Allianz: Asian waters account for most shipping losses even as global numbers hit record low

• Safety
  & Shipping Review 2020: 14 large ships lost in Asian waters in 2019,
  accounting for more than 33% of losses worldwide
• Globally,
  41 large ships lost in 2019, down by more than 20% year-on-year and almost 70%
  over a decade.
• Number
  of shipping incidents (2,815) is up, as are claims from machinery issues. Ro-ro
  vessel safety is a growing concern.
• Consequences
  of coronavirus and a sustained economic downturn could threaten long-term
  safety improvement and trigger an uptick in losses from cost-cutting measures, fatigued
  crew, idle vessels and weakened emergency response.
• Rising
  geopolitical tensions, emissions rules and de-carbonization targets, mis-declared
  cargo and fire incidents continue to pose risk challenges.

SINGAPORE – Media
OutReach – 15 July
2020 – Asian waters accounted for a third of a large vessels
lost at sea globally, even as large shipping losses are at a record low having
fallen by over 20% year-on-year, according to specialty insurer Allianz Global
Corporate & Specialty SE’s (AGCS) Safety& Shipping Review 2020. However, the coronavirus crisis could
endanger the long-term safety improvements in the shipping industry for 2020
and beyond, as difficult operating conditions and a sharp economic downturn
present a unique set of challenges.   

 

“Coronavirus has struck at a
difficult time for the maritime industry as it seeks to reduce its emissions,
navigates issues such as climate change, political risks and piracy, and deals
with ongoing problems such as fires on vessels,” says Baptiste Ossena, Global Product Leader Hull Insurance, AGCS. “Now
the sector also faces the task of operating in a very different world, with the
uncertain public health and economic implications of the pandemic.”

 

The annual AGCS study analyzes
reported shipping losses over 100 gross tons (GT) and also identifies 10
challenges of the coronavirus crisis for the shipping industry which could
impact safety and risk management. In 2019, 41 total losses of vessels were reported
around the world, down from 53, 12 months earlier. This represents an
approximate 70% fall over 10 years and is a result of sustained efforts in the areas of regulation, training and
technological advancement, among others. More than 950 shipping losses have
been reported since the start of 2010.

 

Top loss locations and most affected ships

According to the report, the South China,
Indochina, Indonesia and Philippines maritime region remains the top loss
location with 12 vessels in 2019 and 228 vessels over the past decade — one in
four of all losses. The Japan, Korea and North China region saw 2 vessels lost
in 2019 and is the third largest loss location overall with 104 since 2010. High
levels of trade, busy shipping lanes, older fleets, typhoon exposure, and safety
issues on some domestic ferry routes are contributing factors. However, in
2019, losses declined for the second successive year, mirroring a global trend.

 

Cargo ships (15) accounted for more
than a third of vessels lost in the past year, most of them in South East Asian
waters. Foundered ships (sunk/submerged) were the main cause of all total
losses, accounting for three in four (31). Bad weather accounted for one in
five losses. Issues
with car carriers and roll-on/roll-off (ro-ro) vessels remain among the
biggest safety issues. Total losses involving ro-ros are up year-on-year, as
well as smaller incidents (up by 20%) — a trend continuing through 202.

 

“The rise in number and severity of
claims on ro-ro vessels is concerning. Ro-ros can be more exposed to fire and
stability issues than other vessels,” says Khanna. “Many have quick turnarounds
in port and a number of accident investigations have revealed that pre-sail
away stability checks were either not carried out as required, or were based on
inaccurate cargo information. Too many times commercial considerations have
endangered vessels and crews and it is vital that this is addressed on shore
and on board.”

 

Number of smaller shipping incidents
on the rise

While total losses continue to see
a positive trend, the number of reported shipping incidents (2,815) increased
by 5% year-on-year, driven by machinery damage, which caused over one in three
incidents (1,044). A rise in incidents in the waters of the British Isles,
North Sea, English Channel and Bay of Biscay (605), meant it replaced the East
Mediterranean as the top hotspot for the first time since 2011, accounting for
one in five incidents worldwide. Similarly, incidents in the South China,
Indochina, Indonesia and Philippines region also increased by 21 year-on-year
for a total of 255 in 2019, making it the third highest region.

 

“We cannot lose sight of the fact that, while total
losses have reduced significantly, the total number of incidents increased year-on-year,”
says Ossena. “It does not take much for a serious incident to result in a total
loss and, hence, the warning signs are there.”

 

There were almost 200 reported
fires on vessels over the past year, up 13%, with five total losses in 2019
alone. Mis-declared
cargo is a major cause. Taking steps to address this issue is vital as it
will only worsen as vessels become bigger and the range of goods transported grows.
Chemicals and batteries are increasingly shipped in containers and pose a serious
fire risk if they are mis-declared or wrongly stowed.

 

Coronavirus challenges

The shipping industry has continued
to operate through the pandemic, despite disruption at ports and to crew
changes. While any reduction in sailings due to coronavirus restrictions could
see loss activity fall in the interim, the report highlights 10 challenges that
could heighten risks. Among these are:

• The inability to change crews is impacting the
  welfare of sailors, which could lead to an increase in human error on board
  vessels.
• Disruption of essential maintenance and
  servicing heightens the risk of machinery damage, which is already one of the
  major causes of insurance claims.
• Reduced or delayed statutory surveys and port
  inspections could lead to unsafe practices or defective equipment being
  undetected.
• Cargo damage and delay are likely as supply
  chains come under strain.
• The ability to respond quickly to an emergency
  could also be compromised with consequences for major incidents which are
  dependent on external support.
• The growing number of cruise ships and oil
  tankers in lay-up around the world pose significant financial exposures, with
  many of them anchored in typhoon-exposed areas in Asia or hurricane-exposed
  areas in North America.

