In this Q&A, Captain Rahul Khanna, Global Head of Marine Risk Consulting at Allianz Commercial, highlights some of the factors behind this trend.

Allianz’s Safety and Shipping Review 2023 reports that fire was the second top cause of loss for shipping vessels last year (after foundering) with eight vessels lost and more than 200 incidents reported – the highest for a decade. Why is this happening?

Captain Rahul Khanna: Every year Allianz Commercial analyzes reported shipping losses and incidents involving ships over 100 gross tons in our annual report. And although shipping losses have declined by 65% over the past decade (38 vessels in 2022 compared with over 100 in 2013), unfortunately fire incidents have not followed. We continue to see major events involving large container ships, car carriers and ro-ro vessels for example. There were over 200 reported fire incidents during 2022 alone (209) – the highest total for a decade.

Meanwhile, 64 ships have been lost to fires in the past five years. AGCS analysis of 250,000 marine insurance industry claims shows fire is also the most expensive cause of loss, accounting for 18% of the value of all claims analyzed.

Catastrophic fires on large vessels typically begin with combustible cargo, which then spreads rapidly and outpaces the firefighting capabilities of the crew. The size and design of large vessels makes fire detection and fighting more challenging and once crew are forced to abandon ship, emergency response and salvage operations become more complex and expensive, and the risk of a major or total loss increases. Fires need to be contained quickly, yet it may take several hours to get to the base of a fire on a large vessel.

Misdeclaration of cargo is a real problem. Industry reporting systems attribute around 25% of all serious incidents onboard container ships to mis-declared dangerous goods, such as chemicals, batteries, and charcoal, although many believe this number to be higher. Failure to properly declare, document and pack hazardous cargo can contribute to blazes or hamper firefighting efforts. Labeling a cargo as dangerous is more expensive. Therefore, some companies try to circumvent this by labeling fireworks as toys or lithium-ion batteries (Li-Ion) as computer parts, for example.

There have been several incidents in recent years where Li-Ion batteries have been reported as contributing to fires on vessels. How significantly are they impacting safety on cargo ships?

Captain Rahul Khanna: Li-Ion batteries can be carried on board ships either as a cargo themselves or as part of the equipment for the electric vehicles (EVs) they provide power for. Many of these batteries are safely transported every day but fire risks are present in both scenarios, especially if the batteries are used or defective, damaged or improperly stored, packaged, handled or labelled. The main hazards are fire, explosion, and ‘thermal runaway’, a rapid self-heating fire that can cause an explosion. They can also produce irritating, corrosive or poisonous gases that cause an explosion in a confined space. The main causes of Li-Ion fires are substandard manufacturing or damaged battery cells or devices, over-charging, and short circuiting.

Of course, Li-Ion batteries are an important source of energy and do not necessarily burn more frequently than other goods. It is only when they ignite that they are more difficult to extinguish as they can burn more ferociously and are capable of spontaneously reigniting hours or even days after they have been put out. Most ships lack the suitable fire protection, firefighting capabilities, and detection systems to tackle such fires at sea, which has been made more difficult by the dramatic increase in ship size – container-carrying capacity has doubled in the last 20 years. We have seen many fires where malfunctioning or damaged batteries have been attributed as a contributing factor in recent years.

What role is the demand for green technology playing?

Captain Rahul Khanna: Decarbonization and electrification are increasing the number of shipping goods that contain Li-Ion batteries, from EVs to a wide range of consumer and electronic goods. The global Li-ion battery market is expected to grow by over 30% annually from 2022 to 2030, according to McKinsey.

The number of EVs is also growing at a fast pace: Nearly 10% of global car sales were electric in 2021, four times the market share in 2019. A lot of conventional power sources have been replaced by batteries, and that industry has seen huge increases in demand in recent years, a trend that will only continue. These new cargos mean new risks if they are not adequately managed. The explosion of demand for these batteries is flooding the market with new manufacturers, raising some questions around quality control.

Is there anything freight forwarders/carriers/shipping companies can do to improve safety standards with these deliveries? Why have they not been implemented already?

Captain Rahul Khanna: Li-Ion fire risks will likely ease over time as manufacturers, carriers, and regulators address the current challenges. In the meantime, attention must be focused on pre-emptive measures to help mitigate the peril.

‘State of Charge’, (SOC), of Li-Ion batteries is an important consideration in their safe transportation and should be around 30%-50%. More towards 30 than 50. Both shipping lines and shippers should ensure this is the case. Shippers should also request proper certification like the test summary from the manufacturers before transporting them as defective manufacturing is a one of the leading causes of fires in such batteries.  

Other measures to consider include ensuring staff/crew receive adequate training and access to appropriate firefighting equipment, improving early detection systems and developing hazard control and emergency plans.

