Economic pressure, cyber risk threaten shipping industry safety

Despite tremendous progress recorded in shipping loss reduction over a decade, dropping by 45 percent to 85 percent at the end of 2015, there are fears that economic pressure, cyber security and super-storm may be serious threats for maritime safety.

While the decline in losses no doubt has been driven by an increasingly robust safety environment and self-regulation, economic headwinds and other associated risks affecting global economy raise loss case for ship owners and risk carries, according to Allianz Global Corporate & Specialty SE’s (AGCS) fourth annual Safety and Shipping Review 2016,

Delphine Maidou, Africa CEO of Allianze Global Corporate, unveiling the report at the sideline at the just concluded African Insurance Organisation Conference and General Assembly in Morocco, said economic and market conditions were pressurising costs, raising safety concerns while cyber exposure, driven by Internet of Things (IoT), e-navigation and piracy, “mega ship” salvage issues, super-storms and increasing arctic casualties heighten risk environment.

“While the long-term downward trend in shipping losses is encouraging, the continuing weak economic and market conditions, depressed commodity prices and an excess of ships are pressurizing costs. AGCS has seen an increase in frequency losses over the past year, which can likely be attributed to some extent to this environment.”

“The economic downturn – and its impact on the shipping sector – is likely to have a negative impact on safety,” Rahul Khanna, Global head of Marine Risk Consulting, AGCS, said.

Khanna said sectors, such as general cargo, bulk and offshore, were already challenged and any drop in safety standards would be a serious case for concern. “It is critical that economic pressures do not allow a “put it off until later” safety mentality to develop, the AGCS experts warn.

Some ship owners are already stretching maintenance to longest possible intervals, while others are laying-up vessels. “Reactivation of these vessels to a market that has moved on technologically may result in a painful exercise. There is a need for standardised lay-up procedures,” Jarek Klimczak, senior marine risk consultant, AGCS, said.

As well as impacting investment in vessel maintenance, the experts said cost pressures could impair crewing conditions, passenger ship safety and salvage and rescue. “AGCS sees an increase in fatigue-related insurance claims over the past decade.”

According to the report, the shipping industry’s reliance on interconnected technology also poses risks. Cyber risk exposure is growing beyond data loss. There have already been a number of notable cyber incidents and technological advances including the “Internet of Things” (IoT) and electronic navigation, meaning the industry may only have a few years to prepare for the risk of a vessel loss.

“Pirates are already abusing holes in cyber security to target the theft of specific cargoes,” says Captain Andrew Kinsey, Senior Marine Risk Consultant, AGCS. “The cyber impact cannot be overstated.”

The report further said that the appetite for ever-larger container ships has seen cargo-carrying capacity of the largest vessels increase by 70 percent over 10 years to 19,000+ containers. Two “mega ships”, the CSCL Indian Ocean and APL Vanda were grounded in February 2016, raising questions about a more serious incident. There are concerns that commercial pressures in the salvage business have reduced easy access to the salvors required for recovery work on this scale. The industry may need to prepare for a $1billion plus total loss scenario.

It also notes that exceptional weather events are becoming more commonplace, bringing additional risks and disruption to supply chains. This year, the effect of a “super” El Niño is expected to lead to more extreme weather conditions.