Suez Canal blockage crisis: Egypt opens initial litigation, claiming $916m costs

…Maritime experts expect potentially complicated, lengthy litigation

Ben Eguzozie, in Port Harcourt

As earlier reported by Business A.M. on March 30 that various parties (cargo owners and their representatives, Ever Given vessel, Suez Canal operators, among others) would be up for a potentially complicated and lengthy international litigation, to recoup costs on the Suez Canal blockage, Egypt, canal owner which provided major ground support to free MV Ever Given from the canal waterway, has opened initial litigation against the Japanese shipowners, seeking compensation of $916 million from the vessel owners.

Maritime experts around the world say they expect a potentially complicated, and lengthy litigation with respect to MV Ever Given’s Suez Canal incident.

Ever Given, a skyscraper size vessel, with 220,000 tons of cargo, ran aground on the Suez Canal waterway, blocking the canal for almost a week last month.

An Egyptian court has impounded the vessel, asking the Taiwanese shipper, Evergreen Marine Corporation; flagged in Panama, to pay the amount to Suez Canal Authority (SCA) as cost it incurred in the canal handling.

Evergreen confirmed that it had been informed by the Japanese shipowners of M.V. Ever Given that the vessel “had been officially arrested by the Court in Egypt on 13 April.”

It said that in accordance with the information from the protection and indemnity insurer for the vessel, UK P&I Club, the shipowners had received a claim from the Suez Canal Authority (SCA) for US$916 million on 7 April, to cover losses during Ever Given’s grounding in the Suez Canal. The amount includes a US$300 million claim for “salvage bonus” and a US$300 million claim for “loss of reputation.”

Suez Canal, opened in 1869, today handles 12 per cent of the world trade and 30 per cent of global shipping volume. The CNN said the canal handles 5.2 million barrels of crude daily, and 3.2 million tons of cargo a day.

Experts said the canal handles $10 billion daily in global trade and supply chains, and since the blockage by the colossal container ship lasted about seven days – it follows that $70 billion was lost in the quagmire.

It is set to be an international legal process: the vessel is owned by a Japanese firm, Shoei Kisen Kaisha Ltd; operated by a Taiwanese shipper, flagged in Panama, and stuck in Egypt.

John Konrad, shipping expert at gcaptain.com, a shipping news provider, had said MV Ever Given is a “multinational conglomeration.”

SCA claims ‘lack detailed justification’

Evergreen, MV Ever Given’s operator has said, “SCA’s claims are largely unsupported and lack any detailed justification.” A meeting with it (Evergreen) and the SCA last week Tuesday had failed to yield any consensus, as the following day (Wednesday 13 April) SCA filed an application to ‘arrest’ the vessel, granted by the court.

Lloyd’s Loading List, the largest multimodal freight community, had reported as early as last month that Egypt was looking to claim around $1 billion in compensation for the casualty that closed the Suez Canal for six days in March.

According to the Financial Times, SCA head Osama Rabie had said last Monday that an investigation into the cause of the incident would finish on Thursday, but that the talks over compensation continued – noting that the ship’s owner was trying to reduce the bill by 90 per cent.

UK P&I had said last week Tuesday that a “carefully considered and generous” counter-offer had been made to the canal authority, adding that it was “disappointed by the SCA’s subsequent decision to arrest the vessel,” the FT reported.

Evergreen contended that it was doing “its utmost to complete the mission entrusted by its customers with all due dispatch; and to keep all adverse impacts to minimal level.”

The Taiwanese container is now urging all concerned parties to facilitate a settlement agreement to be reached, “in order to lift the arrest order (on Ever Given) as soon as possible.

On its own flank, Evergreen is investigating the scope of such a court order and studying the possibility of the vessel and the cargo on board being treated separately.

General average declaration by vessel owner

The vessel’s owner has declared ‘general average’ on the ship, with owners of uninsured cargo having to potentially wait for weeks or months to recover their consignment, cargo owners and their representatives with containers on MV Ever Given vessel are preparing for a potentially complicated and lengthy process to get freight released.

General Average is a legal principle of maritime law, and requires that all cargo owners on a vessel to contribute to the costs of any loss, even if their cargo is not damaged.

By far, the grounding of MV Ever Given by Egypt’s court is already shaping up as potentially the most complex ‘general average’ (GA) claim of all time, with litigation possibly involving 20,000 TEUs and up to 20 cargo interests per container, Lloyd’s Loading List had reported.

Ever Given’s Japanese shipowner Shoei Kisen had on 1 April declared ‘general average.’

But Avalon Risk Management, insurance specialist, highlighted that insurance can speed up the cargo release process by posting the General Average Guarantee to meet the cargo owner’s contribution and facilitate release of the cargo.

On the occasion a vessel owner declares General Average, appointed General Average adjusters will assess each shipment’s value on board and apply a formula that determines the financial contribution of each cargo owner. Cargo owners will then need to post a General Average guarantee.

Uninsured shippers’ nightmare

It would be a difficult matter for owners of uninsured cargoes onboard MV Ever Given. Under GA, insured customers will receive their cargo first, while uninsured shippers need the full costs to obtain release. One freight forwarding source said that in this instance, that cost is likely to be large and complex to work out – with the costs set to include claims from other parties which will delay claims adjustors assessing the level of costs incurred.