Shipping Losses Hit an All-Time Low in 2023, per Allianz Commercial

According to the Safety and Shipping Review released for 2024 by Allianz Commercial, a company under the umbrella of German-based Allianz Group, Losses of large shipping vessels achieved a record low with 26 losses last year. This a drastic improvement from three decades ago, and even shows significant growth within the last decade. This was accomplished in spite of the tumultuous environment the shipping business operates in and the additional challenges it has faced in recent years.

Back in 2020, the Covid-19 pandemic virtually brought almost the entire globe to a halt with loss of life on a massive scale, mandated quarantines and curfews, social distancing guidelines and policies, and business shakeups and slowdowns and in many cases shutdowns—a fair portion of which ended up being permanent. Organizations around the world had to quickly adapt to maintain some level of productivity while also mapping out and planning for potential future risks and hurdles.  

While many, both organizations and individuals, have recovered, the pandemic has had long lasting effects and changes while seemingly ushering in a period marked with uncertainty. Numerous global events have occurred since the pandemic resulting in an increasingly volatile global landscape including war and military conflicts, worldwide economic downturn, and extreme weather incidents. In addition, organizations and businesses have had to address matters such as market unpredictability and instability, moves toward decarbonization, the emergence of AI technology, and an unprecedented wave of cybercrime among others. The impact of these events is perhaps felt in no sector more strongly than in supply chains and third-party relationships.

At least 90% of global trade occurs across the world’s seas and oceans, making safety on those waters vitally important, particularly to businesses shipping goods on large vessels. In an industry that already presents its own hazards and risks, the radical, and even violent, shifts caused by the issues listed above create inherent risks that range from raising costs and causing delays to putting cargo ships in peril. As a result of the in numerous risks involved with the freight shipping industry, Allianz Commercial not only provides insurance policies to meet the unique needs of the industry but also releases an annual Safety and Shipping Review which tracks risks and trends in global trade from the previous year and attempts to map out potential future risks. Allianz Commercial offers insurance to businesses of all sizes, specializing in tailor made solutions and policies to meet each client’s needs.

Losses & Incidents

Their Safety and Shipping Review 2024 reported that in 2023, 26 large vessels (of 100 gross tonnage [GT] or more) were lost. This is a one third drop from 2022, and a 70% decline over the last ten years. The number of losses from a year ago is also a far cry from the 200+ a year that were being lost thirty years ago in the ‘90s, which had been cut in half by a decade ago. This improvement occurred while at this same time the global shipping fleet has grown, with the number of ships increasing by 30% over the last decade, in addition to the ships themselves becoming larger.

Cargo ships made up more than 60% of all vessels lost last year, and the three leading causes reported for loss were foundered or sunk with 13 (50% 0f all losses), wrecked and/or stranded with 4, and fire/explosion with 3. Fire activity on vessels was down as a whole in 2023, despite 55 total losses due to fire in the last five years and 205 total fire incidents reported last year, which was the highest annual total in just over a decade.

Over the past ten years there have been 729 total losses at sea reported globally. In that time there have been three regions that have made up almost half of that total. They are:

·      South China,  Indonesia, and the Philippines (184), which was also the main hotspot in 2023 (accounting for nearly a third of all losses with 8).

·      East Mediterranean and Black Sea (115).

·      Japan, Korea, and North China (62).

These regions all see a huge volume of ships both importing and exporting goods throughout these areas and their respective waters, which lines up with the numbers above.

Last year saw a decline in reported shipping casualties and/or incidents, though it was only by 3% (from 3,036 to 2,951). More than 50% of all shipping incidents worldwide was due to machinery damage and/or failure with 1,587 last year and was also the leading cause over the last decade with 11,506. This was followed by collision with other vessels (3,014),wrecked/stranded (2,808), and contact with port infrastructure (1,916). While avoiding being a hotspot for vessel losses, the British Isles has been the leading hotspot for the number of incidents reported both last year (695) and the last decade (5,279) accounting for 19% of the 27,821 reported incidents in the last decade.

Present & Future Landscape

The global shipping industry has many inherent risks, as it can easily be derailed by any number of factors including any of the incidents named above and more. The recent and ongoing conflict in Gaza is only the most recent event to expose the increasingly vulnerable environment for global shipping. Already, more than 100 ships have been targeted in the Red Sea alone, as a response to the conflict by Houthi militants. Disruption to shipping in the area has already lasted longer than anticipated and will most likely continue for the foreseeable future.

