Allianz Global Corporate & Specialty (AGCS) has issued its annual ”Safety and Shipping Review”, a report which focuses on key developments in maritime safety and analyzes shipping losses during the 12 months prior to December 31, 2016. According to the report, cyber, autonomous shipping and piracy risks are the current major concerns for the industry as economic pressures challenge budgets. 85 large ships lost worldwide in 2016, down 50% over a decade. Top losses were reported in South China and Southeast Asia and now the East Mediterranean region is considered as the top incident hotspot, replacing the British Isles. Human error accounts for $1.6bn in liability losses over past five years. New navigational and monitoring technologies could help reduce impact, but over-reliance brings risks.
In its fifth report, Allianz Global Corporate & Specialty SE’s (AGCS) finds a decline in total shipping losses by 16% compared with a year earlier and also a slight decline in the casualties (4% decline; 2,611 reported incidents for losses over 100 gross tons).
Maritime safety has been improving in recent years, driven by continually evolving regulation and the development of a more robust safety culture. Many ship-owners are now much more proactive around safety than they were in the past.
Captain Andrew Kinsey, Senior Marine Risk Consultant at AGCS, noted that although we see improvement in maritime safety, we cannot acknowledge that the price of safe navigation is ‘constant vigilance’
“The maritime sector is entering a period of considerable change and unrest from economic pressures, technology and political factors. There is a perfect storm of increasing regulation and narrowing margins.”, Capt Kinsey commented.
More than a quarter of shipping losses in 2016 (23) occurred in the South China, Indochina, Indonesia and Philippines region – the top hotspot for the last decade. Loss activity there remained stable but was still almost double the East Mediterranean and Black Sea region (12), which was the next highest. Loss activity was also up in Japan, Korea and North China; the East African Coast, the South Atlantic, the East Coast of South America as well as the Canadian Arctic and Alaska maritime regions.
Cargo vessels (30) accounted for more than a third of all vessels lost. Passenger ferry losses increased slightly (8), driven by activity in the Mediterranean and South East Asia. Standards remain an issue in some parts of Asia with bad weather, poor maintenance, weak enforcement of regulations and overcrowding contributing to loss activity.
The most common cause of global shipping losses remains foundering (sinking), accounting for more than half of all losses in 2016, with bad weather often a factor. Over a third of shipping casualties were caused by machinery damage, which was also responsible for driving a 16% uptick in incidents in the East Mediterranean & Black Sea region (563), enough for it to replace the British Isles as the top incident location over the past decade.
Technology Drives Safety Improvements, but Over-Reliance Presents Risk Challenges
Safety-enhancing technology is already impacting shipping – from electronic navigational tools to shore-based monitoring of machinery and crew welfare. Technology has the potential to significantly reduce both the impact of human error – which AGCS analysis shows accounted for approximately 75% of the value of almost 15,000 marine liability insurance claims over five years, equivalent to more than $1.6bn – as well as machinery breakdown.
Cyber Attack Threat Growing
The threat of cyber attacks continues to be significant. Most attacks to date have been aimed at breaching corporate security rather than taking control of a vessel. As no major incident resulting from a cyber attack has taken place, many in the industry are complacent.
The report refers to the following five steps to cyber risk management onboard
- Identify: Define personnel roles and responsibilities for cyber risk management and identify the systems, assets, and data that, when disrupted, pose risks to ship operations
- Protect: Implement risk control processes and measures, and contingency planning to protect against a cyber event and ensure continuity of shipping operations
- Detect: Develop and implement activities necessary to detect a cyber event in a timely manner
- Respond: Develop and implement activities and plans to provide resilience and to restore systems necessary for operations or services impaired due to a cyber event
- Recover: Identify measures to back-up and restore cyber systems necessary for operations impacted by a cyber event.
“However, IT security should not be put on the backburner – if hackers were able to take control of a large container ship on a strategic route, significant economic losses would occur,” added Capt. Kinsey.
Autonomous Vessels and Maritime Safety
The technology behind autonomous vessels is developing rapidly, including technology that could allow ships to be controlled remotely or operate autonomously. Advancements in technology are also expected to enable ships to monitor their own health and the environment around them.
“Autonomous technology has the potential to revolutionize the movement of cargo on a scale not seen since containerization was introduced some 50 years ago. Despite unknowns and regulatory issues, autonomous shipping will happen. Economic pressures on the shipping industry and the need to find efficiencies will support and speed up developments in maritime automation.” Capt Kinsey added.
The report refers to potential benefits as well as challenges and risks that are expected from autonomous shipping
• Increase productivity, make logistics easier and enhance safety – given human error is a leading cause of
maritime incidents, it is anticipated unmanned vessels could be safer
• Increase efficiencies – savings on crew and fuel costs. Free up space to store additional cargo
• Better accessibility of remote, potentially dangerous areas
• Automated shipping lanes could increase reliability of cargo transport
• Decline in piracy incidents as crew cannot be used as ransom leverage
Challenges and Risks:
• Regulatory framework could prove more challenging than developing the technology
Significant international cooperation needed
• Safety considerations – potential issues around collisions between manned and unmanned vessels
• Human intervention also averts a significant number of incidents. Emergencies could pose tests
• Cargo maintenance and care challenges without crew support
• Increase in product liability issues
• Cyber security.
Piracy Threat Evolves with Crew Kidnapping on the Rise
The threat of Somali pirates has not gone away. In March 2017, pirates captured the oil tanker, Aris 13 off the coast of Somalia and demanded a ransom – the first such seizure of a large commercial vessel since 2012. Then, on June 1, 2017, armed pirates attempted to board the tanker MT NAVIG8 PROVIDENCE in the Gulf of Oman.
2016 also saw the escalation of crew kidnapping, showing a threefold increase on 2015, according to the IMB. Pirates kidnapped 62 people for ransom in 15 separate incidents during the year. Just over half were captured off West Africa, while 28 were kidnapped from areas around Malaysia and Indonesia.
Economic Pressures Can Lead to Risky Cost Saving Measures
The collapse of one of the world’s largest shipping companies, Hanjin Shipping, over the past year exposed the perilous state of some parts of the sector. Bankruptcies are rising and when debt levels are high and earnings low, ship owners often seek to make cost savings from maintenance budgets, training and crewing levels, all of which can spike loss activity.
According to AGCS, negligence/poor maintenance is already one of the top causes of liability loss in the shipping sector and an increase in maintenance-related claims is observed. Implementing rigorous inspection and maintenance regimes is crucial.
“Market developments” remains the biggest risk in the shipping sector, according to those questioned for the Allianz Risk Barometer 2017
Explore more by reading AGCS annual review of trends and developments in shipping losses and safety