Following on from our March 26 update ‘Suez Traffic Jam’, there have been some very interesting developments.
Shoei Kisen of Japan, owners of the MV Ever Given, notified Evergreen on April 1 that it declared a General Average following the work to refloat the vessel. This means that shippers will potentially be required to share the expenses incurred in the ship’s rescue.
The Law of General Average is a principle of maritime law whereby all stakeholders in a sea venture proportionally share any losses resulting from a voluntary sacrifice of part of the ship or cargo to save the whole in an emergency.
The 400m long vessel blocked the canal for six days and more than a dozen tugboats, multiple dredgers and 800 personnel were used in the recovery operation, with Egyptian authorities now seeking more than US$1 billion in damages to cover these costs and the loss of canal revenue. A portion of the demand includes a US$300m salvage “bonus” and a US$300m loss of reputation claim.
Industry experts state that lost revenue for the canal would not fall under General Average. According to the canal authority, Egypt’s canal lost between US$12 and US$15 million in revenues for each day the waterway was closed, however, it has not provided a detailed justification for its extraordinarily large claim.
The grounding resulted in no pollution or structural damage to the canal, and there were no reported injuries. The vessel was re-floated after six days, and the Suez Canal quickly resumed its commercial operations.
Meanwhile, the Ever Given remains under arrest in Great Bitter Lake, roughly halfway along the canal, and there is no indication when this will be lifted. The vessel is insured with the UK P&I Club and reports are emerging that they may be considering a challenge, possibly via an insurance consortium.
The size of the Ever Given and the number of cargo owners involved means that this could be the largest ever General Average case. Not only is this situation complex, but it will also make insurers extremely nervous about transits in canals and will no doubt be reflected in freight rates.
Shipper’s insurance typically covers the guarantee and other fees associated with the General Average, unfortunately, there is still a surprisingly high proportion of cargo owners who choose not to buy insurance, even though it’s relatively cheap and their cargo may be subject to lien until the deposit is paid.
Once the UK P&I Club reach an agreement on the disputed Egyptian authority's claim and the vessel sails en route to Rotterdam it is likely to be a very long and drawn-out situation further delaying cargo that remains onboard. Thousands of containers will require General Average security, and this will not come cheap considering the costs involved. There will be uninsured containers that will be simply abandoned because the merchants cannot afford the General Average deposit. Owners do not negotiate on this and unless an Insurance Guarantee or Cash Deposit is provided, the cargo will not be released. There will also be Perishable cargo uncleared and there will be a number of shipments that missed their markets and are no longer required. Whilst unusual, owners may look towards forwarders for unpaid Salvage and General Average charges if the recovery rate is very low.
Whether declaring General Average was the right decision for the vessel owners will become clear soon enough, but for cargo merchants there seems a perfect storm of events that will prove costly, especially in the absence of cargo insurance.
We recommend Cargo Insurance to protect you against all loss of cargo, to the full value of the goods; coverage that protects your cargo during every stage of transportation and storage, on a per shipment or annual cover basis. Please contact us with any questions and for assistance.
For more information, please contact Richard Kamppari Baker.
This article was first published in its entirety by World Insurance.