ALLIANZ GLOBAL ON RISKS WITH PANAMA CANAL

Allianz Global: Expanded Panama Canal presents new risks, benefits

The accumulation of high value cargo will increase as bigger ships gather for passage through the newly expanded Central American waterway, increasing insurance risk, according to a new report from Allianz Global Corporate & Specialty.

By Chris Dupin |Thursday, June 16, 2016

   The recently expanded Panama Canal could present new risks, as well as benefits, according to a new report from insurer Allianz Global Corporate & Specialty on the widened Central American waterway.
   “The expansion is significant because it impacts the size and frequency of vessels that call on the U.S. East and Gulf Coast ports,” said Andrew Kinsey, senior marine risk consultant at Allianz. “These vessels presently have to use the Suez Canal coming to the U.S. from Asia.”
   “The value of insured goods transported will increase with the expanded Canal, as will the risk accumulation,” Kinsey said. “This is the reason why proactive loss controls will continue to be needed; including tracking of the risk accumulation. This is one of the biggest lessons learned from the Tianjin explosion in China last year.”
   A fully loaded 12,600-TEU containership could have an average insured cargo value of $250 million, based on an average value of $20,000 per TEU, said Allianz. Containerships carrying 13,000 TEUs will be able to use the new locks and expanded canal, whereas historically, the largest containerships have been able to carry only 5,000 TEUs or less.
   The canal is readying for a grand opening of the expansion a week from Sunday.
   “With the cargo-carrying capacity of ships transiting the Canal having the potential to double following expansion, we can approximately assume this could result in an additional $1.25 billion in insured goods passing through the Canal in just one given day,” the financial services and insurance firm said in its report.
   Rahul Khanna, global head of marine risk consulting at Allianz, says the larger containerships may also lead to an increase in the number of vessels waiting to undertake the transit on both the Atlantic and Pacific sides.
   “This means that with the values concentrated in the surrounding area, from an accumulation point of view, this figure could be even higher,” he explains. The insurance industry has been fretting in recent years over the huge losses that might occur as a result of an accident involving a mega-containership, or even worse, a collision between two of the leviathans.
   “Bigger ships automatically pose greater risks in that the sheer amount of cargo carried dictates that a serious casualty has the potential to lead to a sizable loss and greater disruption. Increasing traffic of bigger ships means the amount of diesel and petroleum being transported could also pose a heightened pollution risk in the event of a casualty,” the Allianz report explained.
   But Kinsey said there could be upsides to the expanded canal.
   With the new set of locks, for example, the Panama Canal authority has indicated transit and wait times should decrease.
   Kinsey also noted that the new locks have water saving basins that will recycle 60 percent of the water used to bring ships through the canal. Even though they are able to accommodate much larger ships, the new locks will use 7 percent less water than the existing locks. That could be important in reducing groundings, especially since the canal periodically conserves water by restricting draft as in the past year’s El Nino.
   In the U.S., he said less cargo may move across the country by rail. That could reduce the number of times a container is handled and lower the risk of cargo damage, according to the report.
   Allianz says there are relatively few accidents in the Panama Canal. In the new locks, ships will be guided and held in place by tugs as locks fill and empty, rather than being held in the middle of the canal and guided by locomotives, or “mules,” as they are known.
   “We look at contact with lock walls as a leading cause of loss in the historical review,” said Kinsey. “But the new locks will have the vessel breasted up against the lock wall” and kept in place with a tugboat, which may actually make a ship less vulnerable to damage. He said a similar method is used for moving ships through locks in Antwerp to terminals on the left bank of the Scheldt River in the Port of Antwerp.
   Kinsey said because of an emphasis on training, he thinks damage to ships or lock wall is unlikely.
   One area of the canal that he is keeping an eye on is Gatun Lake, where the channels leading to and from the old and new locks will merge.
   He said accidents in the Suez Canal are more common and tend to be larger, such as a 2014 collision between a Hapag Lloyd and Maersk ship caught on video or the grounding of the bulk carrier New Katerina in the Suez this February.