Miller’s latest Marine Market Report looks ahead to the factors driving the market in 2023 in the context of a turbulent 2022

Despite a turbulent year, 2022 was largely positive for the hull insurance market, a finding that seems at odds with the underperformance of other specialty lines. This is among the findings of broker Miller’s latest Marine Market Report, which shows how a “fragile equilibrium” of rates has been established in the class, reflecting its attraction to underwriters.

Miller’s report hints at signs of new emerging hull capacity at Lloyd’s, but highlights the ongoing issue for now of coverage and wording, rather than pricing – driven in the main by Russia’s invasion of Ukraine.

Uncertainties in the market make the year ahead hard to predict, as a material shift in underlying factors could swiftly change the state of the market as the shipping industry battles supply chain impacts, congestion at ports, inflationary pressures, low shipbuilding volumes and regulatory risk, including the decarbonisation of emissions.

The specialist re/insurance broking firm’s report flags ongoing issues with mis-declared lithium-ion battery cargo. Mis-declared cargo continues to be a common problem in general, with lithium-ion fires particularly catastrophic – the most recent example being the total loss of the Felicity Ace in late February 2022.

The issue of ESG, meanwhile, cannot be escaped – even on the high seas, as a new generation of ships using more efficient fuels and integrated with smart digital systems is sought to replace an ageing fleet. The total CO2 emissions of the world’s merchant fleet (annualised monthly) continues to increase rather than diminish; UNCTAD recorded annualised emissions in April 2022 of 847 Mt, up from 782 Mt only two years prior.

“As shipping accounts for around 3% of global emissions, the industry is likely to clamp down on pollutants as ‘soft’ legislation morphs into a firmer regulatory environment, and shipping will likely become caught in the cross hairs of GHG emissions,” the report states.

Regulatory changes (Source: Miller)

Three IMO environmental regulation changes came into force on 1st January 2023. These include:

The Energy Efficiency Existing Ship Index (EEXI) – a framework for determining the energy efficiency of vessels over 400 GT. Ship operators will have to assess their ships’ energy consumption and CO2 emissions against specific energy efficiency requirements. To ensure compliance, shipowners may need to reduce their vessels’ emissions. This is a one-time certification.

The annual operational Carbon Intensity Indicator (CII) – applies to ships of 5,000 GT and above, and indicates a vessel’s performance and efficiency based on annual fuel consumption, using a rating from A to E. The CII will be assessed annually from 2023 and will become increasingly stringent towards 2030. For ships that achieve a D rating for three consecutive years, or an E rating in a single year, shipowners will need to develop a corrective action plan.

The enhanced Ship Energy Efficiency Management Plan (SEEMP) – the mechanism for improving CII ratings. It envisages targets and planning, and the new technologies and practices for optimising ship performance, along with procedures for self-evaluation, verification and company audits.

Shipping is also affected by other national and regional environmental policies. The EU, for example, in 2021 presented a ‘Fit-for-55’ package, which charts the path towards 2050 to decarbonise across various sectors, including shipping, and includes changes to the EU Emissions Trading Scheme (ETS). In shipping, the package covers bunkering infrastructure in ports with related tax incentives and aims to promote alternative fuels, therefore establishing fuel standards and lifecycle GHG footprint requirements. Companies would have to buy carbon credits for all voyages starting or ending in the EU and when at berth in EU ports; purchase would be required for whichever flag they fly, or wherever the owner of that ship resides. Ships that do not comply could be detained or denied entry to ports. This is likely to increase the cost of voyages involving EU ports.

Share Story: