How the Panama Canal expansion will affect the marine insurance market.

Q&A WITH AN LIU EXPERT

LIU Special ty Lines Insurance

Q: How will more traffic and bigger ships traveling through the Canal impact the marine insurance market’s risks and rates?

A: Bigger ships mean more cargo will travel on fewer ships. While larger ships may take more time to move through the Panama Canal, there will be fewer of them—therefore traffic volume, or overall time to move through the canal itself, should not be impacted.

Q: What are the other changing trade patterns already occurring in response to the widening of the Canal?

A: Bigger ships are already having a bigger effect on existing ports. Many ports do not have a deep enough draft, or are simply not large enough to accommodate these massive ships. Some ports will be able to expand, but others may be constrained by nature and unable to either increase the draft or enlarge their facilities. Finding funding to modernize and make improvements is another hurdle.

Q: For those ports that cannot adapt to accept bigger ships – where will that cargo end up?

A: Some companies are already starting construction on ports in Mexico on the West Coast, just over the U.S. border, in anticipation of a reduction in port space. While these efforts to expand may reduce overall costs, the location greatly increases transportation and facility safety risks.

Q: What do you foresee for U.S. ports that have both the capacity and funding to expand?

A: We’ll most likely see a shift in cargo traffic coming from ports that cannot accommodate larger ships. This shift in traffic will lead to an increase in use of other intermodal methods such as truck or train. Any uptick in inland marine transport creates a corresponding rise in the number of times a container is handled and the distance it travels overland—and the risks involved.

Q: Will concentration of an insurer’s risk increase or decrease with the expansion of the Canal?

A: Concentration of an insurer’s risk will increase as the number of containers per ship doubles or triples. The likelihood of an insurer having multiple clients on one ship grows exponentially in parallel with the size of the ship’s capacity.

Q: How does the trend towards overcapacity in the marine market impact underwriting?

A: With the growing overcapacity and resulting increased competition in the marine market, decreasing rates will increase loss ratios for the risk insurers must face.

LIU-USA.com

LIU EXPERT

Don Harrell SVP LIU Marine

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