Risky Shipbuilding Practices Post Pandemic
The coronavirus pandemic of 2020 and 2021 has had profound impacts on world commerce. In an effort to speed economic recovery post-pandemic, many industries are engaging in operational practices that put business assets and lives at risk. In the shipbuilding sector, numerous factors have led to corner-cutting as ship owners seek to capitalize on emerging opportunities. While boat builder’s insurance serves as a foundational element of risk management in shipbuilding, adhering to safe construction practices helps keep vessels, crew, and cargo from harm.
Supply and Demand in Cargo Shipping
For the years leading up to the coronavirus pandemic, shippers struggled with vessels designed to carry massive loads, yet not enough cargo to fill capacities. In other words, shippers faced significant overcapacity. Freight rates dipped as a result, costing billions of dollars in excess operational and fuel costs. As the pandemic gripped the world, demand for cargo dropped, but ocean shipping interests enjoyed record-setting freight rates.
When the pandemic began to ease and cargo demand skyrocketed, shipping companies began to order new vessels in order to take advantage of this increased demand. Boat builder’s insurance costs dropped in the wake of the ordering surge. One of the major problems facing shippers is that when new ships are ordered, it often takes years before ship owners take delivery. These delays between ordering and construction are risky, as any demand surges could have evaporated by the time the ships are ready to receive cargo. Industry analysts suggest that over the long term, a return to overcapacity will again depress freight prices and will end up costing shippers.
Fluctuations in the Shipping Market
Changes in freight demand are only some of the risks commercial shippers face. Older vessels in the commercial fleet are routinely replaced by newer ships. Natural annual increases in cargo volume also necessitate additional capacity. Fuel prices are another factor that can influence shipping profits and present their own unique risks. Finally, ever-tightening environmental emission regulations require ships to be retrofitted with compliant equipment or to be scrapped in favor of vessels that meet environmental standards. These risks must be analyzed and planned for; failure to accurately assess market fluctuations or environmental regulations can result in expensive losses.
Cutting Corners in Ship Construction
To meet the increased orders for new commercial vessels, boat builders have been working overtime. High order volumes and an urge to capitalize on favorable market conditions often leads to companies taking risks. In the shipbuilding sector, risks include:
- Skipping quality control practices to get vessels on the water quicker.
- Lax adherence to regulatory requirements.
- Use of substandard materials and equipment to maximize profits.
- Relaxed safety standards during the construction process.
Any one of these risks can result in the loss of vessels and cargo. More importantly, faulty ships can put crewmembers lives in danger. Boat builder’s insurance serves as part of a more comprehensive risk management approach against operational and liability risks. Conscientious shipbuilders are sticking to industry best practices even in the face of feverish vessel demands. By doing so, they are helping to ensure that vessels meet all established safety standards and are constructed with the materials and techniques needed to survive harsh maritime conditions.
Boat builder’s insurance is a critical aspect of the industry. Even as markets fluctuate and demands change, shipbuilders know that corners cannot be cut. The stakes are simply too high, and the risks can quickly impact business assets without the right insurance coverage and industry safety/quality practices in place.
About Merrimac Marine Insurance
At Merrimac Marine, we are dedicated to providing insurance for the marine industry to protect your clients’ business and assets. For more information about our products and programs, contact our specialists today at (800) 681-1998.