First the good news, then the bad. That’s the main take away from marine insurer Allianz Global Corporate & Specialty SE’s Safety & Shipping Review 2022. The good news is that though 54 large ships were reported total losses last year, that compared with 65 a year earlier and continued a positive trend that has seen total losses down 57% over past decade.
On the other side of the coin, the number of reported shipping casualties or incidents rose. The British Isles saw the highest number (668 out of 3,000). Machinery damage accounted for over one-in-three incidents globally (1,311), followed by collision (222) and fires (178), with the number of fires increasing by almost 10%.
Allianz Global Corporate & Specialty says that, while the sector continued its long-term positive safety trend over the past year, Russia’s invasion of Ukraine, the growing number of costly issues involving larger vessels, crew and port congestion challenges resulting from the shipping boom, and managing challenging decarbonization targets, mean that there is no room for complacency.
“The shipping sector has demonstrated tremendous resilience through stormy seas in recent years, as evidenced by the boom we see in several parts of the industry today,” says Captain Rahul Khanna, global head of marine risk consulting at AGCS. “Total losses are at record lows – around 50 to 75 a year over the last four years compared with 200+ annually in the 1990s. However, the tragic situation in Ukraine has caused widespread disruption in the Black Sea and elsewhere, exacerbating ongoing supply chain, port congestion, and crew crisis issues caused by the Covid-19 pandemic. At the same time, some of the industry’s responses to the shipping boom, such as changing the use of, or extending the working life of, vessels also raise warning flags. Meanwhile, the increasing number of problems posed by large vessels, such as fires, groundings and complex salvage operations, continue to challenge ship owners and their crews.”
The annual AGCS study analyzes reported shipping losses and casualties (incidents) on vessels over 100 gross tons. During 2021, 54 total losses of vessels were reported globally, compared with 65 a year earlier. This represents a 57% decline over 10 years (127 in 2012), while during the early 1990s the global fleet was losing 200+ vessels a year. The 2021 loss total is made more impressive by the fact that there are an estimated 130,000 ships in the global fleet today, compared with some 80,000 30 years ago. Such progress reflects the increased focus on safety measures over time through training and safety programs, improved ship design, technology and regulation.
According to the report, there have been almost 900 total losses over the past decade (892). The South China, Indochina, Indonesia, and the Philippines maritime region is the main global loss hotspot, accounting for one-in-five losses in 2021 (12) and one-in-four-losses over the past decade (225), driven by factors including high levels of trade, congested ports, older fleets, and extreme weather. Globally, cargo ships (27) account for half of vessels lost in the past year and 40% over the past decade. Foundered (sunk/submerged) was the main cause of total losses over the past year, accounting for 60% (32).
While total losses declined over the past year, the number of reported shipping casualties or incidents rose. The British Isles saw the highest number (668 out of 3,000). Machinery damage accounted for over one-in-three incidents globally (1,311), followed by collision (222) and fires (178), with the number of fires increasing by almost 10%.
UKRAINE IMPACT: SAFETY AND INSURANCE
The shipping industry has been affected on multiple fronts by Russia’s invasion of Ukraine, with the loss of life and vessels in the Black Sea, disruption to trade, and the growing burden of sanctions. Shipping also faces challenges to day-to-day operations, with knock-on effects for crew, the cost and availability of bunker fuel, and the potential for growing cyber risk.
The invasion has further ramifications in terms of crew shortages. Russian seafarers account for just over 10% of the world’s seafarers, while around 4% come from Ukraine. These seafarers may struggle to return home or rejoin ships at the end of contracts.
Meanwhile, a prolonged conflict is likely to have deeper consequences, potentially reshaping global trade in energy and other commodities. An expanded ban on Russian oil could contribute to pushing up the cost of bunker fuel and impacting availability, potentially pushing ship owners to use alternative fuels. If such fuels are of substandard quality, this may result in machinery breakdown claims in future.
At the same time, security agencies continue to warn of a heightened prospect of cyber risks for the shipping sector such as GPS jamming, Automatic Identification System (AIS) spoofing and electronic interference.
“The insurance industry is likely to see a number of claims under specialist war policies from vessels damaged or lost to sea mines, rocket attacks and bombings in conflict zones,” says Justus Heinrich, Global Product Leader, Marine Hull, at AGCS. “Insurers may also receive claims under marine war policies from vessels and cargo blocked or trapped in Ukrainian ports and coastal waters.”
The evolving range of sanctions against Russian interests presents a sizable challenge. Violating sanctions can result in severe enforcement action, yet compliance can be a considerable burden. It can be difficult to establish the ultimate owner of a vessel, cargo or counterparty. Sanctions also apply to various parts of the transport supply chain, including banking and insurance, as well as maritime support services, which makes compliance even more complex.
A BURNING ISSUE: FIRES ON BOARD
During the past year, fires on board the roll-on roll-off RO/RO car carrier Felicity Ace and the containership X-Press Pearl both resulted in total losses. Cargo fires are now a priority concern. There have been over 70 reported fires on container ships alone in the past five years, the report notes. Fires often start in containers, which can be the result of non-/mis-declaration of hazardous cargo, such as chemicals and batteries – around 5% of containers shipped may consist of undeclared dangerous goods. Fires on large vessels can spread quickly and be difficult to control, often resulting in the crew abandoning ship, which can significantly increase the final cost of an incident.
Fires have also become a major loss driver for car carriers. Among other causes, they can start in cargo holds, caused by malfunctions or electrical short circuits in vehicles, while the open decks can allow them to spread quickly. The growing numbers of electric vehicles (EVs) transported by sea brings further challenges, given existing counter-measure systems may not respond effectively in the event of an EV blaze. Losses can be expensive, given the value of the car cargo and the cost of wreck removal and pollution mitigation.
When large vessels get into trouble, emergency response and finding a port of refuge can be challenging. Specialist salvage equipment, tugs, cranes, barges and port infrastructure are required, which adds time and cost to a response. The X-Press Pearl, which sank after it was refused refuge by two ports following a fire – the ports were unable or unwilling to discharge a leaking cargo of nitric acid – is one of several incidents where containerships have had difficulty finding a safe haven. Meanwhile, the salvage operation for the car carrier Golden Ray, which capsized in the U.S. in 2019, took almost two years and cost in excess of $800 million.
“Too often, what should be a manageable incident on a large vessel can end in a total loss. Salvage is a growing concern. Environmental concerns are contributing to rising salvage and wreck removal costs as ship owners and insurers are expected to go the extra mile to protect the environment and local economies,” says Khanna. “Previously, a wreck might have been left in-situ if it posed no danger to navigation. Now, authorities want wrecks removed and the marine environment restored, irrespective of cost.”
Higher salvage costs, along with the burden of larger losses more generally, are a cost increasingly borne by cargo owners and their insurers. “’General average’, the legal process by which cargo owners proportionately share losses and the cost of saving a maritime venture, has become a frequency event, as well as a severity event, with the increase in the number of large ships involved in fires, groundings and container losses at sea compared with five years ago,” says Régis Broudin, global head of marine claims at AGCS. It was declared in both the Ever Forward and Ever Given incidents. The large container ship Ever Forward ran aground in the U.S. in March 2022, and was stuck for over a month before it was freed, almost a year to the day after its sister vessel, Ever Given blocked the Suez Canal.
- There’s more, much more in the full report.