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Post-pandemic world brings heightened risks for shipping

Home Business Management Insurance Post-pandemic world brings heightened risks for shipping

WHILE the Covid-19 pandemic resulted in few direct claims for the marine insurance sector, the impact on the welfare of crews and the boom in shipping and port congestion raises potential safety concerns. This is according to risk experts at Allianz Global Corporate & Speciality.

Demand for crew is currently high, yet many skilled and experienced seafarers are leaving the industry after enduring months or even years stuck on vessels. For those that choose to remain, commercial pressures are mounting, which can lead to mistakes and shortcuts.

High demand for shipping is also affecting the risk profile of certain sub-sectors, including container shipping. The global fleet is ageing, but values and exposures are rising. High freight rates are also leading some operators to carry containers on bulk carriers where crews are not trained or experienced in handling containers and vessels are not designed to carry them.

Crew crisis – a skill shortage in the making

The combination of the pandemic crew crisis and current working conditions risks a future skill shortage for the shipping industry. Morale among seafarers is low and crews now face a rising workload, while the ever-growing burden of compliance is making the job less attractive, the experts say.

Crew welfare and retention rate are a risk factor considered in underwriting, explains Justus Heinrich, Global Product Leader Marine Hull at AGCS.

“From the perspective of our risk assessment, we like to see high levels of crew retention and evidence of good people risk management. Particularly with more modern vessels and technology, the ability to attract and retain experienced crew is critical,” says Heinrich.

The Russian-Ukrainian war has further implications for a global maritime workforce already facing shortages. Russian seafarers account for just over 10 percent of the world’s 1.89 million seafarers, while around four percent are from Ukraine.

Seafarers in the Black Sea are in a perilous situation, stuck onboard vessels or in ports with dwindling supplies and under fire, which is another blow for the industry and global supply chains, given crew levels have not yet returned to normal levels.

Regular crew changes are required across the world to ensure the flow of manpower is maintained, and the International Chamber of Shipping BIMCO warned last year that there could be a serious shortage of officers within five years if action is not taken to increase training and recruitment levels.

Higher values, conversions and older vessels increase exposures

The economic rebound from Covid-19 lockdowns has created a boom time for shipping, with huge increases in charter and freight rates. While higher rates are a positive for many in the industry’s finances, changing the use of vessels to take advantage of this and extending the working life of ships, raises warning flags for underwriters.

High demand for container and bulk shipping has seen the value of vessels rise dramatically, and charter and freight rates have skyrocketed. Charter rates in the container and LNG markets hit an all-time high last year, and a decade high in the dry bulk market, while values remain well above historical averages.

“Rising values and charter rates have created a mismatch for insurers,” explains Captain Anastasios Leonburg, Senior Marine Risk Consultant at AGCS. “Older vessels now command higher values, while the accumulation risks have increased with larger vessels and more value on board. This results in a significant increase in the risk profile, which is not necessarily reflected in premium.”

At the same time, the impact of inflation resulting in rising claims costs adds to this challenging environment. Higher freight rates and a shortage of container ship capacity have tempted some operators to use bulk and product carriers to transport containers. It has also led some tanker operators to explore the possibility of converting vessels.

The use of non-container vessels to carry containers can raise questions around stability, firefighting and the securing of cargo.

Captain Nitin Chopra, Senior Marine Risk Consultant at AGCS says, “Bulk carriers and tankers are not designed to carry containers. Crews may not be trained or experienced enough to handle containers or respond appropriately to an incident at sea.

“Carrying containers could also change the manoeuvring characteristics of a vessel and affect how it behaves in bad weather and strong winds. Converting a vessel or changing its use would likely be viewed as a material change in risk profile and could be categorised by underwriters as a higher risk,” adds Captain Nitin Chopra.

Owners are also extending the working life of vessels. Older container and cargo vessels aged between 15 and 25 years are more likely to result in a claim. “Newer ships need less maintenance and have the latest technology, which typically translates to a lower risk. Older ships are more likely to suffer from corrosion, while systems and machinery are more prone to failure and breakdown,” says Justus Heinrich.

Port congestion and commercial pressures heighten risk

Port congestion globally is running above levels seen last year, with specific container fleet congestion trending towards previous highs, and the impacts of the Russian-Ukranian war likely to create further inefficiencies across the maritime transport system.

Port congestion puts crews, port handlers and facilities under additional pressure, increasing risk at a critical stage of a ship’s journey.

Port risks are already increasing with larger ships, which concentrates large volumes of trade into the fewer bigger ports that have specialist infrastructure. Accumulations of cargo exposures at mega ports have been rising, while commercial pressures increase the risks of mistakes and accidents. Ports are also increasingly reliant on technology, where an outage or cyber-attack could effectively close a port.

“Commercial pressures are already a contributing factor in many losses that resulted from poor decision-making,” says Captain Nitin Chopra. “The pressure on vessels and crew is currently very high. The reality is that some may be tempted to ignore issues or take shortcuts, which could result in future losses.”

AGCS analysis shows that 75 percent of shipping incidents involve human error.

Geopolitical risks increase the threat of malicious digital disruption

The shipping industry continues to fall victim to cyber-attacks. A container terminal at Jawaharlal Nehru Port Trust, India’s busiest container port, was hit by a ransomware attack in February. It is the latest port to be affected, following ransomware incidents at US and South African ports.

“Cyber risk is a major concern and we do see more and more incidents involving non-marine operations, such as ports,” says Régis Broudin, Global Head of Marine Claims at AGCS.

“As the industry becomes more reliant on technology and automation, disruption from a cyber-attack or technical failure increases. And with the increased connectivity of ships, it’s only a matter of time before it will also affect vessels,” says Broudin.

Security agencies have warned of a heightened cyber risk due to the conflict in Ukraine. NATO issued a warning that vessels in the Black Sea face the threat of GPS jamming, Automatic Identification System (AIS) spoofing, communications jamming and electronic interference. The US Cybersecurity and Infrastructure Security Agency has also warned that the maritime transportation sector could be a target for foreign adversaries.

“There is concern that shipping assets and ports could become collateral damage if the conflict in Ukraine results in an increase in cyber activity,” says Captain Rahul Khanna.

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