The shipping industry is a desirable target for militant groups as it allows them to gain notoriety as well as impact global markets. A primary matter of concern in the aftermath of attacks like these is of course the safety of those working on these vessels, as hundreds of crew members have already been impacted in the Red Sea. And this is only the most recent crisis to affect the global shipping industry in recent years following the Covid-19 pandemic and the war in Ukraine. This comes at a time when the maritime industry as a whole is dealing with a labor shortage, and there is worry that the dangerous and volatile conditions created by these global events will deter new workers. The demand for increased workforce is being felt now more than ever with the growing need for decarbonization and improved technology.

The conflicts in Ukraine and Gaza have also demonstrated that commercial shipping is especially susceptible to attacks from drones as vessels struggle to defend against them without a substantial naval presence. They may also face technological attacks, as there have been a number of reports of GPS systems being interfered with and jammed as well as Automatic Identification Systems (AIS) which may be open to cyberattacks, As the threat of cyberattacks against networks and organizations of all types grows, supply chains have shown to be particularly vulnerable due to their interconnected nature.

In addition to the danger present for shipping vessels, the ongoing threat of navigating waters in and around the Middle East has had an impact on traffic and trade going through the Suez Canal. To make matters worse, this comes on the heels of drought at the Panama Canal causing disruption to traffic in that area. What this has done essentially is create conditions equated with a double strike as these two waterways experience problems.

Both the Panama and Suez Canals are vitally important routes to the shipping particularly of manufactured goods and energy between Europe, Asia, and the East Coast of the US. Ships unable to pass through either would inevitably face incredibly lengthy diversions along with inflated expenses, and businesses impacted will see delays and likely higher costs as well. Longer voyages as a result of rerouting also affects the risk landscape along with the environment.

More harsh seas and storms could prove to be too much for smaller ships that are more accustomed to navigating coastal waters, along with a potential lack of infrastructure in place to handle an incident with a larger vessel, such as a port capable of refuge or a suitable salvage operation. Any environmental gains could be negated, and negative impacts increased as ships will likely have to increase speeds to cover longer distances. When cargo vessels were rerouted from the Suez Canal to the Cape of Good Hope it resulted in an estimate of a 70% increase in GHG emissions for a round trip from Singapore to Northern Europe, while diversions from the Red Sea have already been reported as being the leading factor in a 14% bump in the EU shipping sector’s carbon emissions in the first 2 months of this year.

These are only the latest events to impact the global shipping industry in the last few years which include: 

·     Covid-19 pandemic: Affected global markets dueto unstable work environments, navigating health and safety guidelines, dealing with shifting and unpredictable demand from consumers, etc.

·     Extreme weather and climate conditions and incidents

·     The war in Ukraine: This has created violent and dangerous conditions in the region, which already has its own safety issues for shipping vessels.

·     Container ship fires and groundings: As outlined above this an already present danger and will likely become an area for greater concern as the shipping industry experiments and works with potentially dangerous alternative fuels.

·     Conflict in Gaza

·     The Francis Scott Key Bridge collapse in Baltimore: While it was an isolated incident that itself had minimal global impact, the reality and cause of the tragedy has increased awareness and concern that current conditions may not be adequate to prevent and avoid such disasters.

Last year also saw a resurgence in maritime piracy as security concerns and efforts have been focused elsewhere, with 120 pirating incidents reported in 2023, an increase from the previous year. A major region for concern is off the Horn of Africa, right along the route for some ships rerouted from the Suez Canal, as a number of vessels have already been attacked here. This activity is likely being encouraged by conditions in the Red Sea creating a more favorable environment for pirates: a combination of being emboldened by events in the Red Sea and increased traffic in more heavily pirated waters. While this could just be fleeting opportunism that has caused this rise in activity, it could be a sign of a renewed period of piracy and hijacking on these as well.

Alongside the violent conditions created by the war in Ukraine, international sanctions on Russian oil have tightened over recent years since Russia’s invasion of the Ukraine. Resulting in the formation of a fairly large ‘shadow fleet’ of oil tankers working in the region. These ships are predominantly outdated vessels that operate outside of international regulations and typically without being properly insured which bring critical environmental and safety risks, especially when in vital chokepoints for oil shipping. This ‘shadow fleet’ is estimated to number somewhere between 600-1,400 vessels, which equals around a fifth of the worldwide crude oil tanker fleet. Similar vessels have also been reported being used by Iran and Venezuela.

