This review focuses on key developments in maritime safety and analyzes shipping losses (of over 100 gross tons) during the 12 months prior to December 31, 2017. It also identifies some of the key risk management challenges the industry faces moving forward.
Shipping is the lifeblood of the global economy, transporting approximately 90% of global trade. There are over 50,000 merchant ships trading internationally[i], carrying every kind of cargo, so the safety of vessels is critical. The maritime industry saw the number of total shipping losses remain stable during 2017, declining slightly to 94 – the second lowest total over the past decade.
Losses were down 4% compared with a year earlier (98) – current figures show a significant improvement on the 10-year loss average (113) – down 17%. Over the past decade, total losses have declined by more than a third (38%), driven by improved ship design, technology and advances in risk management and safety. Recent lower shipping activity is also a factor.
Disparities remain. The South China, Indochina, Indonesia and Philippines maritime region has been the number one area worldwide for major shipping incidents for the past decade, leading some media commentators to call it the “new Bermuda Triangle”. Last year, almost a third (32%) of losses occurred here (30) – up 25% annually. Not only are the seas busy they are also prone to bad weather – in 2017 Typhoon Damrey contributed to a number of losses (6). In addition, safety processes on some domestic routes continue to lag behind global standards. The East Mediterranean and Black Sea region is the second major loss hotspot (17), followed by the British Isles (8) and the Arabian Gulf (6).
Cargo ships (53) account for over half of all vessels lost during 2017, with activity up annually by 56%, driven by a rise in foundering (sinking) incidents. Fishing and passenger vessel losses are down year-on year. Losses involving bulk carriers and tankers increased, with bulk carriers accounting for five of the 10 largest reported total losses by gross tonnage (GT).
Foundering has been the cause of over half of the 1,129 total losses reported over the past decade. It accounted for an even higher share of 2017 losses (65%), with bad weather often a factor. Wrecking/stranding ranks second (13), followed by machinery damage/failure (8). Fire/explosion losses declined year-on-year (6).
There were 2,712 reported shipping incidents (casualties) in 2017, up slightly year-on-year by 3%, driven by a rise in machinery damage incidents – the top cause of casualties around the globe (42%). The East Mediterranean and Black Sea region is the most frequent location for incidents.
Behavioral and cultural risk need addressing. Technology can help. Despite huge improvements in maritime safety, fatal accidents at sea persist. Human error continues to be a major driver of incidents and captains and crews are under increasing commercial pressure as supply chains are streamlined. Tight schedules can have a detrimental effect on safety culture and decision-making leading to the “normalization of risk”. Better use of data and analytics can help to address this. The shipping industry has learned from losses in the past but predictive analysis is important for the future. New insights from crew behavior and near-misses can help identify human error trends. Sensor technology can also enhance risk management. For example, hull stress monitoring sensors could be linked to ship navigation in bad weather, feeding real-time information on structural integrity. However, over-reliance on technology on board must be avoided. Continual training is imperative to ensure the right balance is achieved between technology and human intervention.
Industry’s struggle with container ship fires continues: Major fires on container vessels are one of the most significant safety issues. The blaze on the ultra-large container ship (ULCS) Maersk Honam in March 2018 is one of a number of incidents in recent years. Issues driving container ship fire exposures include the adequacy of firefighting capabilities as vessels become larger, misdeclaration of cargo, salvage challenges and time taken to access a port of refuge. ULCS provide economies of scale but the industry needs to ensure risk management standards are up to speed, as larger container ships are on their way.
Record-breaking hurricane season brings supply chain and yacht problems: Hurricanes Harvey, Irma and Maria (HIM) and other severe weather events in 2017, such as Typhoons Damrey and Hato, show traditional maritime risks should not be overlooked. AGCS analysis shows bad weather directly contributed to at least 21 total losses in 2017 and this could yet increase further (see page 9). Fuel market, cargo, cruise ship and port operations were also disrupted, leading to natural catastrophes being ranked the top risk by shipping experts in the Allianz Risk Barometer 2018. Shippers need to consider scenarios where multiple locations are impacted when drawing up contingency plans.
Meanwhile, the estimated 60,000 pleasure craft[ii] damaged or destroyed by HIM in the US and Caribbean raises questions over the insurability of such vessels remaining in the region during the season.
