“No room for complacency” in shipping industry

Russia’s invasion of Ukraine, the growing number of costly issues involving larger vessels, crew and port congestion challenges resulting from the shipping boom, and managing challenging decarbonisation targets, means there is no room for complacency in the shipping industry, according to AGCS’s Safety & Shipping Review 2022.

“The shipping sector has demonstrated tremendous resilience through stormy seas in recent years, as evidenced by the boom we see in several parts of the industry today,” says Captain Rahul Khanna, global head of Marine Risk Consulting at AGCS.

“Total losses are at record lows – around 50 to 75 a year over the last four years compared with 200+ annually in the 1990s. 

”However, the tragic situation in Ukraine has caused widespread disruption in the Black Sea and elsewhere, exacerbating ongoing supply chain, port congestion, and crew crisis issues caused by the Covid-19 pandemic.

”At the same time, some of the industry’s responses to the shipping boom, such as changing the use of, or extending the working life of, vessels also raise warning flags.

”Meanwhile, the increasing number of problems posed by large vessels, such as fires, groundings and complex salvage operations, continue to challenge ship owners and their crews.”

Shipping bottlenecks and port congestion

Covid-19 measures in China, a surge in consumer demand, and the Ukraine invasion have all been factors in ongoing unprecedented port congestion which puts crews, port handlers and facilities under additional pressure.

“Loading and unloading vessels is a particularly risky operation, where small mistakes can have big consequences. Busy container ports have little space, while the experienced labour required to handle the containers properly is in short supply.

”Add in fast turnaround times and this may result in a heightened risk environment,” adds Heinrich.

Ukraine impact

While total losses declined over the past year, the number of reported shipping casualties or incidents rose. 

The shipping industry has been affected on multiple fronts by Russia’s invasion of Ukraine, with the loss of life and vessels in the Black Sea, disruption to trade, and the growing burden of sanctions.

It also faces challenges to day-to-day operations, with knock-on effects for crew, the cost and availability of bunker fuel, and the potential for growing cyber risk.

The invasion has further ramifications for a global maritime industry already facing shortages. 

“The insurance industry is likely to see a number of claims under specialist war policies from vessels damaged or lost to sea mines, rocket attacks and bombings in conflict zones,” explains Justus Heinrich, global product leader, Marine Hull, at AGCS. 

“Insurers may also receive claims under marine war policies from vessels and cargo blocked or trapped in Ukrainian ports and coastal waters.”

The evolving range of sanctions against Russian interests presents a sizeable challenge. Violating sanctions can result in severe enforcement action, yet compliance can be a considerable burden.

It can be difficult to establish the ultimate owner of a vessel, cargo or counterparty. Sanctions also apply to various parts of the transport supply chain, including banking and insurance, as well as maritime support services, which makes compliance even more complex.

A burning issue: fires on board

During the past year, fires on board the roll-on roll-off (ro-ro) car carrier Felicity Ace and the container ship X-Press Pearl both resulted in total losses. 

Fires on large vessels can spread quickly and be difficult to control, often resulting in the crew abandoning ship, which can significantly increase the final cost of an incident.

“Too often, what should be a manageable incident on a large vessel can end in a total loss. Salvage is a growing concern. Environmental concerns are contributing to rising salvage and wreck removal costs as ship owners and insurers are expected to go the extra mile to protect the environment and local economies,” says Khanna.

“Previously, a wreck might have been left in-situ if it posed no danger to navigation. Now, authorities want wrecks removed and the marine environment restored, irrespective of cost.”

Higher salvage costs, along with the burden of larger losses more generally, are a cost increasingly borne by cargo owners and their insurers.

“’General average’, the legal process by which cargo owners proportionately share losses and the cost of saving a maritime venture, has become a frequency event, as well as a severity event, with the increase in the number of large ships involved in fires, groundings and container losses at sea compared with five years ago,” explains Régis Broudin, global head of Marine Claims at AGCS.

It was declared in both the Ever Forward and Ever Given incidents. The large container ship Ever Forward ran aground in the US in March 2022, and was stuck for over a month before it was freed, almost a year to the day after its sister vessel, Ever Given blocked the Suez Canal.