How can procurement improve safety standards aboard cargo ships and reduce the impact of improperly stored battery technologies?

Captain Rahul Khanna: As already mentioned, misdeclaration of cargo is a leading cause for fires on container ships and shippers or freight forwarders should ensure goods are properly declared and marked as hazardous if Li-Ion batteries are being shipped.

Several large container shipping companies have turned to technology to address this issue using cargo screening software to detect suspicious bookings and cargo details, while large container operators are imposing penalties. Unified requirements and penalties for mis-declared hazardous cargo would be welcomed.

The debate about EVs in the shipping industry is ongoing, with conversations about whether there is a need for dedicated Ro-ro vessels for EVs. From an insurance perspective, this is something we would like to see – purpose-built vessels for transporting EVs, designed to substantially reduce the risk of fire. We have already seen shipping companies stop transporting EVs on their ships because of the potential fire risk.

What protective measures are possible for EVs in particular?

Captain Rahul Khanna: Allianz has long warned about the risks associated with Li-Ion batteries and EVs in shipping for a number of years, first highlighting this issue in 2017. A recent report Lithium-ion batteries: Fire risks and loss prevention measures in shipping (allianz.com) highlights a full list of loss prevention measures to consider including:

• All EVs should display clear and precise identification on the windshield detailing the battery type (e.g. Battery Electric Vehicle (BEV), Hybrid Electric Vehicle (HEV), Plug-in Hybrid Electric Vehicle (PHEV).
• EVs with low ground clearance should be clearly labeled as this can present loading and discharging challenges arising from the vessel’s ramps, inner slopes, or deck appendages.
• All EVs with a Li-Ion battery must have successfully passed pressure, temperature, crush, and impact tests as described in the UN Manual of Tests of Criteria – subsection 38.3 for transport of Li-ion batteries.
• All EVs must be fully functional, self-propelled, safe to drive and contain an undamaged battery system.
• There should be no charging of EVs during the passage.
• All EVs must be properly secured to prevent any shifting during transport.
• One potential idea being explored by some car carrier operators, as part of fire-preventative measures, is the use of fire-proof blankets manufactured specifically for EVs.

Recent notable incidents

A fire on board car carrier Felicity Ace beginning in February 2022, led to the vessel sinking in the Atlantic Ocean, along with its cargo of 4,000 vehicles. Li-Ion batteries were cited as being a factor in keeping the fire ablaze.

The Höegh Xiamen, caught fire in June, 2020 in Jacksonville, Florida, resulting in the total loss of the vessel and its cargo of 2,420 used vehicles. An improperly disconnected battery in a used vehicle led to the fire, according to the official investigation.

Some of the key points in this article are:

• The international shipping industry is responsible for the carriage of around 90% of world trade, so vessel safety is critical to the global economy.
• The largest shipping companies have been victims of cyber attacks in recent years. Port operators have also been affected such as the Port of Durban in 2021.
• Just under half (44%) of maritime professionals reported that their organization has been the subject of a cyber-attack in the last three years. Of these, 3% agreed to pay a ransom, which averaged at around $3mn.
• Security agencies have warned of a heightened cyber risk due to the conflict in Ukraine.
• The worst-case scenario is a terrorist attack or a nation state group targeting shipping in a bid to inflict damage or major disruption to trade, such as blocking a major shipping route or port.

The international shipping industry is responsible for the carriage of around 90% of world trade, so vessel safety is critical to the global economy.

The 2022 report reveals that the maritime sector continued its long-term positive safety trend over the past year with 54 total losses of vessels reported globally, compared with 65 a year earlier.

This represents a 57% decline over 10 years (127 in 2012); while during the early 1990s the global fleet was losing 200+ vessels a year.

The 2021 loss total is made more impressive by the fact that there are an estimated 130,000 ships in the global fleet today, compared with some 80,000 30 years ago. Such progress reflects the increased focus on safety measures over time through training and safety programs, improved ship design, technology and regulation.

However, the industry is not without its challenges. Russia’s invasion of Ukraine, costly issues involving larger vessels, crew and port congestion and managing decarbonization targets, means there is no room for complacency.

Another growing challenge facing the shipping industry is cyber security. The digital era may be opening up new possibilities for the maritime industry but its growing reliance on computer and software and increasing interconnectivity within the sector, is also making it highly vulnerable to cyber-attacks.

All four of the largest shipping companies, Maersk, Cosco, MSC (and CMA CGM), have been victims of cyber-attacks in recent years.

Port operators have also been affected. Even the United Nations’ global shipping regulator, the International Maritime Organization was recently targeted by a cyber-attack, forcing some of its services offline. In particular, ransomware has become a global problem.

According to a recent industry survey just under half (44%) of maritime professionals reported that their organization has been the subject of a cyber-attack in the last three years.

