• ITVI.USA
    15,033.570
    -36.610
    -0.2%
  • OTRI.USA
    24.380
    0.040
    0.2%
  • OTVI.USA
    15,017.490
    -33.390
    -0.2%
  • TLT.USA
    2.720
    0.010
    0.4%
  • TSTOPVRPM.ATLPHL
    3.350
    0.280
    9.1%
  • TSTOPVRPM.CHIATL
    3.090
    0.230
    8%
  • TSTOPVRPM.DALLAX
    1.730
    0.070
    4.2%
  • TSTOPVRPM.LAXDAL
    3.100
    0.150
    5.1%
  • TSTOPVRPM.PHLCHI
    2.160
    0.120
    5.9%
  • TSTOPVRPM.LAXSEA
    3.570
    0.220
    6.6%
  • WAIT.USA
    125.000
    -2.000
    -1.6%
  • ITVI.USA
    15,033.570
    -36.610
    -0.2%
  • OTRI.USA
    24.380
    0.040
    0.2%
  • OTVI.USA
    15,017.490
    -33.390
    -0.2%
  • TLT.USA
    2.720
    0.010
    0.4%
  • TSTOPVRPM.ATLPHL
    3.350
    0.280
    9.1%
  • TSTOPVRPM.CHIATL
    3.090
    0.230
    8%
  • TSTOPVRPM.DALLAX
    1.730
    0.070
    4.2%
  • TSTOPVRPM.LAXDAL
    3.100
    0.150
    5.1%
  • TSTOPVRPM.PHLCHI
    2.160
    0.120
    5.9%
  • TSTOPVRPM.LAXSEA
    3.570
    0.220
    6.6%
  • WAIT.USA
    125.000
    -2.000
    -1.6%
American ShipperContainerMaritimeNews

Viewpoint: Settling for general average

Questions about insurance key in legal aftermath of Suez blockage

The views expressed here are solely those of the author and do not necessarily represent the views of FreightWaves or its affiliates.

The world watched as the MV Ever Given remained stuck in the Suez Canal between March 23 and 29. The ultra-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, Netherlands, when, according to the vessel operators, strong winds made it run aground. Its 430-yard-long hull nestled obliquely along both edges of the narrow canal. 

The general public pays little attention to logistics until things go wrong. Doing otherwise would be like giving some thought to all the water treatment plants and power substations that stand in between them and the sources of water and electricity they expect to reach their faucets and light switches. It is a testimony to how well logistics takes place that the general public can afford to be so complacent. A lot of logistics goes on behind the scenes.

Once the Ever Given was dislodged, the general public and the news media moved on much like passersby at a road accident. The vessel was towed out of the narrow canal and into the adjacent Great Bitter Lake in Egypt. World trade resumed once more through this critical international choke point. On average, about 50 vessels per day pass through the Suez Canal.

Now comes the legal aftermath. The first move was the vessel owner’s declaration of general average on April 1. This implies, for insurance purposes, that a danger to the vessel existed while it was trapped. Though leased by Taiwan-based Evergreen, and operated by Germany-based Bernhard Schulte Shipmanagement (BSM), the Panama-flagged vessel is actually owned by Japan-based Shoei Kisen Kaisha. The investigation is underway, and there are no reports of damage to the vessel or the containers on board.

If the claim of general average is upheld, all consignors will have to pay a bond to have their containerized cargo released from the vessel once it reaches an appropriate port. How much will this be? Typically, it will be a salvage value set at some percentage of the cargo’s value. The exact amount is up to the maritime insurance adjuster once the investigation is completed. This could take months or years. Until then all consignors must wait. Of course, consignors who maintain their own maritime cargo insurance can file their own claims while waiting for the process to work itself out, assuming their policies cover losses due to a declaration of general average. Those who do not have such insurance may lose their cargo if they cannot or will not pay the salvage value assessed.

General average is a part of maritime law codified in the York Antwerp Rules (1890). In fact, the concept goes all the way back to ancient Greece. In those days, throwing cargo overboard in order to save the vessel was deemed a loss to be shared by the carrier and all the consignors. Today, as in the past, general average is used by the carrier to force all parties to share proportionally in the costs associated with rescuing the vessel from a dangerous predicament. 

In the present situation, other directly affected parties include the Suez Canal Port Authority, which had to marshal the necessary dredgers and 11 tugboats to free the vessel, and the approximately 400 other container vessels that were waiting in queue. Vessels on Asia-Europe routes wishing to avoid the blockage would have had to steam around the Cape of Good Hope, and that would have added an extra week to their trips. 

The International Federation of Freight Forwarders Associations (FIATA) noted for its shipper customers that a claim of general average need not require any physical damage or other loss of property. In fact, any expenditure of funds to rescue the vessel has come to be interpreted as a loss of property that must be shared proportionately.

BSM noted on April 14 that the vessel passed independent inspection by the American Bureau of Shipping and was deemed seaworthy. Unfortunately for the consignors awaiting access to their property, the Suez Canal Port Authority sought a court order to detain the vessel, with crew on board, pending the vessel owners paying a compensation claim of $916 million. Though not part of the general average process itself, the two parties are now in the middle of their own negotiations for release of the vessel. In the meantime, Evergreen should decide whether to leave the containers on board the vessel or come up with a way to transfer them.

There is never a good time for supply chain disruptions to occur, let alone while international trade flows try to stabilize as the COVID-19 pandemic recedes. The effect of congestion on transport predictability, the cost of demurrage and detention, the need to build supply chain resiliency, etc. will preoccupy logistics professionals indefinitely.

Darren Prokop

Darren Prokop is a Professor of Logistics in the College of Business and Public Policy at the University of Alaska Anchorage. He received his Ph.D. in economics from the University of Manitoba in 1999. Prior to his academic career Darren Prokop worked in government as an economist and in the private sector in inventory planning.

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