Suez – nEver Given – The General Average summary for retail shippers and end customers.
From Wikipedia:
It is provided by the Lex Rhodia that if merchandise is thrown overboard for the purpose of lightening a ship, the loss is made good by the assessment of all which is made for the benefit of all. — Julius Paulus Prudentissimus, Opinions of Paulus (circa 230 AD)[2] – source: Wikipedia
The run up to running aground:
Containership Ever Given, ran aground on Mar-23 21, while transiting the Suez Canal. Old news, but still echoing the freak incident for the fact that the ship is currently among the largest, by size (400m in length, 59m width), and capacity of 20000 container (over 18000 loaded), and the canal has no bypass or viable detour. Traffic lineups built quickly on both ends of Suez, damages whipped out into the billion by side estimates and into the dispute.
It took a week and a couple of tugs (a surrealistic excavator on the shore) to refloat the vessel at highwater, which reopened the passage.
Whether Black swan or not, the accident has practical dimensions that can help shippers and logisticians learn about risks:
- Navigational – was it overly rough windy, short cutting waves But still (and not) navigable. The technical manager BSM raised the case of untypical yawing of the earlier convoy vessels pointing to a unfavorable weather conditions. An erring on either crew and/or pilotage side, or was it coping with bad weather as first order of business.
- Owner’s counter claim is premised on the navigable conditions at ship’s entry and the granted free passage by authorities, which loops back to the operations above.
- Physics, hydrodynamics – the squat of vessel in shallow waters (the Bernouli effect) reduces underkeel clearance and maneuverability. During shallow steaming, there is also not enough adjacent water volume for the propellers (torque) and the rudder (momentum, steering) . Higher speed aggravates the squat.
Incident economics:
The ship is impounded and still tied at Suez pending dispute resolution. SCA Egypt claimed an initial for under a bn in damages, later adjusted to 600m to exclude reputation component.
What is the value at stake on the carrier (owner, operator, insurer, shippers, clients):
A motivational example (totally made up numbers) – just to illustrate the order of the casus:
Ship costs 170m (per Vessel Values), with full complement and supplies. (no major damage was sustained during grounding and refloat).
Cargo interest – 18k containers at an average of 50k each (made up number, an averaging and a grossly assumption) – 900mn. (for simplicity this includes the empty containers and no adjustments for reefers and other special equipment).
Above makes a lumpsump fo 1.07bn, which puts claim amount into perspective. All-in a billion.
Now the time-value race: a headwind for the ship, and thinking time for the canal side. For one, there are still some running costs to keep the ship ready and with steam. Next, the opportunity costs/losses from the foregone revenue build up by the day (assume long term T/C). Depending on the financing terms, it can severely strain loan covenants and add costs and penalties.
Last – the customer base: some of the cargo is losing value – especially the consumer goods shipments – clothes, footwear, electronics, and seasonal merchandise – furniture, equipment. Not to mention supply chain disruptions, shippers’ reputation, back-to back commitments etc. This is one is a gray estimate as cargo contributes to the GA and abandoned volumes could only be partially salvaged via adjusters.
The crux – the General Average catharsis. The legal framework stipulates cargo interest contributes for the general average up to its own value. Marine cargo insurance typically covers for the GA. If cargo is not insured, receivers put up a cash deposit to take delivery (assuming vessels gets its outbound clearance and sails with Free Pratique).
Now the real tie of GA situation is that depending on the GA assessment it could get a take it or leave it dilemma. If a GA contribution of a given container is say 50k (full invoice value, a large GA damage to engulf all of the cargo) for say a cargo of clothes and shoes from the spring collection (already past due). Should consignee still pay the average contribution to take delivery or discard. Would there be some margin to be recovered, or do they just need to safeguard brand: if discarded, there is a risk the abandoned cargo is dumped via an intermediary which in turn resells at salvage value and for branded, high ticket goods, low prices would be an additional hit.
Caution ahead:
To wrap: even very big and modern ships can run aground. The General Average implications for the retail shippers and end customers as in any commercial misfortune, are mostly disputes and losses. Keep track of the timesheet, events and communication and partner with solid insurers and forwarders.
Meanwhile,
Egypt announced Suez canal expansion plans and and Evergreen ordered 20 new ultra large container ships at Samsung Heavy
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