By some estimates, international shipping transports approximately 80 percent of global trade by volume and more than 70 percent of global trade by value. With those numbers in mind, it’s always interesting to review evolving risks in global shipping. Chief among them, according to a new report, are cyber-risk, “superstorm” weather patterns and salvage issues for so-called “mega ships.”

 

The shipping industry’s reliance on interconnected technology brings significant benefits, as well as risks. For instance, cyber-risk may result from improper integration and interaction of cyber-systems/updates or attacks from external sources—and are not always detected, reports global insurance firm Allianz Global Corporate & Specialty (AGCS) in its maritime 2016 Safety and Shipping Review. There have already been a number of notable marine-related cyber-incidents, and given the growing technological advances including the “Internet of Things” (IoT) and electronic navigation, the industry may only have a few years to prepare for the risk of a vessel loss, the authors explain.

 

Piracy also continues to be a risk, and there was, indeed, an increase in the number of piracy attacks (246) during 2015. The good news is that progress  continues in Africa where the number of incidents was down in Nigeria and Somalia, although the risk remains high. South East Asia is another matter. Piracy there accounted for 60 percent of global incidents—and Vietnam is a new hotspot, Allianz reports.

 

“Pirates are already abusing holes in cyber-security to target the theft of specific cargoes,” says Captain Andrew Kinsey, Senior Marine Risk Consultant, AGCS. “The cyber-risk impact cannot be overstated. The simple fact is you can’t hack a sextant.”

 

The report also notes that exceptional weather events are becoming more commonplace, which introduces additional risk and potential disruptions to supply chains. This year, the effect of a “super” El Niño is expected to lead to more extreme weather conditions. Meanwhile, bad weather was a factor for three of the five largest vessels lost last year, including the El Faro, one of the worst U.S. commercial maritime disasters in decades.

 

“The fact that superstorms are causing ships to sink is concerning,” says Sven Gerhard, Global Product Leader Hull & Marine Liabilities, AGCS. “We are seeing more and heavier natural catastrophe events. Weather routing will continue to be a critical component to the safe navigation of vessels.”

 

Finally, in response to demand for ever-larger container ships, the industry has seen cargo-carrying capacity of the largest vessels increase by 70 percent over 10 years to 19,000+ containers. That increase in size does present new problems, however. Two “mega ships”, the CSCL Indian Ocean and APL Vanda were grounded in February 2016, raising questions about a more serious incident. There are concerns, for example, that commercial pressures in the salvage business have reduced easy access to the salvors required for recovery work on this scale. The consequence is that the industry may need to prepare for a $1bn+ total loss scenario, according to the review.

 

Still, the good news in the review is that shipping losses continued their long-term declining trend, with 85 total losses reported worldwide in 2015. That number is down by three percent from 2014, making 2015 the safest year in shipping for a decade. What’s more, losses have declined by 45 percent since 2006, driven, the review notes, by an increasingly robust safety environment and self-regulation.

 

Identifying risks such as cyber-threats, consequences of using larger ships and an increase in significant storms is the easy part. The challenge for shippers, is to take those risks into consideration, and determine how to mitigate them. It will be interesting to see how the industry responds.