“Heightened political risks to vessel security, complying with 2020 emissions rules and the growing number of fires on board bring challenges.”
Ships involved in total loss casualties hit a record low in 2018, said the insurer Allianz Global Corporate & Specialty in the latest edition of its annual Safety and Shipping Review.
The news was not as encouraging for less severe accidents. The 2,698 shipping incidents tallied by Allianz was just 1% lower than in 2017.
The report offered cautions about an upward trend in fires aboard ships, the growing size of ships and problems that may result from a cap on the sulfur content of marine fuel promulgated by the International Maritime Organization.
Allianz said 46 large ships over 100 gross tons were total losses worldwide in 2018, less than half the 98 lost in 2017 and 55% below the 10-year average of 104. The company said that is the lowest number in a century; 15 of the total losses involved cargo ships.
Weather-related total losses were halved during a quieter year of hurricane and typhoon activity, and total losses significantly fell in accident hot spots such as Southeast Asia. Still, a quarter of the losses last year occurred in South China, Indochina, Indonesia and the Philippines.
Machinery damage and failure accounted for 40% of the 2,698 incidents last year and a third of the more than 26,000 incidents aboard ships over the past decade. That is twice as many as the next highest cause: collision. Machinery damage has resulted in more than $1 billion in claims in the past five years alone.
“Today’s record low total loss activity is certainly influenced by fortunate circumstances in 2018, but it also underlines the culmination of the long-term improvement of safety in the global shipping industry,” said Baptiste Ossena, global product leader for hull and marine liabilities at Allianz.
“Improved ship design, technology, tighter regulation and more robust safety management systems on vessels have also helped to prevent breakdowns and accidents from turning into major losses,” Ossena said. “However, the lack of an overall fall in shipping incidents, heightened political risks to vessel security, complying with 2020 emissions rules and the growing number of fires on board bring challenges.”
Allianz said fires continue to generate large losses on board ships and that the number is trending upward, with 174 reported last year.
“This has continued through 2019 with a number of recent problems on containerships and three significant events on car carriers. Misdeclared cargo, including incorrect labeling/packaging of dangerous goods, is believed to be behind a number of fires at sea. Meanwhile, the loss of hundreds of containers overboard from a large vessel in early 2019 provides a reminder that damaged goods is the most frequent generator of marine insurance claims, accounting for one in five over five years,” the insurer said.
The growing size of containerships, as well as cruise ships, car carriers and other types of vessels, is a cause of concern for the insurance industry. Allianz said data from the Nordic Association of Marine Insurers has shown that the most costly 1% of all claims account for at least 30% of the value of total claims in any given year.
“Larger vessels mean far greater accumulations of risks and therefore larger values and exposures, both on board vessels and in ports. Dealing with incidents involving large ships, such as fires, groundings and collisions, are also becoming more complex and expensive,” it said.
Allianz said a hypothetical worst-case loss scenario involving the collision and grounding of two large container vessels, or a container vessel and a cruise ship, could result in a $4 billion loss when the costs of salvage, wreck removal and environmental claims are included.
The requirement that ships not equipped with scrubbers use low-sulfur fuel beginning next year will have “wide-ranging implications for cost, compliance and crew. Large ports globally are even considering deploying so-called ‘sniffer drones’ to detect environmental rule-breakers — ships not using more expensive low-sulfur fuels may face significant penalties,” said the insurer.
“Technical problems resulting from the use of low-sulfur fuel could cause a vessel to lose power or control, which could lead to collisions and groundings,” it cautioned. “According to the International Union of Marine Insurance (IUMI), statistics from the California Department of Fish and Wildlife show that switchovers between heavy fuel oils and distillate fuels increase the risk of vessels losing power.”
Rahul Khanna, global head of marine consulting at Allianz, said poor quality fuels can result in machinery damage, especially if so-called “cat fines” are present.
Allianz said, “Low-sulfur fuels are also likely to contain higher levels of catalytic fines, small particles of metal introduced to fuel in the refining process (from catalytic converters) that can cause engine and equipment damage.”
Khanna said, “There are questions about the ability of refineries to produce enough low-sulfur fuel to meet the needs of the industry by 2020. Even (if there) were enough low-sulfur fuel to be available, the quality standard of some of the blended fuels may not be easily ascertained and there could be an impact on the engine and operation of a vessel. The results could be increased machinery damage, which can in turn cause maritime accidents.”
Allianz said the shipping industry “has limited experience with using low-sulfur fuels, which differ from high-sulfur fuels — for example, low-sulfur has a lower flashpoint and requires additional storage capacity and increased tank cleaning between bunkering. There may also be potential issues with fuel quality, stability and contamination. For example, the composition and blending of fuel differs by region and port, which can directly affect engine performance.
“There is also the potential for voyage disruption and delays, if there is a lack of compliant compatible fuel at a bunker port. Many of these issues will need to be managed by the crew, requiring effective fuel management and filtration processes, as well as training and close adherence to manufacturers’ standards,” the insurer said.
Andrew Kinsey, senior marine risk consultant at Allianz, said, “The switch to low-sulfur fuel will require operational and engineering actions, which, if not done properly, can have a wide-ranging impact. The switch will also have wider implications for the fuel supply chain, including the availability and cost of fuel.”
Allianz highlighted the role of human error in many marine casualties, saying its analysis of almost 15,000 marine liability insurance claims between 2011 and 2016 showed human error to be a primary factor in 75% of the value of all claims analyzed.
“We have seen serious losses from an overreliance on electronic chart displays and human error on the part of crew. We now have a generation of seafarers that have grown up trusting what they see on a screen,” said Kinsey, and without appropriate training “they can be lulled into a false sense of security. This is a serious problem that we see in repeated cases. People believe that technology makes them safer, but they do not allow for the human element and the need for training — ensuring crews have a solid background in the fundamentals of sound navigation and situational awareness.”