Allianz Commercial: Shipping Losses hit All-Time low

Allianz Commercial’s Safety and Shipping Review 2024 has shown that shipping losses have hit an all-time low despite increasing risks for the whole sector. With up to 90% of international trade transported across oceans, safety on the seas is critical for supply chains around the globe.

Thirty years ago, the global shipping fleet lost around 200 large vessels a year. In 2023, that total fell to a record low of just 26. That is a decline of more than one third year-on-year, and a fall of 70% over the past decade.

However, this does not mean it will be smooth sailing, as the shipping sector faces a barrage of issues, from growing volatility and uncertainties from war and geopolitical events to the consequences of climate change, as well as ongoing risks resulting from the trend for larger vessels. This means the sector will have its work cut out to maintain this status quo in future.

“The speed and extent of the way the industry’s risk profile is changing is unprecedented in modern times," says Captain Rahul Khanna, Global Head of Marine Risk Consulting, Allianz Commercial. “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, decarbonisation.”

Maritime region with highest total losses

Over the last 12 months, 26 total losses were reported globally, down from the 41 reported in 2022, with 729 total losses reported over the previous 10 years.

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. The East Mediterranean and Black Sea ranks second with activity up year-on-year. Cargo ships accounted for more than 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 a factor in at least eight vessel losses around the world in 2023, with the final total likely higher.

Shipping incidents reported globally declined slightly last year, to 2,951 compared with 3,036, as the British Isles saw the highest number, 695. Fires taking place onboard vessels - a perennial concern - also declined.

However, there had still been 55 total losses in the past five years, and 205 fire incidents reported in 2023. This was the second highest total for a decade after 2022. Fires remain a key safety issue on larger vessels given the potential threat to life, the scale of the damage, and the fact that 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

In the wake of the conflict in Gaza, it has 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.

Shipping has seen disruption in and around the region and is likely to remain affected for the foreseeable future. The re-emergence of Somali pirates 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,” adds Rahul.

“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 Allianz report highlights the impact of international sanctions on Russian oil and gas exports, particularly in the three years since Russia's invasion of Ukraine. These sanctions have contributed to the emergence of a 'shadow fleet' of tankers, estimated to number between 600 and 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.

To date, these vessels have been involved in at least 50 incidents, including fires, engine failures, collisions, loss of steerage and oil spills. Justus adds, "The financial burden of addressing these incidents frequently falls on governments or other vessel insurers if involved."

Rerouting risks and environmental impacts

Attacks on shipping in Middle East waters have drastically reduced Suez Canal transits by more than 40% in early 2024, severely affecting trade.

This issue compounds the ongoing disruption from drought in the Panama Canal, creating a double blow to global shipping and supply chains. Alternative routes involve significant diversions and increased costs, impacting customers. Avoiding the Suez Canal, for instance, adds more 3,000 nautical miles (5,500km) and 10 days of sailing time by rerouting via the Cape of Good Hope.

These reroutes also alter the risk landscape and environmental impact. Smaller vessels accustomed to coastal waters face greater challenges in storms and rough seas, and infrastructure for incidents involving larger vessels may be insufficient. Environmental benefits may be offset as ships increase speeds to cover longer distances, with Red Sea diversions cited as a major factor in a 14% rise in emissions from the EU shipping sector this year.​​​​​​​

Challenges in green shipping

Shipping accounts for approximately 3% of global human-caused emissions, with the industry committed to stringent reduction targets. Achieving these goals requires a combination of strategies, including improved energy efficiency, alternative fuels, innovative ship design and new propulsion methods.

Decarbonisation presents several challenges as the industry adapts to new technologies while maintaining current operations. Developing infrastructure to support alternative fuels, such as bunkering and maintenance facilities, is essential, alongside phasing out fossil fuels. Safety concerns also arise with handling alternative fuels that may be toxic or highly explosive for terminal operators and crew members.

“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,” adds Justus. More than 3,500 ships must be built or retrofitted annually until 2050, yet the number of shipyards has halved from 2007 to 2022.

"Constraints in shipyard capacity could lead to delays in repairs and maintenance, with damaged vessels or those experiencing machinery issues facing extended downtime."

Machinery damage or failure remains the most common cause of shipping incidents, accounting for over half of the 1,587 incidents globally in 2023.

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