Plain sailing: reducing risk in the shipping industry
With 90 per cent of the world’s trade transported via the shipping industry, the growth of global supply chains means that organisations naturally take an extreme interest in the safety and security of their cargo. However, according to Allianz’s annual safety and shipping review, more than 1,100 vessels have been lost over the past decade as a result of events ranging from piracy to extreme weather.
While this number represents a drop of almost 40 per cent compared to the previous decade, the risks remain very real. Allianz’s report highlights the maritime region around South China, Indonesia, Indochina and the Philippines as by far the most dangerous. Busy shipping lanes, typhoons and comparatively lax safety processes all contribute to the issue, combined with piracy and volatile local political climates. Of the 94 reported losses in 2017, 30 came from this region alone.
Cargo ships are especially vulnerable, accounting for more than half of all losses last year, most often as a result of foundering (known in layman’s terms as sinking) due to bad weather. It is machine damage or failure, however, which is the most deadly, cited as the cause of 42 per cent of 2,712 casualties in the global shipping industry in 2017.
The human factor
The figures represent an increase of three per cent compared to the previous year, and Allianz points to streamlined supply chains as a possible driver for the rise. 75 per cent of shipping insurance losses are caused by human error, and with commercial pressures resulting in ever tighter schedules, it is perhaps inevitable that this impacts on the crew’s safety culture and decision-making.
This behavioural and cultural attitude to risk can be mitigated to a certain extent by the use of technology, data and analytics. Insights into crew behaviour can help to spot trends in human error and avoid the normalisation of any risky behaviour. Similarly, sensor technology has advanced to a stage where it can be used to feed stress data from the hull directly to the ship’s navigation during severe weather. Combined with ongoing training for the crew, this offers a more robust approach to risk that balances human intervention with reliable technology.
Over the past 50 years, container ships have grown in capacity by close to 1,500 per cent – and even larger vessels are on the horizon. However, the economy of scale achieved by these ultra-large container ships (ULCS) is not matched by an equal economy of risk. Major fires are a significant safety issue for container vessels, with incidents now happening on a weekly basis. As the ships grow in size, so does the likelihood of dangerous cargo being mis-declared, further increasing the chance of fire.
Bad weather was responsible for a minimum of 21 lost vessels last year, with natural catastrophes ranked as the number one risk by shipping experts in the 2018 Allianz Risk Barometer. For risk managers in the industry, last year’s hurricanes Harvey, Irma and Maria, together with the typhoons Damrey and Hato, demonstrate the vulnerability of ‘just in time’ supply chains, where very little stock is held at any one time, meaning any disruption in supply has a knock-on effect to other logistical processes. They also highlight the necessity of contingency planning that considers multiple locations being impacted, as well as the cost and feasibility of insurance in vulnerable regions.
In a similar vein, climate change is proving to be a mixed blessing for shipping. Warmer weather means less ice in the North Sea and therefore more shipping lanes to transport cargo. But this also results in a greater number of vessels suffering as a result of unpredictable Arctic conditions, while ships in the Atlantic faced an unprecedented number of icebergs last year – the fourth consecutive ‘extreme’ season.
Risk of attack
Preparation – or lack of it – is also a factor when it comes to cyber-attack, another potentially major disruption to supply chains. With last year’s NotPetya virus causing approximately $3 billion of economic losses, risk managers should be highlighting cyber security as a priority. The risk can be mitigated by taking steps such as separating the ship’s IT systems, so that navigation, propulsion and loading are capable of operating independently of each other.
While piracy incidents have dropped to their lowest in more than two decades, they still pose a significant risk in South East Asia and Africa, with volatile political climates in the Middle East and South China also posing a risk of disruption. This could mean trade routes are blocked or tankers are taken hostage, with an increased naval presence also heightening the risk of collision with military vessels.
Better risk management
The number of vessels lost in 2017 was the second lowest in the last 10 years and down four per cent compared to the previous year. With 50,000 merchant ships crossing the world’s waters, the demand of global supply chains has seen a vast improvement in their efficiency and safety as a result of better design, smarter technology and more effective risk management. While these improvements are clearly a benefit to both the industry and the global economy, it’s essential that they are not undermined in the pursuit of more economy at the expense of heightened risk normalisation.
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