Shipping losses hit record low

Shipping losses hit record low | Insurance Business Australia

Insurance News

Shipping losses hit record low

But challenges persist, report says

Insurance News

By
Steven Byerley

Maritime safety remains a critical concern as shipping plays a vital role in transporting approximately 90% of world trade.

While significant improvements have been made in the sector over the past decade, resulting in a record-low number of large ships lost in the previous year, challenges persist, according to Allianz Global Corporate & Specialty SE’s (AGCS) Safety & Shipping Review 2023. Factors such as fire risk, the ripple effects of the Ukraine conflict, decarbonization challenges, economic uncertainty, and the rising cost of marine claims pose obstacles for the industry.

“Shipping losses have sunk to the lowest number we have seen in the 12-year history of our annual study, reflecting the positive impact of safety programs, trainings, changes in ship design, and regulation over time,” said 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.”

Total losses decrease

According to AGCS’s analysis, there were 38 total losses of vessels reported globally in 2022, compared to 59 in the previous year, marking a 65% decline in annual losses over the past decade. However, over the past 10 years, more than 800 total losses have been recorded, with South China, Indochina, Indonesia, and the Philippines maritime region being the global loss hotspot, accounting for 204 total losses over the past 10 years. Fire/explosion and vessel collision were among the top causes of losses.

Although total losses have decreased, the number of shipping casualties or incidents reported remained consistent. The British Isles saw the highest number of incidents, with machinery damage or failure being the leading cause globally, AGCS reported.

The report also highlighted an increase in fires at sea and on land, particularly due to the transportation of new types of cargo such as electric vehicles and battery-powered goods, which pose fire risks, especially with the prevalence of potentially flammable lithium-ion batteries. Mis-declaration of hazardous cargo is another concern that hampers firefighting efforts and increases the risk of incidents.

Challenges to the sector

The ongoing conflict in Ukraine continues to impact the shipping industry, with the threat of collateral damage and the creation of a shadow tanker fleet by Russia and its allies. This fleet, consisting of older ships operating under flags of convenience with lower maintenance standards, poses a significant risk to the global fleet and the environment, AGCS said.

Furthermore, decarbonization remains a major challenge for the sector, with shipping contributing approximately 3% of global greenhouse gas emissions. The transition to alternative fuels and technologies requires substantial investment and collaboration between companies and insurers to mitigate risks.

Economic pressures and falling demand in the aftermath of the pandemic have also affected the industry, potentially impacting maintenance and risk management budgets. Additionally, increased commodity prices, higher labor costs, and supply chain disruptions have contributed to rising marine insurance claims, particularly in hull and machinery.

In another hit for the industry, a recent report from Verisk noted that cargo theft was on the rise.

The challenges faced by the shipping industry highlight the need for continued safety programs, regulatory measures, and investments to ensure maritime safety and mitigate risks associated with fire, hazardous cargo, geopolitical conflicts, decarbonization, and economic uncertainties, AGCS said.

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