Shipping losses fall, but Allianz sees risks ahead

Though losses have been falling, shipping now faces "perfect storm of increasing regulation and narrowing margins."

JUNE 13, 2017 — Large shipping losses have declined by 50% over the past decade, mostly driven by the development of a more robust safety environment by shipowners, according to insurer Allianz Global Corporate & Specialty SE (AGCS) .

There were 85 total shipping losses reported in 2016, down 16% compared with a year earlier, says AGC’s fifth annual Safety & Shipping Review 2017. The number of shipping incidents (casualties) declined slightly year-on-year by 4% with 2,611 reported, according to the review, which analyzes reported shipping losses over 100 gross tons.

“We continue to see improvements in maritime safety, but the price of safe navigation is constant vigilance,” says Captain Andrew Kinsey, Senior Marine Risk Consultant at AGCS. “The maritime sector is entering a period of considerable change and unrest from economic pressures, technology and political factors. There is a perfect storm of increasing regulation and narrowing margins.”

More than a quarter of shipping losses in 2016 (23) occurred in the South China, Indochina, Indonesia and Philippines region – the top hotspot for the last decade. Loss activity there remained stable but was still almost double the East Mediterranean and Black Sea region (12), which was the next highest. Loss activity was also up in Japan, Korea and North China; the East African Coast, the South Atlantic, the East Coast of South America as well as the Canadian Arctic and Alaska maritime regions.

Cargo vessels (30) accounted for more than a third of all vessels lost. Passenger ferry losses increased slightly (8), driven by activity in the Mediterranean and South East Asia. Standards remain an issue in some parts of Asia with bad weather, poor maintenance, weak enforcement of regulations and overcrowding contributing to loss activity.

The most common cause of global shipping losses remains foundering (sinking), accounting for more than half of all losses in 2016, with bad weather often a factor. Over a third of shipping casualties were caused by machinery damage, which was also responsible for driving a 16% uptick in incidents in the East Mediterranean & Black Sea region (563), enough for it to replace the British Isles as the top incident location over the past decade.

Safety-enhancing technology is already impacting shipping – from electronic navigational tools to shore-based monitoring of machinery and crew welfare. Technology has the potential to significantly reduce both the impact of human error – which AGCS analysis shows accounted for approximately 75% of the value of almost 15,000 marine liability insurance claims over five years, equivalent to more than $1.6 billion – as well as machinery breakdown.

Additionally, technology is instrumental in assisting with offshore crew health problems, which can often be difficult to address due to location. AGCS, together with Allianz Worldwide Care and Allianz Global Assistance, is now offering crew 24/7 access to medical advice through a dedicated app and on-board equipment. Such innovative “telemedicine” assistance services can help vessels make more informed decisions about a crew member’s health, potentially reducing the need to make costly route deviations.

The threat of cyber attacks continues to be significant. Most attacks to date have been aimed at breaching corporate security rather than taking control of a vessel. As no major incident resulting from a cyber attack has taken place, many in the industry are complacent.

“However, IT security should not be put on the backburner – if hackers were able to take control of a large containership on a strategic route, significant economic losses would occur,” says Captain Kinsey.

The technology behind autonomous vessels is developing rapidly, including technology that could allow ships to be controlled remotely or operate autonomously. Advancements in technology are also expected to enable ships to monitor their own health and the environment around them.

“Autonomous technology has the potential to revolutionize the movement of cargo on a scale not seen since containerization was introduced some 50 years ago,” says Captain Kinsey. “Despite unknowns and regulatory issues, autonomous shipping will happen. Economic pressures on the shipping industry and the need to find efficiencies will support and speed up developments in maritime automation.”

The collapse of one of the world’s largest shipping companies, Hanjin Shipping, over the past year exposed the perilous state of some parts of the sector. Bankruptcies are rising and when debt levels are high and earnings low, ship owners often seek to make cost savings from maintenance budgets, training and crewing levels, all of which can spike loss activity.

According to AGCS, negligence/poor maintenance is already one of the top causes of liability loss in the shipping sector and an increase in maintenance-related claims is observed. Implementing rigorous inspection and maintenance regimes is crucial.

Download the AGCS report HERE