How market pressure can affect navigation policies amid Suez Canal delays

Captain Andrew Kinsey, Allianz senior marine risk manager, joins Yahoo Finance to discuss the economic impacts of the Suez Canal traffic jam.

Video Transcript

BRIAN SOZZI: Some good news on the giant container ship that has brought trade through the Suez Canal to a standstill over the last week. Engineers say that tugboats have been able to dislodge the Evergreen's bow. Despite that progress, though, the situation is far from over, experts contend. Captain Andrew Kinsey is a senior marine risk manager at Allianz. He joins us now. Captain Kinsey, good to-- good to see you this morning here. How could this situation-- it's good to see progress here. Good to see the ship the bow dislodged. Good stuff. But how could this be avoided?

ANDREW KINSEY: Hello, Brian. Thank you for having me. Well, first, when we look at prevention, we have to understand what the cause was. And the key to this is getting the data off the vessel. These modern merchant vessels carry a Voyage Data Recorder, the VDR. And a download of the VDR will be critical so that we understand what led up the error chain that led up to the serious marine casualty and what we can do in the future to prevent a recurrence.

JULIE HYMAN: Well, in terms of preventing a reoccurrence, you know, there are a lot of these really big ships out there right now. Is that a good thing? Do we need to see sort of a reshrinking or resizing of container ships? Does there need to be any kind of a constraint on the number of ships that are on the seas at any given time?

ANDREW KINSEY: Julie, not are they very large ships currently on the seas, but there are even larger ships-- larger container vessels on the books being built. And this brings up a key concern of ours at Allianz, that we talk to our insurers about is that economy of scale for shipping lines is not necessarily the economy of scale and a benefit for the entire supply chain. So what we have to look at is, can the infrastructure, in this case, the Suez cut support these ever larger vessels?

And it's not the length. You hear a lot about the length. It is the beam on these. I was in command of a 300-meter vessel. But it was significantly narrower. These are close to 200 foot wide. And-- and that gets into the hydrodynamics at play.

JULIE HYMAN: And so these ships that you're talking about-- I mean, are there-- can you give us any-- any idea of how many are coming online? When are they going to be coming online? And are they going to be trying to go through places like the Suez? Or-- it seems, then, likely that we would see more occurrences like this.

ANDREW KINSEY: First off, yes, they will be transiting the Suez. Second, they are currently in contract now and steel is being cut. So you're looking at a build contract for 18 months or so. But that can be expedited if conditions warrant.

So what is critical is that, as I said earlier, that the VDR is studied so we understand, what was the root cause of this incident so that we can prevent it in the further. Key to this is really gets to a root point on how we train mariners. We're collecting so much data, this metadata. We have to start using it more efficiently, quicker, so that we can adapt quicker because an unfortunate occurrence with these ultra large container vessels is that they were built, and then it was the onus of the ports and the supporting infrastructure to adapt in order to get the ships to call. And that's something that has to be looked at overall, I believe, from an IMO level.

BRIAN SOZZI: What changes would you-- would you recommend to-- to just trying to improve the training procedures of the captains driving these ships? Because to your point, they're only likely to get bigger.

ANDREW KINSEY: The training of seafarers continues to be world class. I mean, if you look at what the container volume has done in the last decade, the exponential growth. And yet, you look at a large majority of the incidents while attributed to what they concern as human error, it really is a remarkable job seafarers are doing.

But we have to look at what conditions they are exposed to. It was just less than four months ago when we were looking at a condition globally with seafarers being stranded on ships with COVID being over a year and extending their contracts. So fatigue and stress is definitely a key factor we have to address.

JULIE HYMAN: Now, you come at this, of course, from an insurance perspective as well, working at Allianz. What are the rates like for these ships? And the bigger they get, do the rates get higher? At some point do the rates get high enough that that becomes something that would be a discouraging mechanism to-- to build them ever bigger?

ANDREW KINSEY: Well, that's going to be based on capacity. And at present, rates have been hardening. We don't see anything short term on that. We continue to see a hardening market.

It's not only the vessel insurance, though. It's also the cargo insurance for the cargo that's on board. So there are a lot of stakeholders in this. And then when we talk to our insurants that have business interruption interest, you can see that it gets to be a very complicated situation.

BRIAN SOZZI: Captain, the Suez itself, from a structural standpoint-- is it set up for the future of trade?

ANDREW KINSEY: It depends on what the future of this trade looks like. My concern right now on the short term is that we're looking at getting this vessel freed. And they're making fantastic progress. The efforts are to be applauded.

But the initial reaction is that we are now going to push more ships through a day to make up for the backlog. So once again, we're taking an already strained asset and, as soon as it's cleared, we're going to stress it even more by increasing the amount of vessels that transit. And this is where market pressures can override, or circumvent at times, sound navigation policy.

So we have to look at escorts. Speed is a critical factor on this. We have to make sure that the vessels are not going too fast and that if the windage is such that environmental conditions warrant, we delay transit.

BRIAN SOZZI: All right. Captain Andrew Kinsey, senior risk-- senior marine risk manager at Allianz. Good to see you this morning. Appreciate the insights.

ANDREW KINSEY: Thank you. Thank you for having me on.