Many of these ships are likely in poor condition and have not been properly inspected, if at all, and they also take part in the dangerous practice of ship-to-ship oil transfers in open water and shutting off their AIS transponders to conceal themselves. All of this increases the odds of incidents occurring, such as:

·      Fires

·      Engine failures

·      Collisions

·      Steering loss

·      Oil spills

All of the above have been reported in relation to this dark fleet, with 50 incidents to date.

As a result of supply chains and organizations being so interconnected today, a single unforeseen event can quickly snowball into a global crisis. The impacts felt from these events have also drawn attention too there regions of the world, for example the South China Sea where territorial disputes are ongoing while the region is also one of the most trafficked by shipping vessels across the globe. Unfortunately, it is unlikely that territorial disputes and political rivalries endangering the seas will abate anytime soon. As a result, shipping organizations should explore new approaches:

·      Diversifying their supply chains

·      Near-shoring and on-shoring

·      Updated approach to cargo risk management

·      Business continuity planning

Hull Size

When the Francis Scott Key Bridge in Baltimore, Maryland, back at the end of March after it was hit by the Dali, a container ship, it made global headlines and brought into the limelight the reality of the complications that come along with shipping vessels getting larger. Incidents like this are fortunately uncommon as there have been only 35 major bridge collapses across the world that involved a ship or barge from 1960-2015.

Naturally, the larger the vessel, the more difficult it is to navigate in less open waterways, particularly in regard to the distance required to stop such a vessel. Thankfully, having bigger ships and more of them on the seas has not meant more frequent incidents so far, however, it does mean that when an incident does occur that the severity of the damage is much greater, and often any affected infrastructure in the area was not prepared to handle ships of the scale that freighters can reach today. At the time the Francis Scott Key Bridge was built during the 1970s, container vessels were little less than half the size of the Dali, which is as long as three football fields, but is still not even close to as large as some of the vessels in the global shipping fleet today. Since the SS Ideal X, the first commercially successful container vessel, first set sail in 1956—less than 70 years—freight vessel shipping capacity has grown by as much as 2,900%. Coincidentally, this is virtually the same time period in which those 35 major bridge collapses occurred.

This incident has also further unveiled potential risks created by power blackouts, as losing propulsion power is a relatively frequent occurrence, with 400 cargo ships having reported loss of propulsion over the last 3 years in US waters alone. Roughly 25% of these reports took place near a bridge, port or some other form of infrastructure, and when these large vessels become involved in incidents near infrastructure the chances for loss of life increase, as well as higher chances of the scale of loss being great.

As stated earlier, fire aboard vessels continue to be a major causer for damage to and loss of ships, and the larger they get so does the scale and severity of the damage. Many ships called “ro-ro” vessels (roll-on/roll-off freighters designed for typically transporting wheeled cargo) are usually quite large, and as a result of the nature of the nature of their cargo the risk for fire and explosion is far worse.  

This coincides with discussions heating up over the risks of shipping electric vehicles, which contain lithium-ion batteries for their power source. When the batteries are either faulty or damaged, they present a serious fire risk, and on a ship containing many EVs, a fire or explosion could trigger a chain reaction. While some ships and their crews have begun to take precautions when shipping these vehicles there are still numerous risks, and many "ro-ros" or other ships transporting smaller EVs such as e-scooters do not have the firefighting capabilities necessary or the proper safety measures for transporting such vehicles. Furthermore, many workers in the shipping industry are not properly trained when it comes to the inspection of lithium-ion batteries or on how to respond in the event of discovery of a potentially dangerous battery. To mitigate risks and prevent potentially costly incidents, shipping organizations should start taking measures to account for these risks, even if it goes beyond current regulatory standards.

Cargo Security

While the issues laid out above are at the forefront of concerns for the global shipping industry, there are other dangers and risks for shippers that are not out on the water as cargo theft has also been trending upwards recently, especially in transportation and logistics. This is complicated by the current economic climate, a shift in which goods are targeted, as well as more sophisticated tactics being used by criminals.