“Ship-owners also face additional
cost pressures from a downturn in the economy and trade,” says Captain Rahul Khanna, Global Head of Marine
Risk Consulting at AGCS. “We know from past downturns that crew and
maintenance budgets are among the first areas that can be cut and this can
impact the safe operations of vessels and machinery, potentially causing damage
or breakdown, which in turn can lead to groundings or collisions. It is crucial
that safety and maintenance standards are not impacted by any downturn.”

 

Geopolitical tensions and cyber
impact shipping safety

Meanwhile, events in the Gulf of
Oman and the South China Sea show political rivalries are increasingly being
played out on the high seas and shipping will continue to be drawn into geopolitical
disputes. Heightened political risk and unrest globally has implications
for shipping, such as the ability to secure crews and access ports safely. In
addition, piracy
remains a major threat with the Gulf of Guinea re-emerging as the global hotspot,
Latin America seeing armed robbery increase and renewed activity in the Singapore
Strait.

 

Ship-owners are also increasingly
concerned about the prospect
of cyber-conflicts. There has been a growing number of GPS spoofing attacks
on ships, particularly in the Middle East and China, while there have been
reports of a 400% increase in attempted cyber-attacks on the maritime sector
since the coronavirus outbreak.

 

Other risk topics in the AGCS Safety
& Shipping Review include:

• Targets to cut emissions will shape
  shipping risk for years to come. The aim to halve CO2 emissions by 2050
  will require the industry to radically change fuels, engine technology and even
  vessel design. Since January 1, 2020 allowable sulphur levels in marine fuel
  oil were slashed. However compliance is not straightforward and teething
  problems could lead to a surge in machinery damage claims. Ultimately, de-carbonization
  will also have regulatory, operational and reputational implications. Progress
  on addressing climate change could stall with the focus on the coronavirus
  pandemic. This must not be allowed to happen.
• New technology not a panacea, but an
  increasingly useful tool: Shipping tech can be a positive for safety
  and claims and is increasingly being deployed to combat some of the risks
  highlighted in the report — from reducing the threat of fire on vessels through
  temperature monitoring of cargo to even potentially integrating suppression
  systems in drones in future. Increased use of industrial control systems to
  monitor and maintain engines could significantly reduce machinery damage and
  breakdown incidents, one of the biggest causes of claims.
• Unluckiest
  ships — The most accident-prone vessels of the last year were two Greek
  Island ferries and a bulk carrier in North America, all involved in six
  different incidents.

About Allianz Global Corporate & Specialty

Allianz Global Corporate & Specialty (AGCS) is a leading global
corporate insurance carrier and a key business unit of Allianz Group. We
provide risk consultancy, Property-Casualty insurance solutions and alternative
risk transfer for a wide spectrum of commercial, corporate and specialty risks
across 10 dedicated lines of business.

 

Our customers are as diverse
as business can be, ranging from Fortune Global 500 companies to small
businesses, and private individuals. Among them are not only the world’s
largest consumer brands, tech companies and the global aviation and shipping
industry, but also wineries, satellite operators or Hollywood film productions.
They all look to AGCS for smart answers to their largest and most complex risks
in a dynamic, multinational business environment and trust us to deliver an
outstanding claims experience.

 

Worldwide, AGCS operates with
its own teams in 32 countries and through the Allianz Group network and
partners in over 200 countries and territories, employing over 4,450 people. As
one of the largest Property-Casualty units of Allianz Group, we are backed by
strong and stable financial ratings. In 2019, AGCS generated a total of €9.1
billion gross premium globally.

For more information please visit http://www.agcs.allianz.com/
or follow us on Twitter @AGCS_Insurance and LinkedIn.

Cautionary Note Regarding Forward-Looking Statements

The
statements contained herein may include statements of future expectations and
other forward-looking statements that are based on management’s current views
and assumptions and involve known and unknown risks and uncertainties that
could cause actual results, performance or events to differ materially from
those expressed or implied in such statements. In addition to statements which
are forward-looking by reason of context, the words “may”,
“will”, “should”, “expects”, “plans”,
“intends”, “anticipates”, “believes”,
“estimates”, “predicts”, “potential”, or
“continue” and similar expressions identify forward-looking
statements.

Actual
results, performance or events may differ materially from those in such
statements due to, without limitation, (i) general economic conditions,
including in particular economic conditions in the Allianz Group’s core
business and core markets, (ii) performance of financial markets, including
emerging markets, and including market volatility, liquidity and credit events
(iii) the frequency and severity of insured loss events, including from natural
catastrophes and including the development of loss expenses, (iv) mortality and
morbidity levels and trends, (v) persistency levels, (vi) the extent of credit
defaults, (vii) interest rate levels, (viii) currency exchange rates including
the Euro/U.S. Dollar exchange rate, (ix) changing levels of competition, (x)
changes in laws and regulations, including monetary convergence and the
European Monetary Union, (xi) changes in the policies of central banks and/or
foreign governments, (xii) the impact of acquisitions, including related
integration issues, (xiii) reorganization measures, and (xiv) general
competitive factors, in each case on a local, regional, national and/or global
basis. Many of these factors may be more likely to occur, or more pronounced,
as a result of terrorist activities and their consequences.

The matters
discussed herein may also be affected by risks and uncertainties described from
time to time in Allianz SE’s filings with the U.S. Securities and Exchange
Commission. The company assumes no obligation to update any forward-looking
statement.