TSAVLIRIS SALVAGE GROUP - News & Announcements
Loss trends and challenges for the maritime sector - 2020 Jul 15
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).
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.
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.
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.
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.