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Wave of new megaships stokes fear of outsize losses

Marine insurers voice safety concerns as vessels expand

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Wave of new megaships stokes fear of outsize losses

The increasing size of container and passenger ships and opening of new shipping routes present new risks for the maritime industry as well as exacerbate some longstanding perils.

So-called megaships heighten the risk of costly and difficult salvage operations if they ground, particularly in large sections of the oceans that have not been mapped to today’s standards, and increase the chances of supply chain disruptions. Such ships have few ports that are large enough to handle them and an insufficient number of crews to salvage cargo should there be an accident, experts say.

Total marine losses were fairly steady at 85 in 2015 compared with 88 in 2014, but “the thirst for ever-larger container ships” also continued in 2015 and is among factors changing the industry’s risks, Allianz Global Corporate & Specialty S.E., a unit of Allianz S.E., said in a March analysis.

The introduction of megaships has raised fears about the potential for large losses of as much as $1 billion should such a ship run into serious trouble, Allianz said.

The world’s largest container ship, the MSC Oscar owned by the Swiss-based MSC Mediterranean Shipping Co., debuted last year. The ship’s deck area is equivalent to four football fields and would be taller than the Empire State Building if stood upright, according to the report, which said even larger ships are being built.

“As well as demonstrating the remarkable innovation and growth of a maritime industry which has seen cargo-carrying capacity increase by over 70% during the past decade, the arrival of such ‘megaships’ also brings concerns about increasing risk, safety issues and salvage difficulties,” Allianz said in the report.

The increasing size of vessels “truly is a systemic risk” that will test the capacity of ports, canals and crews, said Capt. Andrew Kinsey, senior risk consultant for marine at Allianz Global Corporate & Specialty in New York.

Megaships’ grounding risks is an issue discussed frequently by members of the International Group of P&I Clubs, the world’s 13 largest protection and indemnity clubs, said Joseph E.M. Hughes, chairman and CEO of the American P&I Club. And while the International Group does not consider megaships “an intrinsic risk” there are challenges that need to be considered, he said.

Other risks include larger containers and the difficulty of knowing precisely what is in a container at any one time, he said.

For example, China Shipping Container Lines’ megaship the Indian Ocean was grounded in the river Elbe, Germany, for five days in February before a dozen tugboats freed it, according to the Allianz report.

Such groundings are a reminder of the risks that shippers face, including the need to properly manage cargo, said Michael Yarwood, claims executive and risk manager at London-based TT Club Mutual Insurance Ltd.

According to a blog by Houma, Louisiana-based Gaidry Law Group, the owners of megaships should “take proper steps to ensure that information regarding what various cargo containers weigh and contain is accurate and made available to the relevant people as this could help prevent weight distribution problems and cargo misidentification problems” that could endanger the craft as well as its crew.

Concentrating more cargo on fewer ships also increases supply chain risks, London-based Drewry Shipping Consultants Ltd. said in an analysis.

The potential for the ships to be carrying highly valuable cargoes, variations to routes because of the ships’ size and a potential scarcity of salvage equipment to deal with an accident all contribute to uncertainty to the potential loss picture, Allianz said.

While an expanded Panama Canal is slated for completion in the coming weeks, megaships are leading to a “trickle down effect” of so-called Panamex vessels, previously the world’s largest, being pushed to inadequately prepared secondary or tertiary ports to free up space for the even larger vessels at the biggest ports, Mr. Kinsey said.

In addition, London-based Marsh Ltd. said in a recent report that megaships may need to change the routes they take, but large areas of the oceans have not been surveyed to modern standards.

According to Marsh’s report, International Hydrographic Organization data shows that just 49% of the U.K.’s coastal waters up to a depth of 200 meters have been surveyed to modern standards while as little as 1% of the waters around the Arctic Peninsula have been surveyed.

Steve Harris, senior vice president of Marsh’s global marine practice in London, said megaships also will be sailing the Caribbean and inadequate salvage resources are a concern.

He urged shipowners to share data about lesser sailed areas of the oceans.