Report: Despite Economies of Scale, Megaships Come With Mega Risks

The containerized shipping industry's race for mega boxships is posing unique risks for the supply chain, particularly with concerns that port infrastructures have not kept pace with the increasing size of vessels, according to global insurer Allianz.

Allianz is raising the red flag over growing risks associated with larger vessels, ranging from navigational challenges at ports, fires, loss of containers at sea to unprecedented complex and expensive salvage processes in case of incidents.

Cargo ships accounted for more than a third of vessels lost in 2020, with 18 lossesm and for 40 percent of total losses over the past decade.

As shown by the boxship Ever Given's blockade of the Suez Canal in March, the pursuit of mega-ships - which give shipping companies economies of scale and fuel efficiency - means the global supply chain must prepare to deal with large-vessel disruption and risk.

"The different consequences of larger vessels are now becoming more apparent, including impacting supply chains. Large vessels and the ports required to handle them present a massive accumulation of risk, while the costs are disproportionately greater when things go wrong,” said Andrew Kinsey, Allianz Global Corporate & Specialty (AGCS) Senior Marine Risk Consultant.

Container ships, car carriers and bulk carriers have grown larger in recent decades as shipping companies seek economies of scale and fuel efficiency. This is a trend that is likely to continue with climate change and the introduction of greenhouse gas emissions reduction targets for the industry.

However, port infrastructure has not kept pace, with overall size of existing ports remaining largely the same despite approach channels being dredged deeper and berths and wharfs extended to accommodate ultra large vessels.

As witnessed with the Ever Given blockage, responding to incidents is more complex and expensive because port facilities and salvage equipment to handle large ships is highly specialized and limited.

For insurers, large container ships and other large vessels are a volatile risk to underwrite.

“We need to look more closely at how we can minimize the risks of mega-ships, especially in ports or in bottleneck passages like the Suez Canal or the Panama Canal given the disruption we have seen that grounding incidents can cause,” said Rahul Khanna, AGCS Global Head of Marine Risk Consulting.

Container-carrying capacity has increased by around 1,500 percent since 1968 and has almost doubled over the past decade. The HMM Algeciras, introduced in April 2020, currently holds the title of the world’s largest container ship with a capacity of just under 24,000 twenty-foot equivalent units - and bigger vessels are on order.

According to the Allianz report, the international shipping industry continued its long-term positive safety trend despite COVID-19 related challenges. Last year, a total of 49 losses of vessels were reported globally, similar to 2019 when 48 losses. This represented a 50 percent decline over 10 years from 98 in 2011. The number of shipping casualties or incidents declined from 2,818 to 2,703 in 2020, a four percent drop. 

Allianz added that global seaborne trade volumes declined only by around 3.6 percent in 2020 and are on course to surpass 2019 levels this year. “Despite the devastating economic impact of COVID-19, the effect on maritime trade has been less than first feared, demonstrating the resilience of the shipping industry,” noted the report.