the

shipping industry looks to plays its part in a

more sustainable environment. However,

compliance with the new sulphur cap is not

straightforward, with a range of options

available – each with its own cost implications,

compliance challenges and risks.

The sulphur cap creates uncertainty for risks of

bunkering, machinery breakdown and the use

of scrubbers, which are used to remove harmful

materials from industrial exhaust gases before

they are released into the environment. Insurers

are concerned that teething problems with

scrubbers could lead to a surge in machinery

damage claims, with technical and operational

issues already having resulted in a number of

losses. Scrubber waste is corrosive and there have

been reports of incidents where this corrosion

has caused wastewater to flood engine rooms,

ballast tanks and cargo holds. Further losses

related to scrubbers and bunker fuels are likely

to materialize in the months and years ahead.

Targets to cut emissions will shape risk for the

shipping industry for years to come. The

International Maritime Organization proposals to

halve CO2 emissions by 2050 is a challenging

target to achieve, and one that will require the

industry to radically change fuels, engine

technology and even the design of vessels. In

addition to the technical challenges, decarbonization

will have regulatory, operational and

reputational (corporate social responsibility)

implications for shipping companies. Investors are

increasingly shunning carbon-intensive industries,

while regulators and investors are insisting on more

transparent reporting of climate change risks

and exposures. However, there is the risk that all

the progress on addressing climate change

could now stall with the focus on the coronavirus

pandemic. This must not be allowed to happen.

The impact of more unpredictable weather is

already manifesting in claims activity. Record

water levels on the Mississippi river in 2019

resulted in damage to vessels and shore side

infrastructure, as well as causing major disruption

for supply chains. Such events are likely to have

a greater impact on trade and claims in future.

SECURITY PROBLEMS

Political risk has become a pressing topic for

the shipping industry, with trade wars,

regional conflicts, civil unrest and piracy all

impacting. Shipping is a global commodity and

can be used as a pawn in disputes due to its

impact on the economy. Shipping companies

should prepare for an increase in disruption to

supply chains and their operations in future.

Political rivalries are increasingly being played out

on the seas, affecting some of the world's busiest

transit routes. Tensions between the US and Iran

have led to a growing number of attacks against

vessels in the Gulf of Oman and off the coast of

Yemen. There is already only a small window of

error when navigating a choke-point like the Strait

of Hormuz and such security challenges put

more pressure on crews and a financial burden

on shippers. In addition to physical damage

from attacks targeting vessels, there is the

potential knock-on effect of a heightened risk of

collisions and groundings. The South China Sea,

where China and the US are vying for influence

in Asia Pacific, is fast becoming another hotspot.

Heightened political risk globally raises the

threshold for unrest, with other implications for

shipping, such as the ability to secure crews and

access ports safely.

Piracy remains a major risk for shipping. In

2019, there were still 162 incidents of piracy and

armed robbery against ships worldwide, albeit

down from 201 in 2018, according to the

International Maritime Bureau. The Gulf of

Guinea accounted for 90% of global

kidnappings reported at sea in 2019 with the

number of crew taken increasing by more than

50%. Such activity continued through the first

few months of 2020. Latin America has also seen

a rise in piracy and armed robbery. Given the

heightened political and economic uncertainty

in the world today, piracy is a threat that is likely

to remain, if not increase.

TECHNOLOGY DEVELOPMENTS

Vessels are becoming more connected to shorebased

systems, meaning the cyber threat is

ever-evolving – from crippling ports and

terminals to spoofing attacks on ships. The

coronavirus outbreak is impacting too, with

reports of companies having faced a 400%

increase in attempted cyber-attacks since the

pandemic began. Ship-owners are also

increasingly concerned about the prospect of

conflicts. As modern vessels become increasingly

dependent on computer and software, and with

heightened geopolitical risks, the threat of cyber

to the shipping industry is significant.

The way in which vessels and crew are

interacting with technology has become a

significant factor in collisions and groundings.

Last year, the US Navy said it was to replace

touch screens with manual controls in 2020 after

an investigation into an incident involving one of

its vessels in 2017 which resulted in fatalities.

When used appropriately technology can

improve shipping safety and better training and

utilization of data can result in more successful

integration. In particular, the industry needs to

start learning from successful journeys, not just

accidents. Such insights can be used to develop

new technology, inform training and improve

crew and safety culture.

Increased use of industrial control systems

(ICS) to monitor and maintain engines could

lead to a significant reduction in machinery

breakdown incidents in future. Over the years,

the shipping industry has moved from timebased

maintenance to condition-based

maintenance, and with digitalization, it will shift

towards predictive or preventative maintenance.

In time, the move to preventative maintenance

could improve the reliability of engines and

ultimately improve safety. At present, human

error is a big factor in machinery breakdown

losses. Even a well-trained crew can make

mistakes which can result in damage, so real-time

onshore monitoring, by owners in consultation

with manufacturers, and preventative

maintenance could reduce such incidences.