Article Shipping losses at record low in 2022, says Allianz’s AGCS

Shipping losses fell to a record low in 2022, according to the just published Safety & Shipping Review 2023 from Allianz Global Corporate & Specialty (AGCS). However, it warned that an increase in the number of fires, a growth in the shadow tanker fleet, and economic uncertainty, posed new safety challenges.

The review stated that last year there were 38 large ships lost worldwide – down from 59 in 2021 and the lowest total in the report’s history. Thirty years ago, the global fleet was losing 200+ vessels a year. The South China Sea region saw the most losses. The sea around the UK and Ireland saw the most shipping incidents.

Fire was the second-highest cause of loss over the past year. Eight vessels were lost and more than 200 incidents were reported – the highest for a decade. AGCS warned that the transport of electric vehicles and battery-powered goods brought new fire risks. Larger vessels and mis-declaration of cargo amplified the consequences.

The insurer said that improvements had been significant over the past decade, culminating in the sector reporting a record low number of large ships lost over the past year. However, a combination of factors impacting fire risk, ongoing and new threats posed by the ripple effects of the Ukraine conflict, decarbonization challenges, economic uncertainty, as well as the rising cost of marine claims, meant that the sector still had many obstacles to navigate over the next 12 months and beyond.

“Shipping losses have sunk to the lowest number we have seen in the 12-year history of our annual study reflecting the positive impact safety programs, trainings, changes in ship design and regulation have had over time,” says Captain Rahul Khanna, Global Head of Marine Risk Consulting at AGCS. “While these results are gratifying, several clouds appear on the horizon. More than a year after Russia’s invasion of Ukraine, the growth of the shadow oil tanker fleet is the latest consequence to challenge shipowners, their crew and insurers. Fire safety and the problem of mis-declaration of hazardous cargo must be fixed if the industry is to benefit from the efficiency of ever- larger vessels. Inflation is pushing up the cost of hull, machinery and cargo claims. Meanwhile, although the industry’s decarbonization efforts are progressing, this remains by far the sector’s biggest challenge. Economic pressures could put vital investments in companies’ strategies, as well as in other safety initiatives, in jeopardy.”

According to the report, there have been more than 800 total losses over the past decade (807). South China, Indochina, Indonesia, and the Philippines maritime region is the global loss hotspot, both over the past year and decade (204 total losses). It accounted for one in five of all losses in 2022 (10) driven by factors that included high levels of trade, congested ports, older fleets and extreme weather.

Around a quarter of vessels lost in 2022 were cargo (10). Foundered (sunk/submerged) was the main cause of total loss across all vessel types (20), accounting for over 50%. Fire/explosion ranked as the second top cause of loss (8). Vessel collision was third (4).

While total losses declined over the past year, the number of shipping casualties or incidents reported was relatively flat (3,032 in 2022 compared to 3,000 in 2021). There were 679 incidents in the seas around the UK and Ireland. Machinery damage or failure accounted for close to half of all incidents globally (1,478). There were over 200 fires reported during 2022 (209) – the highest number for a decade, making this the third top cause of incidents globally, up 17% year-on-year.

AGCS said that several factors were increasing the risk of fires at sea and on land. The number of electric vehicles and battery-powered goods being transported by sea was increasing, while potentially highly flammable lithium-ion (Li-ion) batteries posed a growing risk for container shipping and car carriers. This battery market is expected to grow by over 30% annually over the next decade, AGCS said.

The main causes of Li-ion fires were substandard manufacturing or damaged battery cells or devices, over-charging and short-circuiting. Fires in vehicles with Li-ion batteries are difficult to extinguish and were also capable of spontaneously reigniting. “Most ships lack the suitable protection, detection and firefighting capabilities to tackle such fires at sea,” said Khanna, adding that “attention must focus both on pre-emptive measures and emergency plans to help mitigate this peril”. He suggested adequate crew training and access to appropriate firefighting equipment or improving early detection systems. “Purpose-built vessels for transporting EVs would be advantageous”, he said.

Hazardous cargos were also increasingly being transported by ever-larger vessels. Container-carrying capacity had doubled in the past 20 years. The 10 largest container operators have more than 400 new vessels on order, and the majority of these will be larger than the ships they replace. Consequently, the impact of fires is being amplified. AGCS analysis of close to 250,000 marine insurance industry claims showed that fire was the most expensive cause of loss, accounting for 18% of the value of all claims analyzed.

Industry reporting systems attribute around 25% of serious incidents onboard container ships to mis-declared dangerous goods, such as chemicals, batteries, and charcoal. “Failure to properly declare, document and pack hazardous cargo can contribute to blazes or hamper firefighting efforts,” Khanna said, adding that “labeling a cargo as dangerous is more expensive. Therefore, some companies try to circumvent this by labelling fireworks as toys or Li-ion batteries as computer parts, for example.”

Several large container shipping companies have turned to technology to address this issue, using cargo screening software to detect suspicious bookings and cargo details, while large container operators are imposing penalties. “Unified requirements and penalties for mis-declared hazardous cargo would be welcomed,” said Khanna.

Ukraine and oil sanctions: growth of shadow tanker fleet latest safety concern

More than a year after Russia’s invasion of Ukraine, the ripple effects for shipping continue to be felt. The threat of collateral damage on civilian shipping in or around the war risk area remains high and could stem from floating mines for example.

Because Russia has been subjected to oil sanctions, there has been a rapid growth in the so-called “shadow fleet”. Estimates of its size vary but run as high as 600 vessels. “The shadow fleet is more likely to be made up of older ships, operating under flags of convenience with lower maintenance standards,” said Justus Heinrich, Global Product Leader Marine Hull at AGCS, adding that “the increase in their number is a worrying development, threatening the world fleet and the environment. A major incident can cause loss of life as well as uninsured damage or pollution.”
AGCS noted that in May 2023 an uninsured, unladen 1997-built tanker, Pablo, exploded in Southeast Asia, reportedly killing crew.

The industry has not yet seen any major claims from alternative technologies or fuels. However, as these are introduced at scale, more issues may surface, warned Heinrich, noting that “collaboration is key and regular exchanges of information and data between companies and insurers from testing and experiences will be important in helping to reduce transition risks”.

Following the post-pandemic boom in container shipping, economic and geopolitical uncertainty and falling demand had hit freight rates. The cost of shipping a container between Asia and the United States or Europe in April 2023 was more than 80% lower than a year earlier. “The question is whether this decline, together with the prospect of an economic downturn, will impact maintenance and risk management budgets. Prior downturns have impacted these, leading to losses and an uptick in machinery damage incidents,” said Heinrich.

Increased commodity prices, higher labour costs and supply chain disruption have had a significant impact on marine insurance claims, in particular hull and machinery. “The price of steel, a key cost driver in hull claims, increased sharply post-pandemic, as did spare parts. A typical propeller or machinery claim now costs around two times more than pre-pandemic,” said Régis Broudin, Global Head of Marine Claims at AGCS. He added that “shortages and delays in obtaining replacement parts have also led to longer stays in repair yards while labour shortages have also increased costs. This comes on top of the increased expense of dealing with large vessels, which face higher costs for repairs, salvage and towing.”

In addition, cargo values have risen with the increase in the price of goods and raw materials. “Even companies with the best risk management will see the impact of inflation on claims,” said Broudin.

Source: Insurance Marine News 1st June 2023