Consequences of coronavirus and a sustained economic downturn could however threaten long-term safety improvement
Large shipping losses are at a record low having fallen by over 20% year-on-year, according to a report from Allianz Global Corporate & Specialty SE’s (AGCS. However, the 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.
“Coronavirus has struck at a difficult time for the maritime industry as it seeks to reduce its emissions, navigates issues such as climate change, political risks and piracy, and deals with ongoing problems such as fires on vessels,” says Baptiste Ossena, Global Product Leader Hull Insurance, AGCS. “Now the sector also faces the task of operating in a very different world, with the uncertain public health and economic implications of the pandemic.”
Cargo ships (15) accounted for more than a third of vessels lost in the past year, most of them in South East Asian waters. Foundered ships (sunk/submerged) were the main cause of all total losses, accounting for three in four (31). Bad weather accounted for one in five losses.
While total losses continue to see a positive trend, the number of reported shipping incidents (2,815) increased by 5% year-on-year, driven by machinery damage, which caused over one in three incidents (1,044).
“We cannot lose sight of the fact that, while total losses have reduced significantly, the total number of incidents increased year-on-year,” says Ossena. “It does not take much for a serious incident to result in a total loss and, hence, the warning signs are there.”
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.
The shipping industry has continued to operate through the pandemic, despite disruption at ports and to crew changes. While any reduction in sailings due to coronavirus restrictions could see loss activity fall in the interim, the report highlights 10 challenges that could heighten risks. Among these are:
- The inability to change crews is impacting the welfare of sailors, which could lead to an increase in human error on board vessels.
- Disruption of essential maintenance and servicing heightens the risk of machinery damage, which is already one of the major causes of insurance claims.
- Reduced or delayed statutory surveys and port inspections 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 pose significant financial exposures, with many of them anchored in typhoon-exposed areas in Asia or hurricane-exposed areas in North America.
“Ship-owners also face additional cost pressures from a downturn in the economy and trade,” says Captain Rahul Khanna, Global Head of Marine Risk Consulting at AGCS. “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. It is crucial that safety and maintenance standards are not impacted by any downturn.”
Geopolitical tensions and cyber impact shipping safety
Meanwhile, events in the Gulf of Oman and the South China Sea show political rivalries are increasingly being played out on the high seas and shipping will continue to be 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. In addition, piracy remains a major threat with the Gulf of Guinea re-emerging as the global hotspot, Latin America seeing armed robbery increase and renewed activity in the Singapore Strait.
Ship-owners are also increasingly concerned about the prospect of cyber conflicts. 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 cyber-attacks on the maritime sector since the coronavirus outbreak.