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20 May 2022 The on-line newspaper devoted to the world of transports 11:52 GMT+2

May 10, 2022

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Original news
Total ship losses decrease, but the conflict in Ukraine poses further challenges to the ship insurance industry

Allianz report on market outlook

Last year all over the world there was the total loss of 54 large ships compared to 65 in the year previous. This is highlighted by the "Safety & Shipping Review" 2022" by Allianz Global Corporate & Specialty SE (AGCS) pointing out that this represents a 57% drop in 10 years (127 total ship losses occurred in 2012), while during the early 90s the world fleet lost more than 200 ships per year. The insurance company found that the reduction of the total losses recorded in 2021 are made more impressive by the fact that today there are about 130,000 ships in the world fleet compared to about 80,000 30 years ago and such progress reflects increased focus on security measures through training programs, the improvement of the ship design, technology and regulation.

The report specifies that in 2021 one in five (12) of the 54 total losses of ships occurred in the region of China southern, Indochina, Indonesia and the Philippines and a out of four in the last decade (225), as a consequence of the high concentration in those areas of trade, of congested ports, of older fleets and extreme weather conditions. In 2021 the shipwreck (sinking/submerging) was the main cause of total losses (32), equal to 60% of the figure total.

Commander Rahul Khanna, Head of Marine Risk Consulting of AGCS, found that if the number of total losses results in considerable decline, the ongoing war in Ukraine is having multiple consequences in terms of loss of life and ships, of aggravation of the crisis of ship crew changes, interruption of trade, weight of penalties and costs and fuel availability: 'total losses - observed Khanna - they are at historic lows, that is, about 50-75 per year in the last four years compared to over 200 per year of the 90s. However, the tragic situation in Ukraine has caused widespread problems in the Black Sea and elsewhere, aggravating the supply chain situation already under pressure and also existing disruptions caused by the Covid-19 pandemic, port congestion and problems with changing ports Man. At the same time - Khanna also specified - some of the responses put in place to support the increase in transport by sea, how to change the use or extend life working of the ships, raise some perplexities. The growing problems posed by large ships, such as fires, strandings and complex rescue operations, continue to represent a challenge for the owners and their crews".

The report focuses precisely on the fires on board the ships, with flames that last year led to the loss total of the ro-ro ship Felicity Ace and the ship container ship X-Press Pearl. The document highlights that in the last five years more than 70 have been reported fires only on container ships, with flames that often occur originate in the containers themselves and can be the result of failure or misrepresentation of dangerous loads, such as substances chemicals and batteries (about 5% of the containers shipped are composed from undeclared dangerous goods). The fire of a large ship can spread quickly and be difficult to check and often the crew is forced to abandon the ship, which can significantly increase the cost the end of a claim.

Fires have also become one of the main factors of damage to shipping companies carrying cars. Of they usually start in the holds and are caused by malfunctions or electric short circuits in vehicles and open bridges can let them spread quickly. The growing number of vehicles electrical transported by sea causes additional risks, given that existing countermeasures may not respond effectively in case of fire of this type of vehicles. The losses can be very expensive given the value of the load and the cost of wreck removal and depollution.

Referring then to the total number of claims, the report explains that last year the highest number of naval accidents (668 out of a total of 3,000 accidents) occurred in the region of British Isles, the North Sea, the English Channel and the Bay of Biscay. Worldwide, cargo ships (27) represent half of the ships lost in the last year and the 40% in the last decade. Damage to machinery (1,311) accounted for more than one in three incidents globally, followed from collisions (222) and fires (178), with an increase in the number of the latter by almost +10%.

The AGCS report also delves into the impact that is having and may have the ongoing war in Ukraine specifying that the invasion of Ukrainian territory by the Troops of Russia will have further consequences on a global maritime industry that is already facing various shortcomings: Russian seafarers account for little more of 10% of the world's workforce of 1.89 million people, while about 4% come from Ukraine. At the end of the contract period this staff may have difficulties to return home or to reach the ships. A protracted conflict could have deeper consequences, potentially reshaping global trade in energy and other materials First. A broad embargo on Russian oil could contribute also to increase the cost of fuel and to have a impact on its availability, pushing shipowners to use alternative fuels. If these were of quality below standards, you could get to have in the future claims for compensation for machine failures. In addition under this scenario, security agencies continue to warn of an increased risk outlook informatics for the maritime sector such as GPS blocking, spoofing of the automatic identification system (AIS), problems with electronic communications and interference.

"The insurance sector - justus pointed out Heinrich, global product leader, Marine Hull, of AGCS - will see probably a number of claims in the field of war risk policies by ships damaged or lost as a result of sea mines, missile attacks and bombing in conflict zones. Insurers could also receive claims under policies marines with extension to the risk of war for ships and blocked cargoes or trapped in Ukrainian ports and coastal waters."

The AGCS report notes, in particular, how the series of Sanctions against Russian interests pose a challenge and how the violation of sanctions can give rise to severe repercussions, but also how their observance can represent a considerable burden being difficult, for example, determine the ultimate owner of a ship, cargo or counterpart. In addition, the sanctions also apply to various parties the transport supply chain, including banking and insurance, as well as maritime support services, which makes the compliance with sanctions even more complex.

The report then notes how the search for a haven port is often a problem for ships in distress, as happened to the X-Press Pearl which is sunk as a result of a fire after two ports have refused the ship shelter not being able or not wanting unload a load of nitric acid. In addition, the problem of search for a port of refuge and the timeliness of the Rescue interventions is aggravated by the need for have the necessary specialised recovery equipment, tugs, cranes, barges and port infrastructure, which adds time and cost to the response. The report recalls that the rescue of the bulk carrier Golden Ray, which in 2019 overturned outside the US port of Brunswick, required almost two years and a cost of more than 800 million dollars.

It so happens too often that what should be a Manageable naval accident turns into a total loss. Therefore the rescue has become a concern growing and, in addition, environmental issues are contributing to the increase in the costs of recovery and removal of wrecks given that - Khanna noted - "it is expected that the shipowners and insurers do more to protect the environment and local economies. Previously - he recalled - a wreck could be left on site if it did not represent a danger to navigation, while now the authorities they want the wrecks to be removed and the marine environment to be restored, regardless of the cost.' This translates into higher rescue expenses and in general more significant losses, costs that are increasingly supported by cargo owners and their insurers. To this In this regard, the report notes that the general failure, i.e. the legal process through which the owners of the cargo share proportionally the losses and cost of the bailout - explained Régis Broudin, Head of Marine Claims of AGCS - has become a frequent event, as well as relevant, with the growth in the number of large ships involved in fires, strandings and losses of containers at sea compared to five years ago. The document recalls that the general failure was declared in both incidents at the container ship Ever Given, which in March 2021 had blocked the Suez Canal, and at Ever Forward, the container ship that last March was held stranded in the United States and got stuck for more one month before being released.

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