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Bigger risks, rewards come with Panama Canal expansion

Bigger risks, rewards come with Panama Canal expansion

The Panama Canal's expansion will increase the value of insured goods and risk accumulation, Allianz Global Corporate & Specialty said Wednesday.

The company issued a report that examines the risk management effect of the June 28 opening of a third channel for larger vessels.

The $5.25 billion expansion will increase the maximum vessel capacity and enlarge the overall volume of transported freight.

While the existing locks can handle ships up to 106 feet wide, 965 feet long and 39.5 feet of draft, the new locks will accommodate vessels up to 160 feet wide, 1,200 feet long and 50 feet deep. Container ship capacities will increase to about 13,000 twenty-foot equivalent units from 4,400 .

“The expansion is significant because it impacts the size and frequency of vessels that call on the U.S. East and Gulf Coast ports,” Andrew Kinsey, senior marine risk consultant, Allianz Global, said in the report. “These vessels presently have to use the Suez Canal coming to the U.S. from Asia.”

The new locks create an additional lane of traffic for New Panamax vessels, which are as long as four football fields. The report said that a fully-loaded 12,600 TEU container ship could have an average insured cargo value of $250 million, based on an average value of $20,000 per TEU.

“The value of insured goods transported will increase with the expanded canal, as will the risk accumulation,” Mr. 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.”

Mr. Kinsey was referring to the explosion in the country's northern port city in August that has generated an estimated $4 billion in insured losses.

The report said that since the cargo capacity of ships traveling through the canal could double after the expansion, an additional $1.25 billion in insured goods could pass through the canal in a given day.

The report said that bigger ships automatically pose greater risks, giving a serious incident the potential to lead to a sizable loss and greater disruption. Increasing traffic of bigger ships also adds to the amount of diesel and petroleum being transported, which could raise the pollution risk in an accident.

Another potential risk is the higher concentrations of insured goods carried by bigger ships, which will call at U.S. ports and terminals, many of which are exposed to hurricanes. The report noted that a large portion of Superstorm Sandy losses in 2012 were due to storm surge that flooded ports in the Northeast.

However, Allianz said the prospect of an expanded all-water route from Asia to the U.S. East and Gulf Coasts could reduce risk in one area: Containers will no longer need to be moved or reloaded onto trains. The fewer times a container is handled, the lower the risk of damage.

The Panama Canal Authority said the canal has invested heavily in training, prevention programs and contingency plans. Some of the programs are related to the simulates and hands-on training of the canal's pilots and tugboat captains on a chartered New Panamax vessel.

Mr. Kinsey described training as “key to mitigating the risks involved with larger vessels.”

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