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Recent Developments: Safety impact of lower oil prices and depressed market conditions

Economic woes, depressed global commodities prices and an excess of ships combined challenged 2015 operating costs. With the two primary crude oil benchmarks at a 12-year low during part of the year, impacts on markets have been far reaching. While falling oil prices can be viewed as a positive factor in view of lower bunker expenses, at the current level, many exploration projects are too costly and have been shelved until prices recover. This impacts vessel maintenance, repair and crewing, which have all suffered from lack of investment.

“It’s critical that economic pressures do not allow a ‘put it off until later’ mentality to set in,” warns Kinsey. “While offshore support companies can still operate, they cannot generate profits,” adds Klimczak, “so instead they turn to changing the nationality or the number of crew onboard in order to save costs, extending working hours, and implementing condition-based maintenance (CBM) without having detailed procedures and track records. These are grey areas, which are not well regulated.”

Machinery damage is the most common cause of shipping incidents, accounting for 36% around the globe. This statistic is troubling because preventative measures are often one of the first shipboard expenses to suffer in hard times.

Some owners are stretching maintenance intervals, while others face vessel layup decisions. With the latter option increasingly favored, safety risks are heightened, according to Klimczak, especially when laid-up ships are reactivated. “Layups are not very structured because there are very few standards and no mandatory procedures. In my view there is an urgent need for standardized layup procedures.” A further concern is the increasing obsolescence of ships that are laid-up for a period of time, only to return to a charter market that has moved on technologically in their absence.

Insolvencies in the global marine sector rose by 10% in 2015. Investments dropped by 7%.

 

“Looking at the long-term perspective, the reactivation of these vessels may constitute a painful exercise for the industry,” says Klimczak. AGCS has observed an increase in frequency losses in 2015 which can, to some extent, likely be attributed to the economic environment.

“The economic downturn is likely to have a negative impact on safety,” says Khanna. “Many sectors, such as general cargo, bulk and offshore, are already challenged and any drop in safety standards will be a serious case for concern.”

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(Click on image to enlarge) Source: Allianz Risk Barometer 2016. Figures represent the number of responses as a percentage of all responses (between 40 and 149 responses per industry). More than one risk selected.