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Allianz Commercial: Shipping losses hit all-time low despite increasing risks for the whole sector

  • Allianz Safety and Shipping Review 2024: 26 large ships lost worldwide in 2023, down by one third year-on-year, the industry's lowest ever total
  • South China, Indochina, Indonesia and the Philippines is the main loss hotspot globally, accounting for almost of third of all losses at sea in 2023
  • War and geopolitical conflicts shake up the shipping industry, with a number of major consequences
  • Climate risks on the rise while decarbonization of fleets remains a major challenge

SINGAPORE - Media OutReach Newswire - 23 May 2024 - Given as much as 90% of international trade is transported across oceans, maritime safety is critical.

Thirty years ago, the global shipping fleet lost around 200 large vessels a year. This total fell to a record low of 26 in 2023, a decline of more than one third year-on-year and by 70% over the past decade. However, the fact that shipping is increasingly subject to growing volatility and uncertainties from war and geopolitical events, the consequences of climate change, as well as ongoing risks resulting from the trend for larger vessels means the sector will have its work cut out to maintain this status quo in future, according to marine insurer Allianz Commercial's Safety and Shipping Review 2024.

"The speed and extent of the way the industry's risk profile is changing is unprecedented in modern times. Conflicts such as in Gaza and Ukraine are reshaping global shipping, impacting crew and vessel safety, supply chains and infrastructure, and even the environment. Piracy is on the rise, with a worrying re-emergence off the Horn of Africa. The ongoing disruption caused by drought in the Panama Canal shows how the changing climate is affecting shipping , all at a time when it is having to undertake its most significant challenge, decarbonization," says Captain Rahul Khanna, Global Head of Marine Risk Consulting, Allianz Commercial.

Southeast Asia emerges as maritime region with highest total losses
During 2023, 26 total losses were reported globally compared with 41 a year earlier. There have been more than 700 total losses reported over the past decade (729). The South China, Indochina, Indonesia and the Philippines maritime region is the global loss hotspot, both over the past year and decade (184). It accounted for almost a third of vessels lost last year (8). The East Mediterranean and Black Sea ranks second (6) with activity up year-on-year. Cargo ships accounted for over 60% of vessels lost globally in 2023. Foundered (sunk) was the main cause of all total losses, accounting for 50%. Extreme weather was reported as being a factor in at least 8 vessel losses around the world in 2023, with the final total likely higher.

The number of shipping incidents reported globally declined slightly last year (2,951 compared to 3,036), with the British Isles seeing the highest number (695). Fires onboard vessels – a perennial concern – also declined. However, there have still been 55 total losses in the past five years, and over 200 fire incidents reported during 2023 alone (205) – the second highest total for a decade after 2022. Fires remain a key safety issue on larger vessels given the potential threat to life, scale of the damage, and the fact associated costs can be severe, a factor contributing to the long-term increase in the cost of large marine insurance claims.

Consequences of geopolitical conflicts
Recent incidents, such as in the wake of the conflict in Gaza, have demonstrated the increasing vulnerability of global shipping to proxy wars, disputes and geopolitical events, with more than 100 ships targeted in the Red Sea alone by Houthi militants in response to the conflict. Disruption to shipping in and around the region has persisted and is likely to remain for the foreseeable future. "Unstable regimes, regional disputes, and rivalries make for a dynamic situation around some of the world's busiest shipping routes. The Red Sea crisis shows just how important critical waterways like the Suez Canal are to the world economy, and how vulnerable they can be to disruption. This is a worrying development that could have repercussions and consequences for other parts of the world where shipping routes are exposed to geopolitical events, as we have seen with the ship seizure in the Strait of Hormuz," says Captain Nitin Chopra, Senior Marine Risk Consultant, Allianz Commercial Asia. The re-emergence of Somali pirates, following their first successful hijacking since 2017, is an additional cause for concern.

"Both the war in Ukraine and the Red Sea attacks have also revealed the increasing threat to commercial shipping posed by new technology such as drones, which are relatively cheap and easy to make, and difficult to defend against without a large naval presence," says Khanna. "Looking to the future, more technologically driven attacks against shipping and ports are also a distinct possibility. Reports of vessels experiencing GPS interference are increasing, particularly in the Strait of Hormuz, the Mediterranean and the Black Sea."

The report also notes that in the three years since Russia invaded Ukraine the gradual tightening of international sanctions on Russian oil and gas exports has contributed to the growth of a sizable 'shadow fleet' of tankers, somewhere between 600 to 1,400 vessels. "These are mostly older, often poorly maintained vessels that operate outside international regulation, often without proper insurance. This situation presents serious environmental and safety risks," says Justus Heinrich, Global Product Leader, Marine Hull, Allianz Commercial. Vessels have been involved in at least 50 incidents to date, including fires, engine failures, collisions, loss of steerage, and oil spills. "The cost of dealing with these incidents often falls on governments or other vessels' insurers if one is involved in an incident."

