Ports in Peril

The Bigger the Ship, The Bigger the Liabilities

There is an insurance dilemma related to these mammoth tripe-E cargo ships, concerning the possibility of an unexpected porting in a crisis situation. Take for example, the Emma Maersk incident on February 1^st, in which the 13,536-teu carrier unexpectedly landed in the Suez Canal Container Terminal due to a power failure that led to the engine room flooding. If this had been the CMA CGM Alexander von Humboldt, most ports would not have the resources to unload, store, and service a ship of this size without notification. Already with the Emma Maersk, Suez Canal suffered a two-week delay; an enormous set-back financially. Ultimately, having larger ships abroad accelerates the need for full-coverage insurance. While servicing and managing defective ships may not be an immediate worry, unexpected landing may become a more common and taxing occurrence as these vessels age. Ship management and insurance premium packages must now look at cost control, expected savings, sabotage, terrorism, environmental protection, cargo, and crew on top of port expenses.

Another issue arises in terms of ports harbouring these oversized container ships and not having the equipment for proper ship management. The most expensive factors are related to the ship’s draft and length: dredging channels is both expensive and environmentally damaging. Similarly, cranes with an elongated reach are difficult to install and costly to construct. Although these ships are able to carry large amounts of product from one country to another, the process is arduous and financially devastating. Currently, there are 163 ships afloat globally – 120 more are on their way, including a fleet of Maersk Triple Es. Striving for a solution, Maersk’s newest ships will use 50% less fuel per container, which is an incredible environmental development and savings alternative. The set-back will be, however, that these ships still carry 18,000-containers, which returns us to the issues of dredging, cranes, and manpower. Optimistically, larger ships may eventually be a good thing: (1) the reduced carbon footprint from fuel-efficient ships counteracts damage done to port environments; (2) the money saved from fuel reductions can be put toward the cost of cranes and other machinery; and (3) more jobs will become available in the ship management industry. While greener ships may not mean greener conditions overall, they may pose a solution to many of the issues at hand.

The concept of the “glass ceiling” comes into question when experts discuss the necessity of larger ships: how far can engineers stretch a vessel’s frame before decreasing its durability. Taking into consideration the longevity of a cargo ship, the materials needed to construct and operate such a vessel reduce the profit margin in many cases. For instance, a larger ship must still abide by speed regulations, thus the common single-screw diesel propulsion motor will be insufficient in moving a triple-E vessel forward at 25-knots. The installation of a twin-screw motor, which also needs protection against erosion, not only doubles the expense but doubles the pollution; an issue we encountered earlier in regards to Maersk’s newest fleet. Similarly, larger ships enter a new category for stacking cargo, as the nine-container maximum would be overshot by the ship’s increased capacity. Since 2005, there have been updates to container-stacking designs, allowing for piles of ten or more containers; however, carriers run into tricky areas when their older ships lag behind the times. If tragedy were to strike at sea, carriers need to consider the fact that larger ships bare greater, unsalvageable losses. Suppose the cargo ship’s capacity is over 15,000-teu: imagine the devastation if the ship were to sink. In addition, container stability is also s giant risk for the ship management team on-board.

A side from regulation, one needs to ask if larger ships are even necessary to begin with. The world’s largest ships have yet to reach the market, and the demand for such ships is low. Already there are too many container ships abroad; and as a result of this competition, market prices are down considerably. Although now would be the time to purchase a ship – as the cost of a large vessel has fallen consecutively over the past four years – if everyone joins the industry at once, the industry will be flooded with under-stocked cargo ships. As it stands, it is a 6-7 year return on investment for shipowners, but this number could change with the instruction of these behemoths. In March, global exports suffered a 1.67% year-over-year decline, indicating turbulent times for cargo companies. If cargo ships are unable fill to capacity at this point in time, why would larger vessels have any better luck? The question of safety is important in terms of ship management, but the question of numbers and figures suggests that these ships are nearly irrelevant at this point-in-time. Perhaps, in the near future, if market conditions calm, oversized container ships will be of greater need.