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Jagan - June 10, 2021 - 0 comments

This article is a continuation of the earlier two articles we had written (The EVER-GIVEN Mela & The EVER-GIVEN Mela-II) on the  grounding of EVER-GIVEN at the Suez Canal on 24th March 2021. While we had hoped that issues relating to the grounding including the salvage and general average would be resolved within a short period of time after the vessel was made afloat, unfortunately, the vessel with cargo continues to be on arrest at the Great Bitter Lakes. The next hearing in the Egyptian Court is scheduled on 20th June 2021 and while we would welcome a resolution to be reached on or before this date, we are not so hopeful. In this article, we touch on the claims being pursued by Suez Canal Authority (“SCA) together with options available to cargo interests.

  1. Claim:
    1. The SCA have reduced their claim from US$ 916 million to about US$ 550 million. However, the amounts involved are still very substantial. The reason given by SCA for the reduction of the claim is due to the earlier incorrect valuation of cargo on board the EVER-GIVEN (they had earlier estimated the value of cargo as being US$ 3 Billion which has now been revised to US$ 550 million). Based on the latest demand from SCA, the claim for salvage (if it is considered as salvage) would be approximately 62% (the value of Property involved as stated by SCA is USD 750 million for cargo and USD 140 million for the vessel i.e. a total of USD 890 million) of the value of properties on board the vessel i.e. cargo and the hull.
    2. The SCA advised in the same press conference that Owners offered USD 150 million as compensation, and which was not accepted.The SCA maintains that the grounding occurred due to the excessive speed coupled with the large size of the rudder of the vessel.
    3. In what appears to be a carefully worded media statement, the UK P&I Club, the P&I Insurers of the Ever-Given stated that whilst the master is ultimately responsible for the vessel, navigation in the Suez Canal is controlled by the Suez Canal pilots and the SCA vessel traffic management services. Such controls include the speed of the transit and the availability of the escort tugs.
    4. Given the varying positions, we would prefer that this matter is dealt in the courts, instead of being negotiated privately so that all are aware of both the circumstances of the incident together with the basis of the SCA’s claim (and which remains opaque as of now). It however appears to us that SCA is not bereft of any fault although the provisions in the SCA user manual may be in their favour against the Owners.
  2. Cargo Interests:
    1. During a webinar conducted on 19th May 2021 by China-Europe Commercial Collaboration Association (“CECCA”), Dr Shengnan Jia, one of the speakers mentioned that more than 70% of the cargo on board the EVER-GIVEN was loaded in China. This being the case, the effect of this casualty is mainly felt, either directly or indirectly, by the Chinese Cargo interests. The Institute of Chartered Shipbrokers, East Branch is also conducting a webinar on 17th June 2021 on the impact on International Trade arising due to the Suez Canal Blockage and we await to hear from the various trade experts/speakers.
    2. It does appear to us, based on empirical data from other casualties, that a sizeable portion of the Cargo interests is uninsured. While the saving in the premium costs may have been a factor to Cargo interests by remaining uninsured, in casualties such as these, they (uninsured Cargo interests) would have to pay a very heavy pricei. The advantage of being insured is that Insurers would step in to provide security (for salvage and general average) and also assist to deal with the situation through the engagement of experts.
    3. Insurance exclusions: Losses arising out of delay (clause 4.5 of the Institute Cargo Clauses 1/1/09 & 1/10/82) and detainment (clause 6.2 of the Institute Cargo Clauses 1/1/09 & 1/10/82) is specifically excluded such that any losses arising due to the delays by the vessel being detained by the SCA would have to be borne by the cargo interests themselves.
    4. With the improvement in liner trade, Cargo interests have come to rely on the vessel schedule, most of whom plan their inventory on this basis. Hence, any delay in voyage would result in commercial losses, particularly, if the goods were meant to arrive within a specific period. Given that this lacuna of the prevailing cargo coverage has been identified, the time has perhaps come for Insurers to consider either widening the cover or provide a separate cover to cater for losses arising due to delay. In order to avoid issues relating to the ascertainment and adjustment of the loss, cover could be provided on the basis of “total loss” i.e., if the cargo is not delivered say within 60 days of the scheduled delivery date, then the policy would pay as if it was a total loss and with cargo Insurers being entitled to any residual value of the cargo.
    5. It does appear to us that the present action with the SCA is only being dealt by the Owners and their Insurers. While Cargo interests and their Insurers may prefer to take a wait and watch option and await developments so as to avoid incurring costs, we believe that they (Cargo interests and their Insurers) would be better served by participating in any proceedings initiated i.e., to be in the front footii instead of in the back footiii, particularly when the value of cargoes involved are substantially higher than that of any other interest.
  3. Information flows: While there may be reluctance on sharing the information to the public so as to avoid any prejudice to the ongoing negotiations between Owners and SCA, given that this issue does not appear to be settled anytime soon, it would be best if the Owners and their Insurers update all parties on the developments. Sharing of information would allow parties to consider various options including relooking at the settlement although it does appear to us that this would not be possible based on SCA’s prevailing claimiv.
  4. Conclusion:
    1. The longer this saga continues , the greater would be the losses arising out of the incident. This being the case, we would welcome all the parties to consider all of their options available to deal with this issue including the release of the vessel from arrest so that the vessel can continue with her voyage.
    2. Additionally, Cargo interests may wish to
      1. be pro-active and participate in any action initiated by the SCA so that they can take an informed decision.
      2. should consider insurance cover for “delay” related losses for future voyages, and which may, in turn, result in the development of an additional insurance cover.

i. See our earlier article on “Cargo Insurance – an Expense or Necessity”.
ii. aggressive
iv.Based on the SCA’s statement, Owners have offered to settle at USD 150 million. If this correct, it does appear to be a generous offer given that some had opined that the salvage reward should have been much lower say 40-50 million.

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