Impact of the blocking of the 'Ever Given' on cargo and relevant insurances
“If we are to believe the book “Ninety percent of everything” by Rose George, 90% of everything around us came to us by ship. It becomes clear that when a serious incident occurs at an important maritime hub -such as the complete blockage of the Suez Canal- it has immediately a noticeable effect on our daily life.” - HDI Global-
About 10% of world trade is shipped via the Suez Canal, at a rate of about 50 ships per day. The situation with the blocked "EVER GIVEN" in the Suez Canal was monitored closely by the entire world. This stranding stopped many hundreds of sea giants, stowed with crucial consumer, production and investment goods. An assessment of the consequences for supply chains and possible hick-ups on the global economy needs to be estimated as accurately as possible. The timing couldn't be worse, as world trade is still dealing with the effects of Covid-19.
Which aspects are important regarding transport (and other) insurances?
Disregarding the economic consequences, this incident also has important legal and insurance consequences both on your goods themselves (as a cargo owner), as on to the recently invoked General Average. This General Average has not yet been legally confirmed.
What does this General Average mean for cargo stakeholders?
Despite the fact that it took a while, on April 1, 2021 General Average was invoked by the owner of the MS 'Ever Given' for the handling of the claims relating to the stranding in the Suez Canal.
General Average or “GA”, is one of the oldest maritime legal figures,
implying the cargo has to pay for the
rescue costs to get the stranded ship afloat or salvaged. This is independent
of the damage to the cargo itself.
General Average is based on the idea of solidarity between the ship owner and
the owners of the transported cargo. Originally, this method was developed for
emergency situations in which, for example, cargo was thrown overboard to save
the ship (and the remaining cargo on board) from destruction. In the case of General
Average, extraordinary expenditures voluntarily incurred to save the ship and
its cargo, as well as any damage caused to the ship during the rescue
operation, will be divided between the ship and the cargo carried, in
proportion to the saved value of the ship and its cargo. In order not to block
things unnecessarily, the ship owner will request a guarantee from the cargo
stakeholders as at the moment they want to receive their containers. This guarantee
will be given by the cargo insurers in the form of a “GA guarantee”, which
offers the shipping company certainty that - once the final distribution ratio
of the costs is established - they will eventually receive the contribution
from the cargo insurers. Since the GA process is very complex, it is the responsibility
of a GA adjuster to collect all relevant receivables. A GA adjuster will divide
all attributable costs between the saved value of the ship and, in this case,
at least 20,000 cargo stakeholders. Moreover, this number can increase easily, as
there can be up to 20 (or more) cargo stakeholders in one single container due
to the so-called groupage containers or “LCL” containers.
The aforementioned risk of solidarity in the case of General Average, is always included in the Wyckaert-Comarit “All Risks Transport insurance policy” (our own extended version of a “Cargo insurance policy”). In this specific case of General Average, the insurer will arrange for the reimbursement of these contributions and it is therefore sufficient to send the relevant documents to your insurer as soon as possible. He will sign them and guarantee the final payment.
What does it mean if your goods get stuck on the stranded ship?
In addition to the case of General Average, there is also the risk of the cargo itself.
If your goods are not perishable, there is no danger because at first sight the ship and the cargo have not been damaged, despite the stranding of the ship . The shipment itself will be delayed, but this is not necessarily covered by the Cargo insurance policy.
However,
for perishable goods, with a limited use-by date, the extension of the initial
transport timeframe due to the delay incurred, can cause physical damage to the
goods. Wyckaert-Comarit can respond to the above-mentioned risk through its
“All Risks Transport policy” - with its own extensive cover. For example, cover
is provided in case of delay, if this delay is caused by a covered claim. Hereby,
in addition to the stranding, covered damage will also occur when General
Average is declared.
What is the impact for goods/cargo on other blocked ships?
The situation is also complex for goods/containers blocked on ships hindered by such a blockade, even though these ships and their cargo are not involved in the General Average itself.
The consequential loss, caused by the delayed delivery of the cargo on the blocked ships, is excluded from coverage. The same conclusion exists, related to damage caused to perishable goods. At first sight this damage is not covered since there is no covered incident at the basis. Additionally, these ships and the cargo owners will in all likelihood have to take into account an additional cost in case the shipping companies decide to continue transport via an alternative route. In the Wyckaert-Comarit “All Risks Transport policy” the damage to perishable goods as well as the extra costs due to rebooking are insured, excluding the consequential damage (e.g. delay in production).
It becomes even more complex when we look at this through the lens of the P&I Clubs (“Protection & Indemnity”), which insured the "Ever Given" liability in this recent incident. The blocked ships and cargo owners will be able to address the "Ever Given" and its P&I insurers directly for all consequential loss. Given that the operational costs of a large vessel can easily reach 100,000 USD to 250,000 USD per day, the claim for consequential loss will soon exceed several hundred million USD. The affected ships and cargo owners may have business interruption insurance for themselves, although their insurers will probably continue to address the responsible ship.
Legal impact
Cargo stakeholders must take into account an additional delay due to the possible seizure of a stranded ship. A deposit from the insurer (cover included in the Wyckaert-Comarit “All Risks Transport Policy”) is usually the only way to avoid such a seizure. Whether General Average is involved and/or whether payment must be made is ultimately determined by a judge. Such lawsuits will take several years with prudent certainty, due to the high number of cargo stakeholders and the amounts involved. Hence, we can clearly conclude that such an incident can have major economic, financial and insurance consequences, and will have a very long lead time to effective solutions and compensations. Correct information about your Cargo Insurance policy is crucial here.
For additional practical information on this topic or regarding further insurance needs, you can always contact us via your usual contact person or via insurance@mawyc.be.
We remain available, both by telephone and via our e-mail channels.
Wyckaert-
Comarit Insurance Team
Member of the Mawyc Group
Mawyc Insurance, Afrikalaan 287
9000 GHENT, BELGIUM
+32 9 223 35 42
For more information
Insurance@mawyc.be
www.mawyc.com
Disclaimer & Copyright
Copyright © 2021. All rights reserved
Copyright image newsletter: Mawyc Group
Copyright picture Suezkanaal: Cnes 2021, Distribution Airbus DS
The material contained in this publication is designed to provide general information only.
Whilst every effort has been made to ensure that the information provided is accurate, this information is provided without any representation or warranty of any kind about its accuracy.
Mawyc Insurance cannot be held responsible for any mistakes.
March 2021