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Shipping losses lowest for 10 years according to Allianz

Shipping losses lowest for a decade but mega-ships and cyber-attacks pose new threats for maritime sector
Increasing size of container ships and floating offshore facilities could cause larger losses exceeding $1 billion (£670m)

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Shipping losses continued their long-term downward trend with 75 reported worldwide in 2014, making it the safest year in shipping for 10 years, according to Allianz Global Corporate & Specialty SE’s (AGCS) third annual Safety and Shipping Review 2015, which analyses reported shipping losses of over 100 gross tonnes.

The British Isles, North Sea, English Channel and Bay of Biscay has been the location of the most shipping casualties since 2005 (4,381). Nearly one in five of all incidents (18 percent) have occurred in this region. It was also the scene of the second highest number of casualties during 2014 (465), up 29 percent year-on-year. The East Mediterranean and Black Sea region was the top hotspot (490), up 5 percent year-on-year. Total losses in the British Isles and surrounding waters doubled year-on-year during 2014.

Over reliance on electronic navigation aids has caused a number of incidents in 2014. Captain Rahul Khanna said: “Inadequate training at grass roots level is to blame for this overdependence on e-navigation tools. The minimum standards have been met, but this is not good enough. We need to go above and beyond them to give robust training.”

The stability of car carriers has also been a focus of the International Maritime Organisation since the catastrophic capsizing of the passenger/car ferry Herald of Free Enterprise in March 1987. Movement of cargo on these types of ships can affect their stability and a large superstructure means that they are more susceptible to wind and bad weather. These worries surfaced again at the start of 2015 with an incident involving the 2000-built 51,770 gt pure car carrier Hoegh Osaka. Due to listing, the pilot onboard opted to deliberately beach the ship on the Bramble Bank in the Solent, off the Isle of Wight, UK. The cargo of 1,400 vehicles is reported to have included more than £1m of new BMW Minis and millions of pounds worth of JCB construction equipment.

Losses declined by 32 percent compared with the previous year and were well below the 10-year loss average of 127. Since 2005 shipping losses have declined by 50 percent. More than a third of 2014’s total losses were in two maritime regions. South China, Indo China, Indonesia and the Philippines (17 ships) and Japan, Korea and North China (12 ships). Cargo and fishing vessels accounted for over half of all losses.

The most common cause of total losses is foundering (sinking/submerging), accounting for 65 percent of losses in 2014 (49). With 13 ships wrecked or stranded, grounding was the second most common cause with fires/explosions (4) third, but significantly down year-on-year.

According to the report, there were 2,773 shipping incidents (casualties) globally (including total losses) during 2014. December is the worst month for losses in the Northern Hemisphere and August in the Southern Hemisphere. For every total loss in the Southern Hemisphere there are 7 in the Northern Hemisphere.

Port and ships become hacker targets
Cyber risks are another new threat for a shipping sector which is highly interconnected and increasingly reliant on automation. “Cyber risk may be in its infancy in the sector today, but ships and ports could become enticing targets for hackers in future. Companies must simulate potential scenarios and identify appropriate mitigation strategies,” said Khanna. “A cyber-attack targeting technology on board, in particular electronic navigation systems, could possibly lead to a total loss or even involve several vessels from one company,” said Gerhard. Other scenarios include cyber criminals targeting a major port, closing terminals, or interfering with containers or confidential data. Such attacks could also result in significant business interruption costs, notwithstanding liability or reputational losses.

Passenger ship safety and crew levels in the spotlight
While the long-term downward trend in shipping losses is encouraging, recent casualties such as Sewol and Norman Atlantic have once again raised significant concerns over training and emergency preparedness on passenger ships three years after the Costa Concordia disaster. Seven passenger ships were lost during 2014, accounting for almost 10 percent of total losses. “In many cases construction of the vessel is not the only weak point. These two incidents underline a worrying gap in crew training when it comes to emergency operations on ro-ro ferries or passenger ships,” says Sven Gerhard, Global Product Leader Hull & Marine Liabilities, AGCS.  

The general shipping trend for smaller crews means seafarers are being asked to do more with less. Minimum manning levels reduce the ability to train people onboard, which can provide invaluable insight and should not become the normal day-to-day level for safe operations.

How big is TEU big?
Container ship safety is also under the spotlight with ever-increasing ship sizes, as evidenced by the January 2015 inauguration of the world’s largest container ship, the MSC Oscar (19,224 TEU). The length of four football pitches, it can carry 19,000 containers. Yet ships as large as 22,000 TEU are expected to be in service soon. “Larger ships can also mean larger losses. The industry should prepare for a loss exceeding $1 billion in future featuring a container vessel or even a specialized floating offshore facility,” Gerhard said.

Maximum exposure would not necessarily be limited to vessel and cargo value but could also include environmental or business interruption backlash. This raises concerns about whether risk management needs reviewing after an +80 percent container ship capacity increase in a decade.

AGCS sees a number of risks for such mega-ships including the fact operation is limited to a small number of deep water ports, meaning an increased concentration of risk. There is also a world-wide shortage of qualified seaman. Salvage and removal is also challenging. As the wreck removal of the Costa Concordia passenger ship demonstrated such costs can easily be a multiple of the hull value. “The shipping industry should think long and hard before making the leap to the next ship size,” adds Captain Rahul Khanna, Global Head of Marine Risk Consulting, AGCS.

Polar Code welcomed, but need for constant revision
The shipping industry has welcomed the recent arrival of the Polar Code which aims to curb risks from increased traffic in the Arctic and Antarctica. Analysis shows there were 55 reported shipping incidents in Arctic Circle waters during 2014 including one total loss. There were just 3 in 2005. While the code addresses many safety issues, questions remain, particularly around crew training, vessel suitability and potential clean-up. The Polar Code will need constant revision. Any shipping problems encountered and best practices to employ should be outlined at the end of each season.

For more information and to download the full Allianz Safety and Shipping Review 2015, visit:
http://www.agcs.allianz.com/assets/PDFs/Reports/Shipping-Review-2015.pdf

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