Shipping Sector Fighting Riptide of COVID Impact

The impact of the COVID pandemic are set to endanger the long-term safety improvements in the shipping industry for 2020 and beyond  according to new research.

Allianz Global Corporate & Specialty’s (AGCS) has issued  its Safety & Shipping Review 2020, which highlights that large shipping losses are at a record low having fallen by over 20% year-on-year.

The news has been tempered by the COVID pandemic and the impact it is likely to have in the global maritime sector at a time when it is in the midst of major safety reforms.

“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,” said 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.”

The annual study analyses reported shipping losses over 100 gross tons (GT) and also identifies 10 challenges of the coronavirus crisis for the shipping industry which could impact safety and risk management. In 2019, 41 total losses of vessels were reported around the world, down from 53 12 months earlier. This represents an approximate 70% decline over 10 years and is a result of sustained efforts in the areas of regulation, training, and technological advancement, among others. More than 950 shipping losses have been reported since the start of 2010.

In terms of the pandemic, 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, due to the potential threat from extreme weather, piracy, or political risks.

“Ship-owners also face additional cost pressures from a downturn in the economy and trade,” said 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.”

According to the report, the South China, Indochina, Indonesia, and Philippines maritime region remains the top loss location with 12 vessels in 2019 and 228 vessels over the past decade – one in four of all losses. High levels of trade, busy shipping lanes, older fleets, typhoon exposure, and safety issues on some domestic ferry routes are contributing factors. However, in 2019, losses declined for the second successive year. The Gulf of Mexico (4) and the West African Coast (3) rank second and third.

Cargo ships (15) accounted for more than a third of vessels lost in the past year, while foundered (sunk/submerged) was the main cause of all total losses, accounting for three in four (31). Bad weather accounted for one in five losses. Issues with car carriers and roll-on/roll-off (ro-ro) vessels remain among the biggest safety issues. Total losses involving ro-ros are up year-on-year, as well as smaller incidents (up by 20%) – a trend continuing through 2020.

“The rise in number and severity of claims on ro-ro vessels is concerning. Ro-ros can be more exposed to fire and stability issues than other vessels,” added Capt. Khanna. “Many have quick turnarounds in port and a number of accident investigations have revealed that pre-sail away stability checks were either not carried out as required or were based on inaccurate cargo information. Too many times commercial considerations have endangered vessels and crews and it is vital that this is addressed on shore and on board.”

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). A rise in incidents in the waters of the British Isles, North Sea, English Channel and Bay of Biscay (605), meant it replaced the East Mediterranean as the top hotspot for the first time since 2011, accounting for one in five incidents worldwide.

“We cannot lose sight of the fact that, while total losses have reduced significantly, the total number of incidents increased year-on-year,” warned Mr 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.

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