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Shipping’s resilience buffeted by threats

In 2024, the shipping industry has been caught in a maelstrom of challenges that threaten to destabilise global supply chains, endanger crew safety, and derail progress made on environmental sustainability.

Allianz Commercial’s annual Safety and Shipping Review, due to be published later this month, has examined emerging risk areas and proposed solutions to navigate this turbulent landscape and build a more resilient industry.

In an article adapted from the upcoming review, Allianz Commercial’s experts noted that the conflict in Gaza has transformed the Red Sea into a perilous environment for commercial shipping, with a drastic rise in attacks on merchant vessels. Allianz Commercial recorded more than 50 attacks against merchant shipping in the Red Sea by Houthi militants between November 19, 2023, and the beginning of April 2024.

This exemplifies a disturbing trend – the exploitation of shipping as a target in proxy wars waged by militant groups. These attacks not only disrupt vital trade routes but also create a hazardous environment for seafarers.

Captain Rahul Khanna, global head of marine risk consulting at Allianz Commercial, said: “While we have seen sporadic attacks in the past, the conflict in Gaza has opened the flood gates. Even if a political solution is reached, we may see attacks continue as there is clearly now an opportunity for those wishing to disrupt shipping in the Red Sea and beyond. Ultimately, shipping has become a ripe target for those wishing to wage a proxy war. It opens avenues for terrorists or militia groups to get recognition and hit global markets.”

New target

The industry is being confronted not only the resurgence of piracy, but also novel threats posed by drone warfare and cyberattacks. These technologies are becoming increasingly accessible and pose a significant risk to commercial shipping. Cheap and readily deployable drones can be used to disrupt operations or even inflict physical damage, while cyberattacks can target critical navigation systems or exploit vulnerabilities in cargo tracking.

“Warfare is changing, as are the weapons that can cause damage to ships. Such weapons are becoming more precise and can find their way into the hands of non-state actors, such as proxy groups or terrorists,” says Captain Nitin Chopra, senior marine risk consultant, Allianz Commercial. “Recent events show how even smaller groups could potentially disrupt shipping using drones or explosive devices to target critical trade routes.”

Meanwhile, disruptions in the Red Sea and the Panama Canal, caused by conflict and drought respectively, have forced vessels to take longer routes around Africa’s Cape of Good Hope. However, this solution has cascading consequences: delays in deliveries, increased fuel costs for shipping companies, and ultimately, higher prices for consumers. Businesses reliant on just-in-time deliveries are particularly impacted, facing cash flow difficulties and production line stoppages due to component shortages.
“Supply chains have been disrupted by a series of events in recent years, from extreme weather and climate incidents, container ship fires and groundings, through to the pandemic and conflicts in Ukraine and the Middle East, not forgetting the recent Baltimore bridge collapse,” said Khanna.

“How should the shipping industry and its customers address this challenge? In today’s interconnected environment it is even more important to have a ‘Plan B’ and alternative options. An unexpected event can have a domino effect globally. Shippers around the world should consider diversification of their supply chains and in some cases nearshoring and onshoring might be an option.”

Decarbonisation impact

The need for rerouting also throws a wrench into the shipping industry’s environmental efforts. Longer travel distances translate to higher emissions, potentially negating the progress made through slow steaming practices aimed at reducing fuel consumption. Furthermore, the proliferation of the shadow or dark fleet – poorly maintained tankers used by sanctioned countries to circumvent oil export restrictions – poses a significant environmental risk. These vessels often lack proper insurance and may not undergo necessary inspections, increasing the likelihood of accidents and oil spills, noted Allianz Commercial.

Meanwhile, the situation in the Red Sea has emboldened pirate groups off the Horn of Africa, raising fears of a renewed wave of hijackings and attacks on commercial vessels. This could further disrupt trade routes and add another layer of complexity to risk management for shipping companies.

“Shipping is vulnerable to extortion and pirates may be emboldened by what is going on in the Red Sea. It could just be opportunistic, but we must be prepared for the prospect that we will see a period of renewed hijackings and piracy attacks at sea,” said Khanna.

While not an immediate threat, territorial disputes in the South China Sea pose another a long-term risk to global trade. The increasing militarisation of the region and ongoing tensions between the US and China could potentially disrupt vital shipping lanes in the future.

“Political rivalries and conflicts are increasingly being played out on the seas and disputes over territories is not an issue that is likely to go away anytime soon,” said Chopra. “Shipping companies should always be prepared for any potential sources of disruption to their operations and supply chains.”
Source: Baltic Exchange

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