COVID-19 has had an unprecedented impact on the global economy in recent weeks. Numerous countries have enforced lockdown measures that have affected the daily lives of billions of people around the world. These measures have resulted in drastic changes in people’s behaviour impacting their daily routines, spending habits and travel.
The international shipping industry is responsible for the carriage of approximately 90% of global trade through a fleet of over 50,000 merchant vessels manned by over 1 million seafarers. In an ever more connected world, countries are increasingly dependent on international trade to power their economies and consumer demand for goods manufactured thousands of miles away is considered a normal part of life. It is therefore inevitable that a global pandemic will affect the way vessels are operating and these operational changes cause a shift in the risk profiles of individual vessels. When a data-driven approach is used to assess real-time changes in operational behaviour on a global level it enables anomalies to surface.
At Concirrus, we have developed hundreds of dynamic behavioural data features that are analysed across the global shipping fleet. Our analysis helps to build a picture of the types of behaviour that correlate to insurance claims. From an insurance risk perspective, two of our most basic dynamic features are:
- vessel mileage; and
- number of unique port visits.
These benchmarks are used as an indicator of vessel utilisation and variation in trading geography respectively. When considered at an aggregate level, these also become useful features for assessing more general shipping activity that can help us understand how COVID-19 has influenced risk profiles across insurance portfolios.
Over the next few weeks we will be sharing insights into the impact of COVID-19 on the shipping industry that will allow the insurance market to provide better support to their shipping clients in challenging times. In the first part of this series we will be taking a macro-level view across the industry to consider how different sectors have responded to COVID-19.
Figure 1 shows that global average weekly distances covered by large containerships saw a notable decline at the beginning of March this year. Distances dropped from 1,857 to 1,675 nautical miles compared to the same time in 2019, equating to a 9.8% reduction.
Figure 1. Containership Average Weekly Distance - Global
When we drill down further and consider the number of unique port visits of large containerships on a regional level, we can start to see some differences in how operations have been affected (Figure 2). This is where we may be starting to see activity that could lead to either an increase or decrease in claims in the longer term.
In Asia we can see that there has been a notable reduction in port visits throughout February and March compared to previous years. Averages fell to a low of 1.40 port visits per week in 2020 compared to 1.71 in 2019, equating to a reduction of 18.1%. This metric has been showing signs of recovery, indicating that shipping behaviours in Asia, and their associated risk profiles, are returning towards normal levels however there is still a clear lag.
Figure 2. Containership Average Unique Port Visits - Asia
When considering unique port visits in Europe we see a similar reduction throughout February (Figure 3). Weekly unique port visits reached a low of 1.26 compared to 1.52 in 2019, equating to a 17.1% reduction.
Figure 3. Containership Average Unique Port Visits - Europe
When these metrics are measured on an aggregate level across an insurance portfolio, which can be made up of thousands of vessels, it equates to a significant decrease in the number of berthing operations taking place. Berthing operations are inherently high-risk manoeuvres that could result in casualties, which could ultimately lead to an insured loss. A reduction in port calls on a global or regional level could therefore mean that we see a reduction in insured losses of this nature.
From a cargo perspective, it will be worthwhile to monitor how containership port visits alter once lockdown measures start to ease. It is possible that we will see a spike in activity as the sector starts to deal with a backlog of goods that now need to be shipped across the world. A spike in activity could lead to increased commercial pressure as port schedules become tighter and vessels begin to carry larger volumes of cargo. Furthermore, as port traffic begins to increase, ports will have to deal with increased cargo throughput whilst adhering to post-lockdown measures. Infrastructure, processes, workforce and inland supply chains will all need to be in place to cope with the increase in volume of cargo. Without all of these elements we could witness a significant accumulation of cargo risk at ports around the globe.
Other sectors have seen limited impact on behaviours throughout the pandemic. Bulk carriers have continued to operate with a weekly mileage average of approximately 1,100 nautical miles indicating limited change in operational profiles (Figure 4).
Figure 4. Bulk Carrier Average Weekly Distance - Global
The cruise industry has been one of the hardest hit sectors of the global pandemic as a direct result of social distancing measures. Figure 5 shows the average weekly mileage of cruise ships for the last four years. It clearly illustrates the challenges faced by the sector, and also the drastic changes in operational and associated risk profiles of the vessels.
At the end of April average weekly distance sailed had reduced by 70.5% compared to the previous year with many vessels remaining in port. We will explore this sector in more detail later in this series to consider how a data driven approach to risk management can give clear visibility in this unique situation.
Figure 5. Cruise Ship Average Weekly Distance - Global
In parts 2 and 3 of this series we’ll be taking a closer look at changes to shipping routes and aggregations (links below). Our coverage will explore the implications of these changes in behaviour and the hazards to look out for.
Other resources you might find useful:
Willis Re – Covid-19 – Impact on marine and energy market
Includes data and analysis from Concirrus