Six days into its ordeal, the Ever Given was set free. The Japanese-owned container vessel, loaded with 20,000 shipping containers, became wedged sideways while traveling through the Suez Canal.
While the ship went on its way and the canal reopened to traffic, the impact of a six-day stoppage in marine transport in that canal meant a massive disruption to supply chains across the world. The 120-mile canal sees roughly 12% of the world’s tonnage transported through its waters — an average of 50 ships per day. When the Ever Given became stuck, all of those ships waiting to get through the canal became stuck, as well.
Almost immediately, supply chains began to feel the impact. The price of liquid natural gas increased. Even after the ship was freed, gas, oil, food, consumer electronics and more will most likely see losses associated with delayed shipments, particularly those that were time-sensitive, such as perishables and items associated with holidays.
The impact went even deeper. The Suez Canal Authority was also impacted. Early estimates set losses at $14 million to $15 million USD per day that the ship blocked passage. Egypt reportedly lost up to $14 million per day in revenue. Lloyd’s List data show that the blockage held up an estimated $9.6 billion in goods per day.
Had some of the ships been forced to reroute around the Cape of Good Hope in southern Africa, the additional 8.5 days of travel could have further added to the costs. The canal is a major thoroughfare for goods moving between the Far East and the western markets. Without it, the price of shipping increases, as does the price of goods.
INSURING THE LOAD
Insuring marine traffic and the flow of goods usually occurs through a P&I club, or a Protection & Indemnity club, which is a nonprofit association of marine insurers that serve a membership consisting of ship owners, operators and other marine-related entities. P&I clubs insure the ship, the seafarers and the cargo they’re moving.
As the scene played out in the canal, P&I clubs were readying themselves for the fallout. Typically, the clubs have an internal retention of approximately $10 million, with some clubs setting retention up to $15 million. The P&I clubs also pool reinsurance and internal costs under what’s known as an International Group. Three days into the incident, P&I clubs’ claims totals had already gone well beyond their retention limits. Moreover, nearly every one of the 13 P&I clubs around the world would experience loss.
WHEN THE LOSS IS INDIRECT
Such insurance is critical to the shipping industry. A broker that specializes in the marine industry can assist ship owners and seafarers from the point of contract through the supply chain lifecycle. NFP works with organizations to review contract terms, particularly on time-sensitive and perishable goods, to ensure that insurance contracts have the correct clauses to cover items.
That is important. Direct losses are typically covered, but what may not be included is what could impact your business far into the future: indirect losses. Those stem from items that may not have resulted in physical damage, but may be rendered a loss because of delays — for example, Christmas or Chanukah items that arrive too late for retailers to be able to sell them.
Some of the insurance coverage that will come into play as the claim for the Ever Given plays itself out include:
Cargo insurance:
- General average is a principal of maritime law whereby all stakeholders in a sea venture share proportionally any loss resulting from the voluntary sacrifice of a part of the ship or cargo to save the whole ship and cargo in an emergency. (Each owner of cargo onboard Ever Given could be responsible for a portion of the salvage cost to refloat the Ever Given in addition to and or contributing alongside the hull and machinery portion for general average)
- Cargo insurance for time sensitive i.e. perishable commodities and livestock onboard Ever Given and third-party vessels
Hull and machinery:
- Physical damage to the vessel (damage to Ever Given’s hull and machinery i.e. hull damage to the bow and including propellers and rudder damage from the Suez Canal grounding)
- General average (hull and machinery could contribute to that portion of the general average claim)
- Physical damage to the Suez Canal from the collision with the shore banks (fixed and floating objects collision clause)
- Salvage award (coverage for the cost to refloat the vessel as a portion to the general average claim)
Protection and indemnity:
- General average (mostly likely to be covered under the hull and machinery and cargo covers)
- Delays claims on impacted third-party vessels awaiting Suez Canal transit (breach of duty of care and legal liability for the delay losses)
- Cargo on board (first-party) liability to first-party cargo onboard from delay and or damage of cargo (time sensitive cargo)
- Cargo on board third-party vessels (legal liability arising from delay of transit of cargo)
- Fines (on a discretionary basis by the P&I club for fines by the Suez Canal authority that are permissible by law)
- Delay claims of impacted third-party vessels that voluntary deviated around Cape
- Loss of revenue to Suez Canal
- Physical damage to Suez Canal, if not 100% covered under the hull and machinery policy
- Legal expense (including uninsured losses) freight, demurrage and defense if purchased from the club
Other coverages that may come into play:
- Loss of hire (cost to third-party ships impacted by Suez Canal closure, including time element coverage for losses on vessel charter)
- Strike and delay (losses for delay subject to time based deductible)
- Trade disruption (cover for Ever Given for loss of use)
A specialized broker can also help you determine the appropriate value of your fleet. NFP works with fleet owners to help protect the full value of their vessels, ensuring their investments are fully protected. No matter where your fleet operates, your operations can be protected for any disruption.
Every voyage your fleet undertakes deserves the full protection your organization can give it. Work with NFP experts to identify your unique risks, and bring you products that help you keep your business afloat.
For more information, please contact Cran Fraser at cran.fraser@nfp.com or visit our Energy & Marine solutions.