Improved risk management lowering shipping losses

Agency Report

Successful counter-measures have reduced piracy incidents around the coast of Africa still further in the past year, as overall shipping losses are reduced through improving risk management.

The 2017 edition of Allianz Global Corporate & Specialty SE’s (AGCS) fifth annual Safety & Shipping Review shows that, in 2016, piracy continued its downward trend as it recorded only 191 incidents, down 22 from 2015 (246), which is the lowest total recorded since 1998.

The review states: “The reduction reflects the successful measures taken to contain the threat of Somali pirates in the Gulf of Aden and the Indian Ocean, including the introduction of armed guards onboard vessels and the presence of a multinational naval task force.

“As a result, there were just two recorded incidents off the coast of Somalia in 2016, compared with 160 in 2011. Despite this positive trend, the threat of Somali pirates has not gone away. In March 2017, Pirates captured the oil tanker Aris 13 off the coast of Somalia and demanded a ransom – the first such seizure of a large commercial vessel since 2012.”

The report adds: “Following this incident there have been four further attempts or successful incidents, raising concerns about piracy resurfacing more widely in the region. Other risk challenges remain, such as the rise of crew kidnappings in West Africa.”

Globally, large shipping losses have declined by 50% during the past decade, largely driven by the development of a more robust safety environment by shipowners, according to the review.
There were 85 vessels reported as total losses around the shipping world in 2016, down 16% compared with a year earlier (101). Last year set safety records in the sector with the lowest number of losses in the past ten years, preliminary figures show. The number of shipping incidents (casualties) also declined slightly year on year, by 4% with 2,611 reported, according to the review, which analyses reported shipping losses in excess of 100 gross tons.

“While the long-term downward loss trend is encouraging, there can be no room for complacency,” comments Baptiste Ossena, global product leader hull and marine liabilities, AGCS. “The shipping sector is being buffeted by a number of interconnected risks at a time of inherent economic challenges.”

Environmental scrutiny is increasing, with record fines for vessel pollution. New ballast water management rules that come into force in 2017 are welcomed, but the cost of complying could have a significant impact on already stressed shippers. Political risk is increasing, with activity in hotspots such as Yemen and the South China Sea having the potential to affect vessel routes. The threat of offshore cyber attacks is also significant.

“A ‘perfect storm’ of increasing regulatory pressure combined with narrowing margins and new risks is gathering,” warns Mr Ossena.

Loss activity was up along the east African coast, one of a number of hotspots around the world. Globally, cargo vessels (30) accounted for more than a third of all vessels lost. Passenger ferry losses increased slightly (8), driven by activity in the Mediterranean and Southeast Asia.

The most common cause of global shipping losses remains foundering (sinking), accounting for more than half of all losses in 2016, with bad weather often a factor. Meanwhile, more than a third of shipping casualties during 2016 were caused by machinery damage.

“Crew negligence and inadequate vessel maintenance are two potential areas of increased risk, particularly if shipowners opt to recruit crew with less experience and training, or choose to stretch maintenance work to the longest possible intervals in order to save money,” explains Duncan Southcott, global head of marine claims at AGCS.

According to AGCS, negligence/poor maintenance is already one of the top causes of liability loss in the shipping sector and an increase in maintenance-related claims is observed. Implementing rigorous inspection and maintenance regimes is crucial.

Safety-enhancing technology is already impacting shipping – from electronic navigational tools through to shore-based monitoring of machinery and even crew welfare. Technology has the potential to significantly reduce both the impact of human error – which AGCS analysis shows accounted for approximately 75% of the value of almost 15,000 marine liability insurance claims over five years, equivalent to more than $1.6bn – and machinery breakdown.

“VDR data is already used in accident investigation, but there are also important lessons to be learned from analysing everyday operations, as well as crew behaviour and decision making in near misses,” says Captain Rahul Khanna, head of marine risk consulting at AGCS.

However, the issue of overreliance on technology is ongoing and incidents continue to result, particularly around navigation. “Crews and officers must understand the shortcomings and limitations of technology,” adds Captain Khanna. “Sometimes replacing common sense decisions with digital inferences is not such a good idea.”

The threat of cyber attacks continues to be significant. Most attacks to date have been aimed at breaching corporate security rather than taking control of a vessel. “The shipping sector doesn’t have a particularly heightened risk awareness when it comes to cyber. As no major incident due to a cyber attack has taken place yet, many in the industry are still complacent about the risks,” says Captain Khanna.

As many as 80% of offshore security breaches are estimated to be down to human error. “IT security should not be put on the backburner. If hackers were able to take control of a large container ship on a strategically important route they could block transits for a long period of time, causing significant economic damage,” he said.

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