Point of view: be satisfied with general average
The opinions expressed here are solely those of the author and do not necessarily represent the views of FreightWaves or its affiliates.
The whole world saw the MV Ever Given get stuck in the Suez Canal between March 23 and March 29. The very large 20,000 TEU vessel was in the middle of its voyage from the port of Tanjung Pelepas in Malaysia to the port of Rotterdam in the Netherlands. , when, according to the operators of the vessel, strong winds caused her to run aground. Her 430-meter-long hull was nestled obliquely along both sides of the narrow canal.
The general public pays little attention to logistics until things go wrong. To do otherwise would be to think about all the water treatment plants and the electrical substations that lie between them and the sources of water and electricity they hope to reach their taps and switches. It’s a testament to the quality of logistics that the general public can afford to be so accommodating. Much of the logistics take place behind the scenes.
Once the Ever Given was dislodged, the general public and the media moved like passers-by in a traffic accident. The vessel was towed out of the narrow channel and into the adjacent Great Bitter Lake in Egypt. Global trade has picked up once again through this critical international choke point. On average, about 50 ships per day pass through the Suez Canal.
Now comes the legal consequences. The first gesture was the declaration of general average by the shipowner on April 1. This implies, for insurance purposes, that there was a danger to the vessel while it was trapped. Although leased by Taiwan-based Evergreen and operated by German company Bernhard Schulte Shipmanagement (BSM), the Panamanian-flagged vessel is actually owned by Japan-based Shoei Kisen Kaisha. The investigation is ongoing and no damage has been reported to the vessel or to the containers on board.
If the general average claim is successful, all shippers will be required to pay a bond to have their containerized cargo released from the vessel once it reaches a suitable port. How much will it cost? In general, this will be a salvage value set at a certain percentage of the value of the cargo. The exact amount is the responsibility of the marine insurance expert once the investigation is completed. It could take months or years. Until then, all senders have to wait. Of course, shippers who maintain their own ocean freight insurance can file their own claims while the process is completed, assuming their policies cover losses due to a general average report. Those who do not have such insurance may lose their cargo if they are unable or unwilling to pay the assessed salvage value.
General average is part of maritime law codified in the York Antwerp Rules (1890). In fact, the concept dates back to ancient Greece. At that time, throwing the cargo overboard to save the ship was considered a loss to be shared between the carrier and all shippers. Today, as in the past, general average is used by the carrier to force all parties to proportionately share the costs associated with rescuing the vessel from a dangerous situation.
In the current situation, other parties directly affected include the Suez Canal Port Authority, which had to assemble the dredges and 11 tugs needed to free the ship, and the approximately 400 other container ships queuing up. Ships on Asia-Europe routes wishing to avoid the blockage should have circled the Cape of Good Hope, which would have added an extra week to their voyages.
The International Federation of Freight Forwarders Associations (FIATA) has noted for its shipper customers that a general average claim does not require any physical damage or other loss of property. In fact, any expenditure of funds to save the vessel has come to be interpreted as a loss of property which must be shared proportionately.
BSM noted on April 14 that the vessel had passed an independent inspection by the American Bureau of Shipping and was found to be seaworthy. Unfortunately for shippers awaiting access to their property, the Suez Canal Port Authority has requested a court order to detain the vessel, with crew on board, pending the shipowners’ claim for 916 compensation. millions of dollars. While not part of the general average process itself, the two sides are now in the midst of their own negotiations to release the vessel. In the meantime, Evergreen is expected to decide whether to leave the containers on board the ship or find a way to transfer them.
There is never a good time for supply chain disruptions to occur, let alone as international trade flows attempt to stabilize as the COVID-19 pandemic recedes. The effect of congestion on transport predictability, the cost of demurrage and retention, the need to strengthen supply chain resilience, etc. will be of concern to logistics professionals indefinitely.