Record-low number of ships lost, but new challenges emerge

HERE is a good news story – or at least, it is a mainly-good news story: A major marine insurer has reported that shipping losses hit a record low in 2022.

Of course, you would not expect an insurer to strike an overly cheery note, and in its Safety & Shipping Review 2023, Allianz Global Corporate & Specialty (AGCS), cautions that a jump in the number of fires, the growth of the shadow tanker fleet and economic uncertainty all pose new safety challenges.

The report indicated that 38 large ships were lost worldwide last year. That was down by more than a third year on year, and the lowest total in the report’s history. Twenty of those ships counted as “lost” actually sank. Most total losses were in the South China Sea region, while most shipping incidents occurred around the British Isles.

Fire was the second top cause of loss over the past year, with eight vessels lost and more than 200 incidents reported – the highest in a decade. I’ll return to this subject later.

To return to the good news, AGCS notes: “Shipping transports around 90 per cent of world trade on board different vessels, so maritime safety is critical. Improvements have been significant over the past decade, culminating in the sector reporting a record-low number of large ships lost over the past year.”

“Shipping losses have sunk to the lowest number we have seen in the 12-year history of our annual study, reflecting the positive impact that safety programmes, training and changes in ship design and regulation have had over time,” said Captain Rahul Khanna, global head of marine risk consulting at AGCS. 

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However, he added: “While these results are gratifying, several clouds appear on the horizon. More than a year after Russia’s invasion of Ukraine, the growth of the shadow oil tanker fleet is the latest consequence to challenge shipowners, their crew and insurers.

“Fire safety and the problem of misdeclaration of hazardous cargo must be fixed if the industry is to benefit from the efficiency of ever-larger vessels. Inflation is pushing up the cost of hull, machinery and cargo claims.

“Meanwhile, although the industry’s decarbonisation efforts are progressing, this remains by far the sector’s biggest challenge. Economic pressures could put vital investments in companies’ strategies, as well as in other safety initiatives, in jeopardy.”

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Drilling down into the figures is interesting, and could suggest that the industry was lucky in 2022. This is because while total losses have declined over the past year, the number of shipping casualties or incidents reported remained consistent.

There were 3,032 in 2022, compared to 3,000 in 2021. The British Isles recorded the highest number, at 679. Machinery damage or failure accounted for close to half of all incidents globally, at 1,478.

There were over 200 fires reported in 2022 (209). This was the highest number in a decade, making fire the third top cause of incidents globally, up 17 per cent year on year. It does not take much more to go wrong for an incident to lead to a catastrophic chain of events and the loss of a vessel. So the fact that the number of incidents stayed about the same – actually it increased very slightly – does take the shine off the headline good news, and certainly is a warning against complacency.

Now let us go back to the increasing danger of fires. The insurer is by no means alone in raising concerns about batteries, which are key in switching the world to a low-carbon, electricity-powered future. Late last year, specialist insurers TT Club and UK P&I Club, together with scientific consultant Brookes Bell, issued a white paper highlighting the “continuing safety threat created by the transportation of lithium-ion batteries”. The International Chamber of Shipping also recently published an article on battery safety.

According to AGCS, several factors are increasing the risk of fires at sea and on land. It noted that decarbonisation is leading to new types of cargo being transported on vessels, such as electric vehicles (EVs) and battery-powered goods. It also cautioned that potentially highly flammable lithium-ion batteries pose a growing risk for container shipping and car carriers. The organisation added: “This battery market is expected to grow by over 30 per cent annually over the next decade.”

The insurer said that one of the main hazards of lithium-ion batteries is “thermal runaway”, a rapid self-heating fire that can cause an explosion. The main causes of lithium-ion fires are substandard manufacturing, damaged battery cells or devices, over-charging and short-circuiting. Fires in EVs with lithium-ion batteries are difficult to extinguish and are capable of spontaneously reigniting.

“Most ships lack the suitable protection, detection and firefighting capabilities to tackle such fires at sea,” said Khanna. “Attention must focus both on pre-emptive measures and emergency plans to help mitigate this peril, such as adequate crew training and access to appropriate firefighting equipment, or improving early-detection systems. Purpose-built vessels for transporting EVs would be advantageous.”

AGCS points out that hazardous cargoes are increasingly transported by increasingly larger vessels. Container capacity has doubled in the last 20 years. The 10 largest container operators have more than 400 new vessels on order, and the majority will be larger than the ships they replace. Consequently, the insurer warns, the impact of fires is amplified, potentially resulting in more severe losses.

There are many other lurking dangers that worry AGCS, but the increased fire risk posed by lithium-ion batteries should surely be of concern to everyone.