March 24, 2015 by Canadian Underwriter
Global shipping losses for 2014 may be down once again, but mega ship and cyber attacks risks are emerging and pose a threat to the maritime sector, Allianz Global Corporate & Specialty (AGCS) SE cautions in a report issued Tuesday.
The good news is shipping losses are continuing their long-term downward trend, with 75 total losses reported worldwide in 2014, notes AGCS’s Safety and Shipping Review 2015, which analyzes reported shipping losses of in excess of 100 gross tons.
Loss numbers make 2014 the safest year in shipping for 10 years, notes a statement from AGCS, which provides insurance and risk consultancy across the whole spectrum of specialty, alternative risk transfer and corporate business.
AGCS reports that shipping losses in 2014 were down 32% from 2013 (when there were 110), are well below the 10-year loss average of 127, and have declined by 50% since 2005 (driven, in part, by a robust regulatory environment).
“2014 is only the second year over the past decade when annual losses have dropped below 100,” the report notes. Of the 75 reported losses, cargo and fishing vessels accounted for more than 50% of all losses, with the former accounting for 25 and the latter for 14.
The most common cause of losses was foundered (sunk/submerged), at 49, accounting for 65% of the total (although the number of such incidents was down almost 30% year-on-year); wrecked/stranded (grounded) was 13; fires/explosions was 4, down 73% year-on-year; hull damage was 3; machinery damage/failure was 3; collision was 2; and miscellaneous was 1. [Click image below to enlarge]
Two regions accounted for more than a third of 2014’s total losses: South China, Indo China, Indonesia and the Philippines (17 ships); and Japan, Korea and North China (12 ships). “Losses in both regions declined year-on year.”
Total losses by the Top 10 region also include East Mediterranean & Black Sea, 7; British Isles, North Sea, English Channel and Bay of Biscay, 6; South American west coast, South Pacific, Arabian Gulf and approaches, and West Indies, each at 3; Iceland and Northern Norway and West Mediterranean, both at 2; and Others, 17.
The United States eastern seaboard region did not register a total loss for the second consecutive year, and the North American west coast region also did not see a total loss in 2014.
AGSS points out that there were 2,773 shipping incidents (casualties) globally (including total losses) last year. The East Mediterranean & Black Sea region witnessed 490 incidents, up 5% year-on-year, while the British Isles, North Sea, English Channel and Bay of Biscay saw 465 incidents, up 29% over 2013.
For the North American west coast region, there have been 783 shipping incidents (casualties) since 2005, ranking 10th highest overall globally.
Despite the lower downward trend in losses, among the new risks is the increasing size of container ships and floating offshore facilities.
For example, risks associated with mega-ships – the largest so far is 19,224 teu, but bigger ships are planned – relate to the limited number of deep-water ports that can operate such vessels, leading to an increased concentration of risk; worldwide shortage of qualified seaman; and salvage and removal challenges.
“Industry should prepare for a loss exceeding $1 billion in future featuring a container vessel or even a specialized floating offshore facility,” Captain Andrew Kinsey, AGCS’s senior marine risk consultant, notes in the statement. Maximum exposure would not necessarily be limited to vessel and cargo value, but could also include environmental or business interruption backlash, Kinsey comments. [Click image below to enlarge]
“There are many variances and factors to consider when evaluating the cost of a potential loss scenario resulting from an incident involving such vessels,” Kevin Whelan, a marine claims specialist at AGCS, notes in the report.
Things such as the average value of the contents of the containers, whether or not the vessel is completely laden, shipping route/location and salvage/removal of wreck situation must be considered. “Such unchartered territory makes potential costs even more problematic to calculate,” Whelan adds.
There are also cyber risk concerns. AGCS reports that a cyber attack targeting technology on board, in particular electronic navigation systems, could lead to a total loss or involve several vessels from one company.
Another scenario might be that cyber criminals could target a major port, closing terminals or interfering with containers or confidential data.
Such attacks could also result in significant business interruption costs, notwithstanding liability or reputational losses.
“Dependence on e-navigation, the interconnectivity of the maritime sector, the current low levels of cyber security awareness and – longer term – the prospect of unmanned ships, means ships and ports could become enticing targets for hackers in future,” the report states. “A cyber attack could result in a total loss, leading to substantial insurance claims for hull, cargo and protection and indemnity underwriters,” it notes.
AGCS advises that “companies must simulate potential scenarios and identify appropriate mitigation strategies.”
Other risks on the report’s radar include the following:
• Arctic shipping – Analysis shows there were 55 reported shipping incidents in Arctic Circle waters during 2014, including one total loss, compared to just three in 2005.
• Increase in human trafficking – The recent rise in geo-political tension has led to an increase in human trafficking of refugees by sea. The International Maritime Organization estimates at least 600 merchant ships were diverted in 2014 to rescue people, stretching resources and rescue infrastructure.
• Piracy risks – There has been good progress tackling activity in Somalia and the Gulf of Guinea, down 7% in 2014, with International Maritime Bureau reporting 245 global attacks last year. This is down for the fourth consecutive year, but piracy thrives elsewhere. Attacks in South East Asian waters are up, as are incidents in the Indian subcontinent.
• Crewing levels – Recent casualties, such as Sewol and Norman Atlantic, have once again raised significant concerns ove
r training and emergency preparedness on passenger ships. Minimum manning levels reduce the ability to train people onboard, which can provide invaluable insight and should not become the normal day-to-day level for safe operations.
With regard to crew levels, AGCS reports that seven passenger ships were lost in 2014, accounting for almost 10% of total losses. “In many cases, construction of the vessel is not the only weak point,” Kinsey suggests in the statement. The Sewol and Norman Atlantic incidents “underline a worrying gap in crew training when it comes to emergency operations on ferries or passenger ships,” he adds.