In an article from our magazine The Insider, Tracey Mullin discusses the risks of naturally occurring weather events in the shipping industry and how they can be managed.
There are thousands of ships and marine traffic active worldwide at any given time. Almost every commodity from oil and gas to cotton t-shirts are shipped daily from one part of the globe to its ultimate destination, where it is sold to customers. This is an industry that reaches into every facet of life and as such any failure within the industry can have an impact on the world wide economy.
There are a number of risks that can have a significant effect on the industry; oil spills, box containers being lost from container ships, collisions etc. These can result from human error or other factors, however this article will focus on naturally occurring weather events and the effects that these events can have on the shipping industry, specifically in the context of insurance.
The article assesses the systemic risk posed by negative events in the shipping industry, the effects of weather events in shipping and how the industry can protect itself against the risks posed by the weather through mitigation of those risks.
The worldwide shipping industry is a complex web that accounts for approximately 50,000 cargo vessels and around 90% of worldwide trade utilises shipping as a method of cargo transfer (RSA). The first shipping insurance contracts were made in the middle ages; "there is no doubt that genuine insurance was a product of the commercial revolution which occurred during the period from 1275 to 1325 or thereabouts" (Roover, 1945, p173).
This not only shows the importance of the industry in general, but it also suggests that the risks associated with working at sea are not a new phenomenon brought on by climate change or modernisation. For centuries, this has been a pioneering and pragmatic industry seeking to understand and mitigate the risks that may occur.
The career of a mariner was always understood to be perilous and there was very little that could be done because of the unpredictability of the weather as well as the unrelenting power of the sea itself (IMO, 2015). The International Maritime Organisation (IMO) adopted the Convention on the Inter-Governmental Maritime Consultative Organisation (IMCO) in 1948, changed to the IMO in 1982 (IMO, 2015).
The aim of this body is to harmonise international rules and regulations governing the maritime industry and is concerned with how ships are built and maintained so as to ensure that all of the risks can be avoided through good practice. International guidelines have been enacted to avoid capsizing, the impact of severe weather on the ships as well as operational aspects such as severe weather operational procedures (IMO, 2015).
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