Pandemic to prompt shipping industry to take a hard look at supply chains

Pandemic to prompt shipping industry to take a hard look at supply chains | Insurance Business

Pandemic to prompt shipping industry to take a hard look at supply chains

Experts are sailing through some smooth waters in the shipping industry, but there’s a storm on the horizon. While large shipping losses have hit a record low, according to Allianz Global Corporate & Specialty SE’s (AGCS) Safety & Shipping Review 2020, there are plenty of challenges ahead, not least of which is the coronavirus pandemic and the impact it’s had on the industry already.

“I see it on a first-hand basis daily,” said Captain Andrew Kinsey (pictured), senior marine risk consultant at Allianz Risk Consulting (ARC). “Every aspect of the supply chain has been impacted, from production facilities and module yards with project cargo, to vessels being able to carry cargo, being able to get underway, and maintain their port calls.”

In fact, the AGCS report lists 10 challenges that have arisen due to the pandemic, which includes the inability of vessels to change crews, which is impacting the welfare of sailors and could in turn lead to an increase in human error onboard vessels. In fact, crewing is the biggest issue, says Kinsey, “and it will probably be with us the longest.”

He continued: “We can’t lose sight of the fact that the major brunt of this is being borne by the merchant sailors onboard the vessels. They’re now dealing with up to six months over their year contracts where crews are being extended.” According to the 2020 AGCS review, many major ports have imposed restrictions on vessels and crews as around 120 countries implemented restrictions and 92 prohibited crew changes.

Read more: COVID-19 has major implications for maritime industry – Allianz unit

There has been some movement in recent weeks with crew changes in certain locations, Kinsey added, and vessel operators are going to extraordinary lengths to get the crews onboard, but the International Maritime Organization (IMO) will have to address this ongoing problem, and countries need to understand that the human factor is a key element in the global supply chain, making it critical for the industry to work to safeguard the safety and security of those crews.

The obstacles brought on by the pandemic will continue to unfold over the coming months and years, and the health crisis is likely to have a lasting impact on the shipping industry, predicted Kinsey.

“The long-term impact I feel is going to be a new, hard look at our supply chains. The just-in-time supply chain with a sole source supplier in the Far East, I think we’re going to see a lot of re-evaluation of that,” he explained, adding that the industry might consider sourcing goods that are closer to the area of consumption to allow some buffer during these types of disruptive events. “Due to the nature of shipping being a global business, we are going to have to deal with the impacts of COVID-19 at each location, and that’s the key right now, is we have to look at it holistically as an overall global view of our supply chain and … look at the overall footprint on where we’re sourcing all these materials, where we’re sourcing our crews, and where the vessels are operating.”

It’s not all bad news in the shipping industry. The past year saw just 41 total losses, which marked a 70% decline in 10 years. Losses have been partly driven down by the speed at which information can be communicated and problems can be addressed. When there is a fire onboard, for instance, it’s reported quickly and the size of loss is known much faster, as is the root cause of the incident.

“It really is this big data, the new currency per se, where we’re able to drill down quicker than in the past and get the information out and then share it with all concerned, so transparency is a key to continuing to make shipping safer,” said Kinsey.

On the other hand, there is still some room for improvement. Bad weather was reported as a factor in one in five losses, noted the AGCS report, and the South China, Indochina, Indonesia and Philippines maritime region has “remained the main loss hotspot, accounting for almost 30% of losses over the past year with 12 vessels.” Notably, the number of reported shipping casualties or incidents increased by 5% to 2,815, and there were more than 1,000 cases of machinery damage/failure, which has been the top cause of shipping incidents over the past decade.

Kinsey pointed to economic pressure as one of the broader issues that is leading to losses today, as well as a lack of knowledge and, sometimes, malicious intent.

“What we try to stress to our insureds and our partners in ocean cargo is that we all have to understand what the rules are and self-police,” said Kinsey. “Make sure that people are following the rules and that containers are properly stowed, cargo is properly secured, vessels are properly maintained, and, most importantly, that crews are properly trained.”