Expanded Canal, Expanded Risk
The Panama Canal accounts for roughly five percent of world sea trade, and the expanded Panama Canal is estimated to generate a three percent increase in cargo volumes transiting the Canal.
The value of insured goods transported will increase with the expanded Canal. This could result in an additional $1.25 billion in insured goods passing through the Canal per day. Risk accumulation will increase, says Allianz Global Corporate & Specialty (AGCS) in a newly released report on the Panama Canal expansion project.
“With the increase in size of vessels transiting the Canal, you have a corresponding increase in operational, environmental and commercial risks,” says Andrew Kinsey, Senior Marine Risk Consultant at AGCS. 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 Panama Canal has seen 121 reported shipping casualties (incidents) over the past 20 years with its safety record having improved significantly over the past decade in particular (24 casualties). These incidents have resulted in just four reported total losses since 1996.The Canal has only seen one double-digit year of casualties this century (2006). Two casualties were reported in 2015.
Collisions involving vessels (38) and contact with walls (34) have been the main drivers of shipping casualties over the past 20 years, collectively accounting for 60 percent of incidents. Machinery damage/failure is the third most frequent cause of incidents (23), accounting for 19 percent.
Given that the new locks will not be using the traditional “mules” but rather tugs which will be in the lock chamber with the vessel that is locking through, there is the potential for increased contact with the lock walls, states the report. There is also the risk of grounding, either as a result of equipment failure along the canal or a casualty on the ship.
There is particular concern surrounding the salvage limitations for the latest generation of container ships. In the event of an accident in the surrounding region, there may be an insufficient number of qualified, experienced salvage experts available to handle the New Panamax ships due to merger and acquisition activity and economic pressures, states AGCS.
The potential impact of any shipping incident is much wider than just impeding progress through the Panama Canal, the report states. With more larger ships on the move in the surrounding region any incident could also impede traffic at major ports in the U.S. and elsewhere, resulting in a potential increase in business interruption losses.
Sixty percent of the Panama Canal traffic either begins or ends in U.S. ports. AGCS sees a potential risk from the higher concentrations of insured goods that will be transported on bigger ships, which will call in at U.S. ports and terminals, many of which are exposed to hurricanes. For example, a large portion of Superstorm Sandy losses in 2012 were due to storm surge that flooded ports in the Northeast region.
According to AGCS’ Safety and Shipping Review 2016, meteorological predictions anticipate more extreme weather conditions, bringing additional safety risks for shipping and potential disruption to supply chains. Hurricanes and bad weather were contributing factors to at least three of the five largest vessels lost during 2015.
Conversely, the prospect of an expanded all-water route from Asia to the U.S. East/Gulf coasts could actually lead to a risk reduction in another area because containers will no longer need to be moved/reloaded onto trains. The fewer times a container is handled, the lower the risk of damage.