The maritime sector experienced a slight total loss of vessels in 2022 while the number of shipping incidents remained relatively constant, according to a recent report.
Allianz Global Corporate & Specialty (AGCS) publishes it Safety and Shipping Review 2023, an annual review of trends and developments in shipping losses and safety. The review shows 38 loss of ships (over 100 gross tonnage) in 2022, compared to 59 last year.
The number of shipping casualties or incidents was 3,032 in 2022 compared to 3,000 last year. Machinery damage/failure was the most common cause of the incident (1,478), followed by collision (280), fire/explosion (209) and wreck/stranded (209).
Overview
The South China Sea region, which includes Indochina, Indonesia and the Philippines, is the global loss hotspot for total loss. By 2022, nearly one in four total losses (10) will occur in the region. High levels of trade, overcrowded ports, old ships and severe weather brought the number of total losses.
“The density of the number of vessels operating in that area is incredible,” said Captain Randy Lund, senior marine risk consultant at AGCS. “There are some poor ships operating there, whether it’s because of their maintenance, their history or the age of the ship.”
Cargo, fishing and passenger ships account for more than 60% of ships lost in the last decade. The average age of a vessel involved in a total loss in the last decade was 29 years.
Annual shipping losses have decreased by two-thirds in the past 10 years, reflecting improvements in maritime safety.
The number of casualties and incidents has meanwhile increased year-on-year in seven of the top 10 shipping regions. The British Isles region reported the highest number of reported incidents (679).
Fire Safety
Incidents involving fire grew 17% in 2022 from the previous year. Fire is the costliest cause of marine insurance claims and has generated 64 total losses over the past five years.
Decarbonization is driving demand for electric vehicles (EV) and battery-powered appliances. The presence of Lithium-Ion (Li-Ion) batteries used in EVs carries the risk of ‘thermal runaway’ a self-heating fire that can cause an explosion.
“With these types of fires, it’s all about expanding from one electric vehicle to the next one,” said Lund. “Because they burn so hot for such a long time and it is so difficult to contain, it is likely that the loss of the ship will be severe.”
AGCS’s analysis of approximately 250,000 claims in the marine insurance industry showed that fire was the most costly cause, accounting for 18% of the value of all claims reviewed. . Hazardous and flammable cargoes are increasingly carried on large ships, increasing the risk of serious losses.
While Li-Ion fire risks are likely to lessen over time, AGCS recommends focusing attention on pre-emptive measures to help reduce the risk, such as ensuring that staff/crew receive adequate training, improving early detection systems and developing risk control and emergency plans.
Russia-Ukraine War Fallout
The one-year mark of Russia’s war in Ukraine marks a factor in marine insurance policies, Allianz experts say. A naval war risk policy states that a ship may be considered a total loss if trapped or blocked for a specified period, usually one year for a hull policy but as little as six months for cargo.
As the war passed a 12-month period this spring, outstanding claims for stranded vessels were declared total losses, said Régis Broudin, Global Head of Marine Claims at AGCS.
“In almost 30 years of experience, this is the first time I’ve seen this theoretical total loss scenario realized under a blocking and trapping hull cover,” said Broudin. This situation has never happened before. “
Insureds are expected to take reasonable steps to try to minimize losses, such as using any safety pass agreements.
Western restrictions on Russian oil imports have led to unregulated oil transfers at sea carried out by “shadow” tanker fleets. Shadow fleets transport oil from Russia to countries such as China and North Korea. Shadow fleets turn off their automatic detection systems to avoid detection.
The vessels in such fleets are more likely to be older vessels operating under lower maintenance standards. Their presence brings more risks to the sea. According to AGCS analysis of ship tracking and accident data, there will be at least eight groundings, collisions or near misses involving tankers carrying sanctioned oil products in 2022, the same number of last three years combined.
Economic perspective
A post-pandemic demand for container shipping has decreased, leaving maritime transport in deep economic waters.
The cost of shipping a container between Asia and the US or Europe in April was more than 80% lower than a year earlier. The Baltic and International Maritime Council expect weak demand for container shipping to exceed supply for the rest of 2023.
Reduced freight rates can lead to lower maintenance costs and lower risk management budgets, said Justus Heinrich, global product leader marine mull at AGCS.
“In previous downturns, investment in ship maintenance was not always at the required level, leading to losses and increased machinery claims,” said Heinrich.
One potential positive effect of reduced freight rates is ship owners tend to scrap older ships. Scrapping all but stopped after the Covid-19 pandemic as demand for ships increased, Heinrich said, resulting in many ships operating beyond their normal life expectancy.
Older ships tend to be smaller, while newer ones can carry more cargo. The capacity of the largest container vessels has doubled in the last two decades. Newer ships also have improved propulsion and navigation systems.
The shift to larger ships could lead to narrow, congested shipping lanes, especially in the already thick South China Sea. A large ship experiencing a fire or cargo incident may take a long time to resolve, leading to additional delays for cargo owners.
However, newer ships with improved technology are preferred over older ships.
“From an insurance aspect,” said Lund, “we want to see new ships as opposed to 20-year-old ships trying to make it.”
Photo: Container ship leaving the shipping container terminal at the Port Of Rotterdam.
Source: Allianz Global Corporate & Specialty (AGCS)
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