The Suez supply chain set back

How many cargo insureds won’t be covered?

The Ever Given may have been floated some weeks ago, but the dispute over who owes what is a long way from being settled. The Suez Canal Authority has now impounded the containership and is demanding $916mn in damage costs from its Japanese owners, Shoei Kisen Kaisha.

The figure includes a $300mn dollar claim for a supposed salvage bonus and a $300mn claim for loss of reputation. Considering there were no injuries or pollution caused by the event, the UK P&I Club – the Ever Given’s insurer – is asking for a detailed justification of what seems an ‘extraordinarily large claim.’

But the cost of the event stretches far beyond the immediate parties involved – the global supply chain will be feeling the delay and subsequent costs caused by the incident for some months to come.

The blockage put a stop to cargo travelling through the Suez Canal for six days. 50 ships a day pass down the water way accounting for 12% of world trade and carrying anything from £3bn to £9bn worth of cargo.

Even though vessels are now passing back through, port congestion is going to take a while to remedy, and vessels are fully back running on their scheduled routes.

World trade was already reeling from the pressures of Covid – shipping containers were in short supply due to an upsurge in demand for goods and the Suez event will only serve to further exacerbate the situation. When you blend all of these factors together you’re inevitably left with a global supply chain that’s going to take some time to reset itself.

And to add insult to injury, cargo insurance policies don’t generally cover the costs associated with delays of this kind.

For an insured to claim for costs arising from a delay, such as the inability to fulfil orders, the cargo must have suffered physical loss or damage. And in the case of the Ever Given there wasn’t any.

The ship was floated a lot sooner than first feared and the power supply was always in working order, so any refrigerated goods were likely to be unaffected. Shoei Kisen Kaisha has already announced it won’t be taking responsibility – its agreements with clients don’t guarantee arrival times. It means many insureds will be forced to pick up the costs of delays themselves.

Delays of this nature aren’t exactly out of the realms of possibility. These vessels are huge bits of machinery. The Ever Given is 1313 ft in length, which is longer than The Empire State Building is tall.

The Suez is a narrow canal and high winds are a common risk in the area, so there’s very little margin for error for captains veering off course.

Interestingly, safety statistics from Allianz tell us incidents in the Suez are relatively low, with only 75 reported between 2010 and 2019. But of those 75 incidents, 25 of them were groundings.

So the warning signs were there, and an event of this magnitude was an accident waiting to happen. The insurance industry just hasn’t as yet come up with a comprehensive solution to delays when something does go wrong.

However, at Oneglobal, we always look to collaborate with underwriters and negotiate an effective cover option that deals with these types of delays. Although we can never guarantee a solution, having a strong relationship with our markets puts us ahead in terms of how we can advocate for our clients and always represent their best interests.

This surely won’t be the last grounding incident to occur in The Suez, or any other major water way for that matter. And next time, we might not be nearly as fortunate with the floating process, and the resulting damages to the supply chain could be even more pronounced.

Instead of waiting for the next time to happen, the insurance industry needs to reflect on the gaps in cover this incident has exposed straight away and make sure that effective solutions are available.

For information on Oneglobal’s cargo policies, please visit our cargo home page or contact Ellis Morley.

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