Reflecting on the Ever Given incident

The impact of the incident was unprecedented in scale as a significant amount of freight transport between Asia and Europe utilises this artificial waterway in Egypt daily. The Ever Given contained the goods of a wide range of cargoes. In addition, as the ship completely blocked all traffic, around 370 other ships were also delayed and forced to wait for their turn to pass through the canal.

After several attempts, Ever Given was finally freed by tugboats, some six days after the incident. The Suez Canal Authority (SCA) demanded almost EUR 1 billion in compensation for salvage and related costs from the owner of the vessel. However, the owner of the vessel refused to pay this amount.

Understanding the general average principle

The sharing of the costs following an accident is based on the General Average principle, a practice that can be traced back more than 2,000 years. The concept assumes that when a ship and its cargo are in distress at sea, the overall loss can be avoided, for example by throwing part of the cargo into the sea. If this is successful and the ship with its remaining cargo reaches its destination, the owner of the sacrificed cargo will naturally suffer a loss.

In addition to the impacted cargo owner, other cargo carriers and the owner of the vessel will also participate in the sharing of the loss in proportion to the values involved. Procedural rules that articulate the General Average principle established on the island of Rhodes and named the Lex Rhodia (‘Rhodian Law’) have been found that date to around 800 B.C. This law of General Average continues to underlie all shipping, and insurance in general, even though the shipping industry has become significantly more modern across the intervening years.

Naturally, the owners of the cargo on board the ship are also obliged to contribute to the costs of rescuing the vessel. The owners of the cargo must provide a guarantee to the owner of the vessel to unload their own cargo at the destination. In practice, this represents a financial deposit paid by the owner of the cargo. Today, these are handled by the insurance company and even banks provide such guarantees.

Despite its very simple starting points, the General Average principle in its current form is a very complex procedure, or at least time-consuming in its processing. The number of cargo owners with goods involved in the Ever Given incident was considerable. A large part of the goods are likely to have been insured, which brings in transport insurers. In addition, the owner and time-charterer of the vessel and their insurers were also involved.

The cargo included a wide variety of customer goods – from furniture to diagnostic tools for petroleum products. The cargo itself is unlikely to have suffered any physical damage to be compensated for under insurance. Delays in transport are only very exceptionally compensated for by the transport insurance.

Notes Holmström, “Any losses that cargo owners may face because of the delay will be borne by them. This is the case regardless of whether the delayed cargo was the cargo on the ship involved in the accident or on another ship that was also delayed.”

The Ever Given event underlines the importance of smooth maritime transport, especially through strategically important routes for world trade. Few companies today keep stocks large enough for such events. Although fortunately this type of event is rare, there have also been other similar bottlenecks in maritime transport and the volume of goods passing through them is significant.

Says Holmström, “For our clients, the biggest challenges raised included delays in receiving and delivering of goods and products, and logistical issues. Additionally, clients faced a lack of up-to-date information from authorities and increased confusion with the situation in the Suez Canal.

Some clients were even facing the risk of losing their cargo or having to hire legal assistance in Egypt. In this case, If Insurance reassured its clients that we were monitoring the situation closely and were prepared to take on any legal action that might emerge as a result of the accident.”

“According to our information, all the cargoes we insured finally arrived intact, which was a great result for everyone involved,” Holmström adds. “We are especially proud of our team, as claims handlers were actively in contact with their customers, relaying updates and information on the situation as new details became available.

Our claims teams also, for example, forwarded guarantees well in advance, to make sure the process would move forward smoothly as soon as the goods were released. Most importantly, we stood by the side of our clients during the Ever Given incident.”