Ever Given Suez Shipping Crisis - who pays?
12th July 2021
Roughly 30 per cent of the world’s shipping container volume transits through the 193km Suez canal daily, so who will foot the bill estimated to be about US$400 million per hour'
The cost of the Suez Canal blockage
The container ship Ever Given is 400m long (1,312ft) and weighs 200,000 tonnes, and has a maximum capacity of 20,000 containers. It was travelling from China to the Netherlands carrying 18,300 containers. The ship is operated is one of the world's largest container vessels and is operated by Taiwanese transport company Evergreen Marine.
In high winds on March 23, 2021, the giant container ship ran aground in the Suez Canal. Its bow became jammed in the canal's sandy eastern wall, with its stern lodged against its western wall. The wedged vessel obstructed the entire channel, blocking one of the most important trade routes in the world for nearly a week. It is estimated that the cost to global trade is about US$400 million per hour based on the approximate value of goods that are moved through the Suez every day, according to shipping data and news company Lloyd’s List. The authority that operates the Suez Canal has already said the crisis cost the Egyptian government an estimated $90 million in lost toll revenue alone; as hundreds of ships waited to pass through the blocked waterway; with some diverting from their planned voyage to take the longer route through the Cape of Good Hope.
Arrest of the Ever Given – what happens to vessel and cargo next'
Once freed from grounding, the ship was arrested by The Suez Canal Authority (SCA) as leverage for its $916m insurance claim against the vessel owner. As a result the Ever Given is likely to be the centre of protracted legal battle over what caused it to run aground in the Suez Canal and who is to blame. The Ever Given’s technical operator, Bernhard Schulte Shipmanagement (BSM), has repeatedly blamed strong winds and a sand storm for the grounding. Whilst an initial investigation has ruled out any mechanical or engine failure as a cause of the grounding. But other reports contradict this and some say the ship lost the ability to be steered in high winds and dust storm, suggesting “technical or human errors” may be to blame.
What's your exposure if you have cargo onboard'
So for those with cargo onboard the container ship there is two areas of exposure:
a) Your Cargo
First - is that the cargo is in limbo until some agreement is settled on what is to blame and therefore who is liable. Which could possibly take years to resolve, as the SCA rules state that the vessel is “wholly responsible” for any damage, unless the ship’s operators can prove it occurred by accident. Which means if it was a mechanical or a human error, then BSM and Evergreen Marine become responsible. An Egyptian court has ruled that the SCA has a right to arrest the vessel until it is paid. So in the meantime it's unlikely the vessel, which is now at anchor in the Great Bitter Lake, will move anytime soon. The general average aspects are not in play yet, as both the cargo and the ship are still under detention and an Egyptian court has blocked the discharge of Ever Given’s cargo. Even if the insurers can successfully appeal that ruling and secure the release of the cargo, the unloading of super container ships is typically carried out in ports with equipment that can reach vessels of this size and height. Thus the logistics of transferring the cargo to other vessels would be challenging. For the cargo owners, their cargoes are still very much stuck on board.
b) General Average and cargo owners exposure to the impending financial fall out
The owners of the Ever Given had declared General Average. The most often cited legal definition of “general average” is “all loss which arises in consequence of extraordinary sacrifices made or expenses incurred for the preservation of the ship and cargo losses within general average, and must be borne proportionately by all who are interested.”
There are five potential areas of litigation or financial cost: damage to the vessel; damage to its cargo; the cost of the refloating and salvage operation; the SCA’s financial losses including damage to the canal itself; and losses to the other delayed vessels.
The shipowner can exercise a right to detain the cargo under a general average lien until the cargo owners commit to pay the individual general average contribution. In practice, the cargo owners will not need to pay before they collect their cargoes. They need to provide a general average bond from their cargo insurers, or if they do not have any insurance, a bank guarantee to cover their contribution.
This is why Spatial Global always offer a comprehensive marine cargo insurance
The complexities of international insurance means that many freight forwarders avoid it, but at Spatial Global we consider it to be a value-adding service - so even if we're not handling your cargo - we positively welcome your cargo insurance enquiry. Our full-value insurance cover gives you great cover and peace of mind, it will secure your investment in your cargo. What's more, in the event of a claim, we handle your insurance issues as if they were our own.