Rerouting brings risks and environmental challenges
Attacks against shipping in Middle East waters have also severely impacted Suez Canal transits – down by more than 40% at the beginning of 2024 – and trade. Coming so soon after the ongoing disruption caused by drought in the Panama Canal, this amounts to a double strike on shipping, causing yet more issues for global supply chains. Whichever alternative routes vessels take, they face lengthy diversions and increased costs, also impacting their customers. Avoiding the Suez Canal adds at least 3,000 nautical miles (over 5,500km) and 10 days sailing time, rerouting via the Cape of Good Hope.

"Both routes are critical for the transport of manufactured goods and energy between Asia, Europe, and the US East Coast. Whichever route vessels take, they face lengthy diversions and increased costs. And let's not forget, prior to these situations, the war in Ukraine had already prompted many shipping companies and cargo interests to seek alternative routes", says Chopra.

The rerouting of vessels via the Cape of Good Hope has had a knock-on effect on global supply chains. Businesses that source goods and components from factories in China and South-East Asia have faced delays and higher costs from longer transit times. As of April 2024, shipping volume around the Cape of Good Hope had soared by 193% compared to the volume usually registered in the pre-conflict period, according to Allianz Trade.

Rerouting also impacts the risk landscape and the environment. Storms and rough seas can be more challenging for smaller vessels used to sailing coastal waters, while infrastructure to support an incident involving the largest vessels, such as a suitable port of refuge or a sophisticated salvage operation may not be available. Environmental gains may be lost as rerouted vessels increase speeds to cover longer distances. Red Sea diversions are already cited as being a primary contributor to a 14% surge in emissions in the EU shipping sector this year.

Green shipping challenges
Shipping contributes around 3% of global emissions caused by human activities and the industry is committed to tough targets to cut these. Reaching these targets will require a mix of strategies, including measures to improve energy efficiency, the adoption of alternative fuels, innovative ship design and methods of propulsion.

Decarbonization presents various challenges for an industry juggling new technologies alongside existing ways of working. For example, the industry will need to develop infrastructure to support vessels using alternative fuels, such as bunkering and maintenance, while at the same time phasing out fossil fuels. There are also potential safety issues with terminal operators and vessels' crew handling alternative fuels that can be toxic or highly explosive.

"Increasing shipyard capacity will also be key as the demand for green ships accelerates. Such capacity is currently constrained with long waiting times and high building prices," says Heinrich. Over 3,500 ships must be built or refitted annually until 2050, yet the number of shipyards more than halved between 2007 and 2022. "Capacity constraints on shipyards could have a knock-on effect for repairs and maintenance, with damaged vessels or those with machinery issues potentially facing long delays." Machinery damage or failure is the most frequent cause of shipping incidents, accounting for over half of these globally in 2023 (1,587).

Hashtag: #AllianzCommercial



The issuer is solely responsible for the content of this announcement.

Allianz Commercial

Allianz Commercial is the center of expertise and global line of Allianz Group for insuring mid-sized businesses, large enterprises and specialist risks. Among our customers are the world's largest consumer brands, financial institutions and industry players, the global aviation and shipping industry as well as family-owned and medium enterprises which are the backbone of the economy. We also cover unique risks such as offshore wind parks, infrastructure projects or film productions. Powered by the employees, , and network of the world's #1 insurance brand, , we work together to help our customers prepare for what's ahead: They trust us to provide a wide range of traditional and risk transfer solutions, outstanding and services, as well as seamless handling. The trade name Allianz Commercial brings together the large corporate insurance business of Allianz Global Corporate & Specialty (AGCS) and the commercial insurance business of national Allianz Property & Casualty entities serving mid-sized companies. We are present in over 200 countries and territories either through our own teams or the Allianz Group network and partners. In 2023, the integrated business of Allianz Commercial generated more than €18 billion gross premium globally.

These assessments are, as always, subject to the disclaimer provided below.

Cautionary note regarding forward-looking statements
This document includes forward-looking statements, such as prospects or expectations, that are based on management's current views and assumptions and subject to known and unknown risks and uncertainties. Actual results, performance figures, or events may differ significantly from those expressed or implied in such forward-looking statements.

Deviations may arise due to changes in factors including, but not limited to, the following: (i) the general economic and competitive situation in Allianz's core business and core markets, (ii) the performance of financial markets (in particular market volatility, liquidity, and credit events), (iii) adverse publicity, regulatory actions or litigation with respect to the Allianz Group, other well-known companies and the financial services industry generally, (iv) the frequency and severity of insured loss events, including those resulting from natural catastrophes, and the development of loss expenses, (v) mortality and morbidity levels and trends, (vi) persistency levels, (vii) the extent of credit defaults, (viii) interest rate levels, (ix) currency exchange rates, most notably the EUR/USD exchange rate, (x) changes in laws and regulations, including tax regulations, (xi) the impact of acquisitions including related integration issues and reorganization measures, and (xii) the general competitive conditions that, in each individual case, apply at a local, regional, national, and/or global level. Many of these changes can be exacerbated by terrorist activities.

No duty to update
Allianz assumes no obligation to update any information or forward-looking statement contained herein, save for any information we are required to disclose by law.

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