Insurer warns there is 'no room for complacency' in shipping

Captain Rahul Khanna says crews and officers must understand the shortcomings and limitations of technology. Credit: Allianz Global Corporate & Specialty

 

The shipping sector had been warned it is facing a “perfect storm”, with regulation and emerging risks exacerbating the pressure created by a tough trading environment.

 

Speaking as insurer Allianz Global Corporate & Specialty SE’s (AGCS) launched its fifth annual Safety & Shipping Review 2017, Baptiste Ossena, Global Product Leader Hull & Marine Liabilities, AGCS, warned the sector cannot be complacent.

 

The review highlighted the fact large shipping losses have declined by 50% over the past decade, largely driven by development of a more robust safety environment by shipowners.

 

Last year saw 85 vessels reported as total losses around the world, down 16% compared with a year earlier. It was the lowest in terms of losses for a decade.

 

“While the long-term downward loss trend is encouraging, there can be no room for complacency,” said Ossena. “The shipping sector is being buffeted by a number of interconnected risks at a time of inherent economic challenges.”

 

The report highlighted growing concerns that environmental scrutiny is increasing, with record fines for vessel pollution. 

 

While new ballast water management rules that come into force in 2017 are welcomed, the cost of complying could have a significant impact on already-stressed shippers, the report added. 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,” warned Ossena.

 

The grim economic environment was highlighted by the collapse of Hanjin Shipping, which exposed “the perilous state of some parts of the sector”, said the report. Bankruptcies are rising and when debt levels are high and earnings are low, shipowners often seek to make cost savings on maintenance budgets, training and crewing levels, all of which can spike loss activity.

 

“Crew negligence and inadequate vessel maintenance are two potential areas of increasing 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,” says 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.

 

In terms of technology, AGCS said 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 over USD1.6 billion – and machinery breakdown,” said the report.

 

Telematics are already successfully deployed in the automotive sector, improving driver behaviour. The shipping sector could also benefit. Insurers such as AGCS are in the early stages of working with shipowners to utilise Voyage Data Recorder (VDR) analysis to improve safety. “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 over-reliance on technology is ongoing and incidents continue to result, particularly around navigation. “Crews and officers must understand the shortcomings and limitations of technology,” added Captain Khanna. “Sometimes replacing common sense decisions with digital inferences is not such a good idea.”

 

The report warns 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,” warned 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,” he added. “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.”

 

Contact: Jon Guy

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