The number of thefts in North America has increased every one of the past six years and there was a 20% increase in 2022, and it is likely that 2023 will surpass even that. Parts of Europe have also been impacted, including Germany, Italy, and Spain. This aggravated environment has been perpetuated by the current economic climate and tied into that the current cost of living crisis. This creates more incentive for people to steal and also buy stolen goods, and even though robbery of high value cargo has gone up, a wider diversity of goods has become the targets of thieves, particularly food and household goods.

To make matters worse, criminals are capable of using more sophisticated methods to obtain their target cargo, usually by utilizing some type of technology frequently in the form of a cyberattack. Thieves may infiltrate networks by taking advantage of a cybersecurity vulnerability, posing as a reputable supplier, redirecting shipments, or using other means to coordinate their heist. They may also use methods to increase difficulty of recovering stolen freight, such as jamming the signals of GPS tracking devices or mobile phones. Cybercrime and cybersecurity is a prominent issue that in numerous organizations are addressing today, as recent years have seen a spike in such illegal activity with hundreds upon hundreds of organizations being impacted. Supply chains have shown to be susceptible due to the number of third-party relationships throughout, and third parties have been a particular cybersecurity vulnerability that have been exploited.

Decarbonization and Sustainability

This is a matter that is not unfamiliar to any organization today, and certainly not to any supply chain professional. This is perhaps the biggest issue organizations face today, particularly throughout supply chains where the greatest impact is felt. The shipping industry has made improvements toward decarbonization, yet recent regulatory developments along with ambitious new industry standards indicate even further how great the need for increased urgency, heightened innovation, and more investment. These goals and targets include:

·     Reducing CO2 emissions by 40% by 2030

·     Cutting annual GHG emissions from international shipping by at least 20% by 2030. Also cutting those same emissions by 70% by 2040

·     Increasing use of green technology, fuel, and/or energy sources to constitute at least 5%, though preferably 10%,of energy used by ships by 2030

Achieving these goals will demand a diverse strategy that will include things such as:

·     Improving energy efficiency

·     Adopting the use of alternative fuels: Biofuels, ammonia, methanol, green hydrogen, etc.

·     Modified ship designs and propulsion systems: Electric vessels, wind assisted propulsion, wing sails, rotors, foils, etc.

This presents brand new challenges to an industry that already faces many in its existing way of working. There will be a need to develop the infrastructure required to support vessels that use alternative fuels while also phasing out currently used fossil fuels, among other examples. These new alternative fuels may also create future risks for those handling them as they could be toxic or highly explosive, or for salvage workers as they might make shipwrecks more volatile and dangerous.

Shipyard capacity will have to increase to accommodate the growing demand for green ships, which is being slowed down currently by long wait times and lofty building construction costs. Estimates show that more than 3,500 vessels will have to either be built or refitted by 2050 to help achieve decarbonization and sustainability goals. Though the shipbuilding industry was putting 2,700 new vessels in the water per year at its height in 2010, the number of active shipyards was cut by more than half from 2007-2022. This would likely also have a side effect on repairs and maintenance, as ships needing to work could encounter long delays due to limited capacity.

Additionally, there has been a continued increase in vessels navigating Arctic waters as a result of growth of commercial interest in the region along with climate change. There was a 37% increase, roughly 500 vessels, in unique ships entering the Arctic Polar Code region from 2013-2023. The Arctic Polar Code, introduced in 2017, outlines the regulations and restrictions for vessels navigating the harsh waters around the pole. As a result of the dangerous environment due to severe cold and ice it brings higher risks to the ships themselves, their crews, and even the environment. Much of the region is very remote, making the ability to respond to an incident with a shipping vessel limited. Last September for example, a cruise ship ran aground in Greenland, and it was three days before it could be pulled free. There are more non-ice-class tankers sailing in the Arctic as a result of a shortage in icebreakers, creating more risk within the region. There have been incidences in the past where a tanker had gotten stuck in the ice and if this were to happen to a non-ice-class vessel not only would it put the crew in potentially serious danger and likely result in the loss of a vessel but also could cause an environmental disaster.

The challenges and risks that maritime shipping encounters are countless, as the ones outlined here are only a portion of those the industry faces. The world’s waterways are inherently unpredictable, and as the rest of the world grows larger and more interconnected the environment that shipping vessels operate within fluctuates and becomes even more volatile. This makes addressing and mitigating risk vital for businesses that ship goods over water, not just within this space but also elsewhere. Some of these challenges will be unavoidable, and shoring up risk management throughout the rest of the supply chain will only make it simpler to tackle those present on the seas.

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