Ever Given, General Average and Why Shippers Will Share the Costs of Rescuing a Vessel
The owner of the Ever Given informed Evergreen on April 1 that he had declared general average following the ship’s refloating work in the Suez Canal last month, a spokesperson for the operator confirmed at Supply Chain. Dive.
Ever Given was stuck in the canal for six days, and the effort to get it back into motion required more than a dozen tugs and several dredges. Egyptian authorities recently said they could seek more than $ 1 billion in damages to cover the equipment used to free the ship, the 800 people who worked to free the ship and the loss of revenue from the canal , according to a CNBC report citing Egyptian media coverage.
Egypt did not specify who would be responsible for paying the billion dollars in damages. But the general average declaration by Shoei-Kisen, the shipowner, means that shippers will be required “to share the relevant expenses incurred in rescuing the ships,” the Evergreen spokesman said.
According to Jonathan Spencer, an average claims adjuster at The Spencer Company who is not involved in the case, the size of the Ever Given and the number of freight owners involved mean the general average process will likely be long and complicated.
“No two cases are the same,” Spencer said. “But it’s, I’m pretty sure, the biggest general average case ever to come up in terms of the number of different real estate interests.”
Determine the payment
Sharing the cost of significant expenses is at the heart of what a general average report means for shippers, according to Sean Pribyl, a senior lawyer at Holland & Knight who focuses on maritime law. Pribyl is not involved in the Ever Given affair and has spoken widely about general average.
“It is this idea of equitable sharing between a shipowner and the freight of the interests of certain losses, and it includes the expenses incurred during the voyage,” said Pribyl.
General average is an old concept dating back hundreds of years that has evolved over time with the shipping industry. Cargo sometimes had to be thrown overboard in emergency situations to lighten the load and save the ship. General average has risen to help spread that loss, Pribyl said.
“These are extraordinary sacrifices made, or they are expenses incurred, to avoid a peril that threatens the entire trip, so it no longer needs to be dumped. It has definitely matured for several centuries,” he said. he declares.
“It is, I am almost sure, the largest general average case that has ever arisen.”
Average Adjuster at The Spencer Company
Today’s general damage conditions are outlined in a shipment’s bill of lading and can cover a long list of expenses, including towing and rescuers. The loss of revenue for the canal, however, would not fall under general average, according to Spencer.
The job of determining how much shippers will have to pay is up to an insurance adjuster. The expert in the Ever Given case is Richard Hogg Lindley, according to documents obtained by The Loadstar. The process involves making contact with all shippers who had goods on board.
“The average range is two to seven years,” Pribyl said. “It might take a while.”
But that doesn’t mean that cargo owners will have to wait for the adjustment to be made to get their cargo back. Shippers are usually able to post the general average bond or the guarantee to release their cargo well before the adjustment is complete.
“It’s not usually stated on the bill of lading,” Spencer said of the amount of the security. “It is based on the freight invoice. So the expert has to put all of this information together before he can determine which deposit should be put in place by the individual freight interests.”
The last time a large container ship declared general average was in 2018 following the fire aboard the Maersk Honam. The fire occurred in March and shippers were able to pay to release their cargo by May.
Cargo owners aboard the Honam had to pay 54% of the value of the cargo to have it released, which has been described as 42.5% of the value of the cargo for security, plus 11.5% as a general average deposit, according to an MSC press release. from the time.
A shipper’s insurance will generally cover warranty and other costs associated with general average. Although Spencer said it is “surprising to see the proportion of freight interests who choose not to take out insurance although it is relatively cheap.”
“If no insurance is in place, a cash deposit will be required, ”the British International Freight Association said in a note about the Ever Given General Average Declaration.
General damage and adjustments via freight forwarders
As of Thursday, the Ever Given was still in Grand Bitter Lake, so it’s unclear when it will resume its journey and the cargo will be available to owners. “Sshippers with cargo on board the MV Ever Given will have to wait long hours for their containers to be released, ”the International Federation of Freight Forwarders Associations said on Thursday.
The process is the same when a freight owner books through a freight forwarder, but it can be more complicated, Spencer said.
“Because when the cargo goes through a freight forwarder, then the average adjuster has to check with the freight forwarder who is the ultimate owner of the cargo,” he said.
Once the adjustment is complete, the expert will provide the average adjustment to all stakeholders, Spencer said.
“It serves as a warning to those interests,” he said. “In the case of insurance companies, who have guarantees, how much they are supposed to pay. In the case of cargo interests who have deposited cash deposits, what contribution must be made as to the deposit of funds and how much they will be. reimbursed. “
Fitters will usually include a “safety margin” when collecting a security deposit, so it will likely be higher than what the contribution should be, but those differences will be refunded.
Evergreen said its insurance would cover the container, fuel and other carrier assets to help “reduce the risk of cost sharing. “
“Evergreen also informed customers who have cargoes on the vessel and its alliance partners who have used the capacity of this vessel to provide deposits or bonds for the sharing of salvage costs in accordance with the general adjustment rules of general average before cargoes can be released after the ship arrives at destination ports, ”the company spokesperson said.