Fast-changing ice conditions bring route risks: Climate change is impacting ice hazards for shipping, freeing up new trade routes. For example, cargo volumes on the Northern Sea Route increased by nearly 40% to 9.7 million tons over the past year – the biggest annual volume ever[iii]. China has also announced plans for an “Arctic Silk Road”, developing shipping lanes opened up by global warming. There were 71 reported shipping incidents in Arctic Circle waters during 2017, up 29% year-on-year. Arctic conditions can change quickly and transit information will need to be disseminated faster than at present in future. Ice also poses a significant hazard elsewhere. Over 1,000 icebergs drifted into North Atlantic shipping lanes in 2017 – the fourth consecutive “extreme” season[iv]. Sailing in such conditions necessitates specialist training for seafarers and additional routing support.
Exploitation of the seas increases: The marine environment is seen as a resource, bringing environmental risks for shipping, such as pollution of fish farms or even pirate fishing, which is estimated to cost the global economy as much as $23.5bn a year[v]. Increasing maritime activity also brings potential new collision hazards, such as the growing number of offshore wind farms in the North Sea – offshore wind In Europe grew 25% in 2017; a record year[vi].
New emissions rules problematic: Increasing environmental and sustainability pressures – such as the new “Paris Agreement for the shipping industry”, which aims to significantly cut all emissions and existing industry commitments to reduce sulphur oxide emissions – will enhance innovation in ship design and practices but will also bring changes in risk profile and financial challenges. The shipping industry is increasingly looking to technical solutions to reduce emissions, which could bring accompanying risk issues with engines and bunkering of biofuels, as well as questions over appropriate training of crew. The reduction in sulphur emissions by 2020 comes with cost implications and doubts over sufficient availability of affordable low-sulphur fuel. Exhaust gas-cleaning systems or “scrubbers” are costly, with demand outstripping supply. Compliance is likely to be problematic and industry preparation lacking.
Shippers get serious on cyber: Major attacks, such as NotPetya, which caused around $3bn of economic losses, have created a renewed urgency in tackling the threats posed to vessels and the supply chain, as well as increasing interest in cyber business interruption insurance. The current lack of incident reporting masks the true picture in shipping when it comes to cyber risk. New regulations such as the European Union’s Network and Information Security Directive will change that and also exacerbate the fall-out from any cyber failure. Many shipping companies are looking to improve cyber security on board, by separating IT systems for different functions, such as navigation, propulsion and loading.
Drones ready for take-off: Unmanned aircraft systems are finding a growing number of applications in the maritime sector. They are increasingly used by class societies and marine surveyors to assess vessel damage and more uses are likely in future, which could have the potential to make a significant contribution to safety and risk management. These include assessing environmental pollution, monitoring cargo loading and pirate activity along coastlines and carrying out cargo tank inspections. Drones could enable faster, more informed decision-making on board, reducing the impact of any incident.
Autonomous shipping progresses but challenges remain: Significant milestones continue to be reached but legal, safety and security issues are likely to limit growth of crewless vessels for the foreseeable future. Autonomous shipping could improve maritime safety but will not remove human error entirely. It will still be present in the algorithms that drive the decision-making of vessels, while manned onshore bases will continue to control and monitor. Automation raises questions about who is at fault in an accident – the manufacturer, software provider or the onshore bases. New kinds of losses, such as cyber or product liability, could replace traditional claims. Technical management and maintenance of ships will also need to be rethought. One of the main challenges for the insurance industry in future will be dealing with more technical shipping claims, resulting from greater use of new technology.
Political risk and piracy still rule the waves: Heightened political tensions around major shipping routes, such as off the coast of Yemen in the Middle East and the South China Sea in Asia, pose a risk of disruption. Although piracy incidents have dropped to a 22-year low (180 attacks)[vii], hotspots remain. Three quarters of incidents occur in South East Asia and Africa. Indonesia (43 attacks) remains the main location although activity has declined. Conversely, activity in the Philippines more than doubled year-on- year (22 attacks). In Africa, there was an increase in Somalian pirate activity. In South America, Venezuela saw a significant increase in piracy activity, with one happening every month on average during 2017.
[i] International Chamber of Shipping
[ii] Boat Owners Association of The United States
[iii] Russian Federal Agency For Maritime and River Transport
[iv] G Captain, Ice Patrol More Than 1,000 Icebergs Drifted Into N. Atlantic Shipping Lanes in 2017, December 2017
[v] Agnew DJ, Pearce J, Pramod G, Peatman T, Watson R, Beddington JR, et al. (2009) Estimating the Worldwide Extent of Illegal Fishing. PLoS ONE 4(2): e4570.
[vi] Wind Europe, Offshore wind in Europe grew 25% in 2017, February, 2018
[vii] International Maritime Bureau
[viii] Allianz Global Corporate & Specialty, Global Claims Review: Liability In Focus, 2017