How shippers will have to pay for the blockade of the Suez Canal | 2021-05-28
The grounding of the Evergreen Line Ever Given container ship in the Suez Canal in March created a huge legal and insurance dispute that could take months, if not years, to resolve. In this conversation with SupplyChainBrain Bob Bowman Editor-in-Chief Joe Klobus, Claims and Insurance Manager at global freight forwarder OEC Group, explains how the incident brought to light the concept of general average, an age-old law that requires shippers to share losses. of such an event.
SCB: What is the general average?
Klobus: In short, it is the equitable sharing of a loss between the shipowners and the interests of the cargo. When the vessel encounters a danger that meets York Antwerp’s rules, the shipowners are able to declare general average, which would distribute this loss to the interests of the cargo.
SCB: In what kind of situations has this been invoked before?
Klobus: General average is often invoked for fires of ships or containers that overflow in sacrifice. However, it is not commonly accepted that this does not apply only to this limited scope of events. It may also apply to rescue, towing costs and seeking refuge in a port or roadstead. It is much larger than what people generally know.
SCB: So in a hypothesis where the carrier is at fault, he could not invoke the general average?
Klobus: This is not true. If the carrier is responsible for a situation and it falls within the framework of York Antwerp’s rules, he can declare general average. And, in general, carriers are not responsible when they report general average. Of course, this can lead to lengthy litigation, but the law usually supports their position.
SCB: Is Evergreen invoking it in the Suez incident?
Klobus: It was in fact the shipowners who claimed the general average – Shoei Kisen Kaisha Ltd.
SCB: Is this a common clause to invoke nowadays, given the many recent incidents of containers falling overboard?
Klobus: You are right that it is more and more common. As these types of claims become more and more frequent, we are seeing more and more declared general damages.
SCB: Based on the precedents, does Evergreen have a good chance of winning this claim?
Klobus: Yes, this is directly within the rules of York Antwerp. The types of expenses they are looking to incur are towing and dredging. It involved more than a dozen tugs and there was a backlog of 400 vessels stranded for six days. So it’s not clear exactly what expenses they will seek to recover, but claims are plentiful at the moment. I think the last total from the Egyptian authorities was $ 900 million. As far as we know, much of it was unfounded. It’s going to take a long time to sort out.
SCB: What does this mean specifically for Evergreen?
Klobus: Evergreen is in a very interesting position because it is a very public event. You see it in all the mainstream media, in places where it wouldn’t normally be published. So it will be interesting to see how they react. They may be forced to pay some of these charges although they are not technically responsible, and it will be interesting to see if they try to pass them on to the general average process.
SCB: Is that $ 900 million figure just for Ever Given, or does it cover other ships that were also delayed in the canal?
Klobus: I believe $ 300 million was for a clawback bonus. I don’t know how they justify this. Another $ 300 million was, I think, for reputation loss. And then the Egyptian authorities are claiming an additional $ 100 million for the loss of costs for the other ships they had to reimburse. I am not sure these are exact figures.
They placed a lien on the ship and arrested it. I believe he was standing in the Great Bitter Lake, just off Suez, until the Egyptian authorities’ demands for payment were met. As far as I know, Ever Given’s insurer, the UK Club, made an offer to settle this case, but it was quickly rejected by the Egyptian parties.
SCB: What about the owners of all the other vessels that were delayed in the canal as a result of this incident? Could they also be able to declare general average?
Klobus: That’s a very good question. I do not believe so, because the delay does not enter into the rules of York Antwerp and is therefore not a recoverable expense. However, this does not prevent the shipowners from attempting to do so.
SCB: Is the right of a carrier to invoke general average included in the contracts of carriage with the shippers?
Klobus: The rules for declaring it are set out in the York Antwerp rules. However, general average is also addressed in things like the law on the carriage of goods by sea and the Hague-Visby rules. And these codes say that the carrier is not responsible for compensating freight interest in the general average situation.
SCB: So sophisticated shippers who enter into a contract with a carrier are aware of the existence of this clause?
Klobus: I would say that a knowledgeable shipper should know that there is general average. However, many people do not understand the whole concept. As I mentioned earlier, that’s something people think about when the cargo falls off the ship, when it’s a sacrifice. However, there is a wide range of circumstances for which carriers can report general average, and this is not commonly known.
SCB: What could be the impact on consumer prices of the charges imposed on Ever Given and other canal vessels?
Klobus: It is possible that this will be built into the landing costs as there have been significant delays, and it remains to be seen when this will be resolved. I can give you some interesting figures on previous general damage situations. Two of the recent situations we saw, the Maersk Honam and the Yantian Express, were both ship fires. Under these circumstances, the common average security that was required for the depot to release the cargo or containers was more than 50% of the value of the cargo. For example, if you have a container worth $ 100,000 on this ship, in addition to what you have already paid to your shipper, you will have to pay an additional $ 50,000 to have that cargo cleared.
SCB: So a lesson for shippers is to be aware of this possibility.
Klobus: You are right to say it, it is something to be aware of. It’s becoming more of a common risk, and one of the best ways to protect yourself is to make sure your freight insurance covers it.