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SHIPPING LOSSES REDUCE BY 50%

Tuesday, June 4, 2019 

Large shipping losses are now at their lowest level this century having declined by over 50% year on year, according to Allianz Global Corporate & Specialty SEs (AGCS) Safety & Shipping Review 2019. The annual study analyses reported shipping losses over 100gt.

In 2018, 46 total losses of vessels were reported around the shipping world, down from 98 twelve months earlier, driven by a significant decline in activity in the global loss hotspot, South East Asia, and weather-related losses halving after quieter hurricane and typhoon seasons.

While this plummet in total losses is encouraging, the number of reported shipping incidents overall (2,698 in 2018) shows little decline – less than 1% year-on-year. Machinery damage is the major cause, accounting for more than a third of the 26,000+ incidents over the past decade – twice as many as the next highest cause, collision. Machinery damage is one of the most expensive causes of marine insurance claims, accounting for US $1bn+ in five years. 

“Today’s record low total loss activity is certainly influenced by fortunate circumstances in 2018, but it also underlines the culmination of the long-term improvement of safety in the global shipping industry,” says Baptiste Ossena, Global Product Leader Hull & Marine Liabilities, AGCS.

“Improved ship design, technology, tighter regulation and more robust safety management systems on vessels have also helped to prevent breakdowns and accidents from turning into major losses. However, the lack of an overall fall in shipping incidents, heightened political risks to vessel security, complying with 2020 emissions rules and the growing number of fires on board bring challenges.”

The South China, Indochina, Indonesia and Philippines maritime region remains the top loss location. One in four occurred here in 2018, although this is significantly down from 29 a year earlier. The East Mediterranean and Black Sea and the British Isles rank second and third. Despite signs of improvement, Asia will remain a hotspot for marine claims due to its high level of trade, busy shipping routes and older fleets. However, newer infrastructure, better port operations and more up-to-date navigation tools will help to address challenges.

Cargo ships accounted for a third of vessels lost around the world in the past year. The most common cause of ship losses remains foundering (sinking), which has accounted for over half of the 1,036 lost over the past decade. In 2018, 30 cases were reported.

Fires continue to generate large losses on board with the number of reported incidents trending upwards. This has continued through 2019 with a number of recent problems on container ships and three significant events on car carriers. Misdeclared cargo, including incorrect labelling/packaging of dangerous goods is believed to be behind a number of fires at sea. On board fire-fighting capability can be limited. If considerable outside assistance is required significant damage can occur to the ship before this happens, greatly increasing the size of any salvage claim.

Meanwhile, the loss of hundreds of containers over-board from a large vessel in early 2019 provides a reminder that damaged goods is the most frequent generator of marine insurance claims, accounting for one in five over five years.

Regulation limiting sulphur oxide emissions from January 2020 is likely to be a game- changer for the shipping industry, with wide-ranging implications for cost, compliance and crew. Large ports globally are even considering deploying so called “sniffer drones” to detect environmental rule-breakers – ships not using more expensive low-sulphur fuels may face significant penalties. “It is important shipping plays its part in a more sustainable environment.

However, despite the fast approaching deadline, there is still a lack of international standards and concern over the availability and compatibility of low-sulphur fuel,” explains Captain Rahul Khanna, Global Head of Marine Risk Consulting, AGCS. “Insurers are concerned about a potential increase in machinery breakdown claims with the introduction of low sulphur fuels if the transition is not well-managed. There is also potential for disruptions and delays to voyages if there is a lack of compliant, compatible fuel in port.”

Political risk has heightened around the globe and increasingly poses a threat to shipping security, trade and supply chains through conflicts, territorial disputes, cyber-attacks, sanctions, piracy and even sabotage, as evidenced by recent attacks on oil tankers in the Middle East. The growing number of migrants at sea and an increase in stowaways on commercial vessels also has serious consequences for ship owners, leading to delays, diversions and pressure on crew. Piracy incidents increased in 2018 to more than 200.

The growing number of incidents on larger vessels is concerning. Container-carrying capacity has almost doubled over a decade and a worst case loss scenario could cost as much as US $4bn in future.

Trusting technology: Safety-enhancing technology in shipping has been a positive for safety and claims, yet accidents continue to happen due to overreliance – even down to losses occurring from crew being on phones.

Autonomous shipping makes waves: Progress continues to be made but technology is not a panacea if the root cause of incidents and losses is not addressed.

All at sea – The most accident-prone vessels of the last year are three Greek Island ferries, all of which were involved in eight different incidents.

AGCS provides global marine and shipping insurance for all types of marine risk, from single vessels and shipments to the most complex fleets and multinational logistics businesses. The Marine Line of Business contributed 11% to AGCS overall premium volume of EUR  8.2bn in 2018. 

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