According to the Allianz Global Corporate & Specialty SE (AGCS) Safety & Shipping Review 2023, the number of lost large ships worldwide has reached a record low in 2022. But despite this positive trend, the shipping industry faces new safety challenges, including a surge in fires, the growth of a shadow tanker fleet and economic uncertainty.
The report shows that 38 large ships were lost last year, a decrease of more than a third from the previous year and the lowest total in the report’s history. However, despite this positive trend, the shipping industry is facing new safety challenges, including an increase in fires, the growth of a shadow tanker fleet and economic uncertainty.
Although the shipping industry has made significant improvements in safety over the last decade and ship losses have decreased significantly, challenges remain. Factors such as fire risks, ongoing and emerging threats from geopolitical conflicts, decarbonization efforts, economic uncertainties and rising ship damage costs pose obstacles for the sector in the coming months and beyond.
Capt. Rahul Khanna, Global Head of Marine Risk Consulting at AGCS, recognizes the positive impact of safety programs, training and regulations, but warns of the potential challenges ahead.
“While these results are encouraging, several clouds are appearing on the horizon,” said Captain Khanna. “More than a year after the Russian invasion of Ukraine, the growth of the shadow oil tanker fleet is the latest consequence, posing major challenges for shipowners, their crews and insurers. Fire safety and the problem of misdeclaring dangerous cargo must be addressed if the industry is to benefit from the efficiencies of ever larger vessels. Inflation drives up the cost of hull, machinery and cargo damage. While the industry’s decarbonization efforts are progressing, this remains by far the sector’s biggest challenge. Economic pressures could jeopardize important investments in corporate strategy as well as other security initiatives.”
The report shows that global ship losses have fallen by 65% over the past decade, reflecting long-term advances in maritime safety. The South China Sea region experienced the most total losses, followed by the British Isles, where most shipping casualties occurred.
Fires remain a major problem, with machine damage or failure accounting for almost half of all incidents reported worldwide. With eight ships lost and over 200 incidents reported, fire was the second leading cause of ship losses last year – the highest number in a decade. The transport of new types of cargo in connection with larger ships increases the risk of fire. Electric vehicles and battery-powered goods introduce new fire risks, particularly with potentially flammable lithium-ion batteries. Larger ships and incorrect cargo declarations further increase the consequences of fires. The report calls for proactive measures such as improved crew training, access to firefighting equipment and better early detection systems to address fire-related risks.
The report also highlights concerns about the growth of a shadow tanker fleet driven by oil-related sanctions. This fleet, which may number as many as 600 vessels, operates under flags of convenience and lower maintenance standards. The report highlights the potential for serious incidents that can result in loss of life, uninsured damage and environmental pollution. To illustrate the risk, the report points to the uninsured tanker’s deadly explosion Pablo in Southeast Asia in May 2023.
Economic pressures, including inflation and falling demand, are also affecting the shipping sector and potentially hampering decarbonization and security initiatives.
“The shadow fleet tends to be made up of older vessels that fly flags of convenience and have lower maintenance standards,” explains Justus Heinrich, Global Product Leader Marine Hull at AGCS. “The increase in their numbers is a worrying development that threatens the world fleet and the environment. A major incident can result in loss of life, uninsured damage or environmental pollution.”
Decarbonization is the biggest challenge facing the shipping industry, which accounts for about 3% of global greenhouse gas emissions annually. The sector is striving to reduce emissions but faces technological, regulatory and market hurdles. The transition to alternative fuels and technologies requires significant investment, and collaboration between companies and insurers is essential to mitigate the risks associated with these changes.
Economic pressures are back on the industry radar due to uncertainty and falling demand. The drop in freight rates and the possibility of an economic downturn can impact maintenance and risk management budgets. This in turn could lead to an increase in machine damage.
Increased commodity prices, higher labor costs and supply chain disruptions have also impacted marine insurance claims. The post-pandemic boom in container shipping has contributed to higher cargo values and impacted claims expenditures. Steel and spares prices have risen sharply, resulting in higher repair and salvage costs. Labor shortages and delays in obtaining spare parts have further aggravated the situation.
As the shipping industry continues to grapple with these challenges, collaboration, investment in safety initiatives and a focus on decarbonization remain key priorities to ensure the long-term sustainability and resilience of the sector.