Tuesday, April 6, 2021

Stranded Container Ship Opens the Door for More Problems as General Average Declared

Freight Forwarding Association Boss Advises Members on Liabilities
Shipping News Feature

UK – EGYPT – WORLDWIDE – As the dust, or rather the sand, settles on the blockage of the Suez Canal for six days last week so the operators of the vessel involved, Evergreen Marine Corp, announced a General Average, prompting the most influential of the UK professional bodies involved to remind its members of the necessary course of action they need to take.

Virtually every freight forwarding agency worthy of the title trades in such cases under the terms of the British International Freight Association (BIFA) and the organisation reminds members there is, incorporated in the BIFA Standard Trading Conditions covering their contract with their clients, an indemnity concerning General Average costs in clause 20 D. Furthermore, Clause 22 states:

“Where liability arises in respect of claims of a General Average nature in connection with the Goods, the Customer shall promptly provide security to the Company, or to any other party designated by the Company, in a form acceptable to the Company.”

The Ever Given floated free on 29 March, enabling hundreds of ships detained by her stranding to start once more to transit the Canal. On the 1 April the ship’s ultimate owner Shoei Kisen, declared General Average. The vessel then moored up in Great Bitter Lake for inspection. The General Average process means all stakeholders in a maritime venture share proportionally any losses resulting from a voluntary sacrifice of part of the ship or cargo to save the whole in an emergency.

Although normally used when a ship founders or loses cargo overboard in quantity, it also applies in groundings such as in this case, where insurance claims are likely to arise. To avoid delays to the cargo, provision of a General Average Guarantee ensures early release. In this case Richards Hogg Lindley has been appointed the General Average adjuster and they will assess each shipment's value on board and apply a formula that determines the financial contribution of each cargo owner to any claims. Robert Keen, Director General of BIFA explains:

“When our members receive notification that a General Average has been declared for a vessel, whatever the position, their first action must be to give the importer immediate notice. The appointed average adjusters will need to be in possession of completed guarantees and bond forms, or a cash deposit before release of cargo, so it is vital that the importer takes immediate action.

“Our advice to members is that with General Average being declared, any standard marine policy will include General Average losses, so if the goods have been insured the importer should obtain a General Average guarantee from the insurers. If no insurance has been organised then a cash deposit will be needed.”

This case actually is likely to raise more questions than answers. Whilst General Average does allow for claims arising from groundings, it was clearly drawn assuming the physical loss of, or damage to, cargoes. When one analyses the case of the Taiwanese box carrier the question is, do any claims for costs incurred by third parties apply in this event?

If the losses are those of the Ever Given alone there was apparently no actual cargo loss. There are of course costs to the owners for the supply of those thirteen or more tugs which helped free her after several full days of work. Or were the owners insured for such costs? Then there are the costs of moving all that sand from bow and stern to assist in floating her off. Did the Canal authority pay for this and whoever did will they presumably be looking for recompense?

Some press reports refer to an interview on local TV station Sada Elbalad with Suez Canal Authority (SCA) chief executive Admiral Osama Rabie who allegedly said the SCA might look for up to $1 billion in costs for transit fees, dredging and salvage costs, although he didn’t apparently explain who he would be looking to for these.

The really interesting question remains as to whether any of the owners of, and cargo owners on, the hundreds of ships delayed might be party to any claims against the stranded vessel’s owners. The delay has meant missed slots in ports around the world which equates to overtime costs for on and off loading, some ships may need to moor up, or at least slow steam to their next destinations.

Normally such thoughts might be cast aside but this case is of class action standard given the huge numbers involved. All the ships delayed will have lost their operators revenue simply due to the delay at the canal, and the extra time to complete their rotations. How much for a large merchant vessel losing perhaps 10-12 days revenue through the actions in the Canal?

There is also yet another elephant trying desperately to hide in the corner and hinted at by the BIFA boss. So many importers these days buy in stock, particularly from China, at the lowest possible price. They complain en masse about rising container shipping costs and many cut every corner possible in the name of profit. It therefore remains to be seen just how many have avoided to take out that standard marine policy which Robert Keen mentions. We await these outcomes with interest.

Photo: Courtesy of the SCA.