Risks the size of football pitches transiting the canal
The Panama Canal has again been making headlines in recent days. The issue of funding appears to have finally been resolved, thanks to the signing of an additional contractual clause. Now the insurance company Allianz is raising public awareness of the risks associated with the expansion of the waterway. Longer maritime voyages also offer advantages, however.
The Panama Canal Authority (ACP) is delighted that the recent difficulties with the consortium in charge of expanding the waterway, Grupo Unidos por el Canal (GUPC), now appear to have been resolved by means of a contractual amendment (see ITJ breaking news of 5 August). However, the insurance industry believes there is little reason for celebration. After all, increasing vessel sizes also lead to increased risks. In its latest study, entitled «Panama Canal 100: Shipping Safety and Future Risks», the maritime insurer Allianz Global Corporate and Specialty (AGCS), states that the value of insured goods passing through the canal per day following the completion of two new locks could leap to more than USD 1 billion.
More than 12,000 ocean liners currently pass through the Panama Canal every year. The new locks, which are scheduled to go into operation at the end of 2015, will significantly increase this number – there is talk of around 4,750 additional units passing through every year. As we all know, however, it is not just the number of transits that is augmenting, but also vessel sizes. In future, container ships carrying up to 13,000 teu will be able to pass through the canal. The current limit is approximately 5,000 teu.
Safety record to deteriorate?
Today, around 3% of the world’s maritime trade passes through the Panama Canal every year, which is equivalent to approximately USD 270 billion worth of goods. The safety of vessels using this route is therefore of considerable economic importance.
However, following improvements in the canal’s safety record over the last ten years, the AGCS experts have warned that the increased volume of traffic and larger vessels could now result in a worsening of the record, as the initial expansion phase is also associated with greater risks.
Captain Rahul Khanna, the global head of marine risk consulting at AGCS, explains the potential risk management consequences of the expansion as follows: «Larger vessels automatically pose more risk. The high freight volume alone may result in significant losses and disruption in the case of a serious accident. A fully-loaded containership with the new panamax dimensions is around four football pitches long and up to 49 m high, and can carry a cargo of approximately 12,600 teu. This, in turn, can have an insurance value of up to USD 250 million.» According to AGCS estimates, an additional USD 1.25 billion of insured goods could pass through the expanded canal, at its full design capacity. This increment is primarily due to larger ships. On a busy waterway such as the Panama Canal, accidents involving vessels of this size can pose enormous challenges. They can lead to blockages, if there is a lack of qualified experts on hand who are able to salvage giant vessels.
The potential impact of accidents goes far beyond the disruption to shipping in the Panama Canal itself. An incident could also interfere with traffic at major ports in North America and throughout the region, as well as leading to a rise in the number of insurance claims due to operating disruptions.
What about hurricane risks?
In addition, a number of North American ports and terminals along the eastern coast and in the Gulf of Mexico are at risk from hurricanes. This danger increases if ever larger vessels are forced to extend their stay, thereby bringing the value of insured goods in the ports up. The majority of losses incurred as result of so-called Superstorm Sandy in 2012, for example, can be attributed to a surge which flooded ports in northeastern USA.
The handling of larger units poses another major challenge. In view of the limited manoeuvrability of giant vessels, operating procedures concerning wind and weather-related restrictions in ports need to be modified.
Improved on-board safety
However, an enhanced sailing route from Asia to the east coast of the United States and to the Gulf of Mexico could, on the other hand, also reduce risks in another field. Captain Alan Breese, a senior marine risk engineer at AGCS, says that «the longer a container can remain on a vessel without having to be transhipped to a train or other means of transport, the better.»
The study has also established that the safety record of the Panama Canal region has steadily improved in recent years. There were a mere 27 shipping accidents in the last ten years, with only two total losses. This rate of one accident per 4,000 journeys compares extremely favourably with that of other major waterways. The Suez Canal, for example, has one incident per 1,100 journeys, whilst the Kiel Canal in northern Europe registers one accident per 830 journeys.
Thus the situation can be summarised as follows: a transport accident involving a giant ocean-going vessel in the Panama Canal entails rather incalculable risks. The benefits arising from less transhipment needed cannot be dismissed out of hand, however.
