22 March 2016 Insurance

2015 safest year for shipping in a decade: AGCS

Shipping losses continued their long-term downward trend with 85 total losses reported worldwide in 2015, according to Allianz Global Corporate & Specialty SE’s (AGCS) fourth annual Safety and Shipping Review 2016, which analyses reported shipping losses of over 100 gross tons.

Although the number of losses remained stable year-on-year, declining by just 3 percent compared with the previous year (88), 2015 was the safest year in shipping for a decade, according to AGCS. Losses have declined by 45 percent since 2006, driven by an increasingly robust safety environment and self-regulation. However, disparities by region and vessel-type remain.

More than a quarter of all losses occurred in the South China, Indochina, Indonesia and Philippines region (22 ships). Losses increased year-on-year, unlike other major regions.

Cargo and fishing vessels accounted for over 60 percent of ships lost globally, with cargo losses up for the first time in three years. The most common cause of total losses is foundering (sinking), accounting for almost 75 percent of losses, up 25 percent, and often driven by bad weather.

There were 2,687 reported shipping incidents (casualties including total losses) globally during 2015, down 4 percent. Activity is spread across all days of the week, although Thursday sees the most incidents and Saturday the fewest. The East Mediterranean and Black Sea (484) remains the top incident hotspot.

Three vessels share the accolade of being the most incident-prone - a ro-ro in the Great Lakes region, a hydrofoil in the East Mediterranean & Black Sea and a ferry in the British Isles – with 19 incidents over the past decade.

While the long-term downward trend in shipping losses is encouraging, the continuing weak economic and market conditions, depressed commodity prices and an excess of ships are pressurising costs, raising safety concerns, said AGCS. The firm has seen an increase in frequency losses over the past year which can likely be attributed to some extent to this environment.

“The economic downturn – and its impact on the shipping sector - is likely to have a negative impact on safety,” said Captain Rahul Khanna, global head of marine risk consulting, AGCS.

He added: “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.”

AGCS experts warn it is critical that economic pressures do not allow a “put it off until later” safety mentality to develop. Some shipowners are already stretching maintenance to longest possible intervals while others are laying-up vessels.

“Reactivation of these vessels to a market that has moved on technologically may result in a painful exercise. There is a need for standardized lay-up procedures,” said Captain Jarek Klimczak, senior marine risk consultant, AGCS.

As well as impacting investment in vessel maintenance, cost pressures can impair crewing conditions, passenger ship safety and salvage and rescue. AGCS has seen an increase in fatigue-related insurance claims over the past decade. With crew numbers already often at their lowest possible level, and a future staffing shortage anticipated, longer shift patterns could exacerbate this issue.

Meanwhile, training remains below par in some areas, such as electronic navigation, which should not be seen as panacea but as a complementary tool.

Although significant progress has been made in passenger ship safety, concerns remain, particularly around non-international voyages, said AGCS. Some parts of Asian domestic trade are years behind international standards, as evidenced by a number of recent ferry losses in South East Asian waters. Profit pressures mean scheduling maintenance can be challenging.

The appetite for ever-larger container ships has seen cargo-carrying capacity of the largest vessels increase by 70 percent over 10 years to 19,000+ containers. Two “mega ships”, the CSCL Indian Ocean and APL Vanda were grounded in February 2016, raising questions about a more serious incident. There are concerns commercial pressures in the salvage business have reduced easy access to the salvors required for recovery work on this scale. The industry may need to prepare for a $1 billion + total loss scenario, said the firm.

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