Of these, 3% agreed to pay a ransom, which averaged at around $3mn. It also found 32% of organizations do not conduct regular cyber security training while 38% do not have a cyber response plan.

To date, most cyber incidents in the shipping industry have been shore-based, such as ransomware and malware attacks against shipping companies’ and ports’ database systems. But with the growing connectivity of shipping, the fact that geopolitical conflict is increasingly being played out in cyber space, recent years have seen a growing number of GPS spoofing incidents, particularly in the Middle East and China, which can cause vessels to believe they are in a different position than they actually are, and with the concept of autonomous shipping, there is little doubt that cyber risk will become a more important exposure that will require much more detailed risk assessment going forward.

At the same time, the crippling ransomware attack against the 9,000km long Colonial oil pipeline in the US in May 2021 has raised concerns that critical maritime infrastructure, could be increasingly targeted in future.

The attack resulted in the pipeline’s systems, which connect some 30 oil refineries and nearly 300 fuel distribution terminals, being forced offline, resulting in petrol shortages across the eastern US.

As geopolitical risks rise, so does the prospect of malicious digital disruption. Security agencies have warned of a heightened cyber risk due to the conflict in Ukraine. NATO warned vessels in the Black Sea faced the threat of GPS jamming, Automatic Identification System (AIS) spoofing (prior to the Ukraine invasion there had already been a number of these incidents, reported in the Middle East and China), communications jamming and electronic interference.

The US Cybersecurity and Infrastructure Security Agency also warned the maritime transportation sector could be a target for foreign adversaries.

There is concern that shipping assets and ports could become collateral damage if the conflict in Ukraine results in an increase in cyber activity.

Marine insurers have been warning for years about the cyber risk to shipping. From a hull perspective, the worst-case scenario is a terrorist attack or a nation state group targeting shipping in a bid to inflict damage or major disruption to trade, such as blocking a major shipping route or port. While this would seem a remote possibility, it is a scenario we need to understand and monitor. Although an accident, the recent blockage of the Suez Canal by the ultra-large vessel Ever Given is an eye-opener on many fronts as it shows the disruption a momentary loss of propulsion or steering failure on a vessel navigating a narrow waterway can cause.

The good news is that the shipping community has grown more alert to cyber risk over the past couple of years, in particular in the wake of the 2017 NotPetya malware attack that crippled ports, terminals and cargo handling operations. However, reporting of incidents is still uncommon as owners fear reputational risk and delays from investigations. Meanwhile, cyber security regulation for ships and ports has been increasing.

In January 2021, the International Maritime Organization’s (IMO) Resolution MSC.428(98) came into effect, requiring cyber risks to be addressed in safety management systems.

The EU’s Network and Information Systems Directive also extends to ports and shipping. This is a step in the right direction but the problem at the moment is quite extensive. Despite these measures we have seen a sharp rise in attacks.

Increased awareness of – and regulation around, cyber risk is translating into an uptake of cyber insurance by shipping companies, although mostly for shore-based operations to date. Typically, marine hull insurance policies exclude coverage against cyber-attack or any loss arising from a malicious act involving the use of a computer system, given the potential loss accumulation issues from such scenarios. Instead, shippers have to purchase standalone cyber insurance coverage, but to date the readiness of many in the sector to buy a marine hull specific cyber cover has been limited.

However, the threat to vessels is growing as more and more ships are linked to onshore systems for navigation and performance management.

Smart ships are coming, and we would expect demand for insurance to develop accordingly. What we may see in the future is a potential increase in demand for a combination of onshore/offshore coverage and this is something we will need to discuss and observe with our clients and brokers to see how far this can be taken by marine hull insurance and how far it can be taken by a broader scope of cover in a combined policy.

Fortunately, there are also a growing number of resources available to help mariners learn about common vulnerabilities.

Just one example is the internationally-recognized United States Maritime Resource Center, which assists the industry in cyber awareness, safety and security through evidence-based research. Then there are an increasing number of cyber security guidelines which can be followed, such as those from the IMO, but also from other important organizations such as BIMCO, CLIA, Intercargo and Intertanko.

There are also standard practices that can be implemented to reduce cyber risk, such as defining personnel roles and responsibilities for cyber risk management and identifying the systems, assets and data that, when disrupted, pose risks to ship operations. Ship-owners also need to implement risk control processes and contingency planning, developing and implementing activities necessary to quickly detect a cyber event. Identifying measures to back up and restore cyber systems impacted by a cyber event is obviously crucial.

Of course, these are challenging times for the shipping industry. However, IT security should not be put on the backburner. It is vital that investment in cyber risk education and security is not neglected at this time, despite economic pressures, as this risk has the potential to have catastrophic consequences, given the right confluence of events.

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Captain Rahul Khanna is the Global Head of Marine Risk Consulting at Allianz Global Corporate & Specialty (AGCS)