The Ever Given Incident and Fallout

On March 23, 2021, the Ultra-Large Container Vessel (ULCV) MV EVER GIVEN, went aground in the Suez Canal. Although an exact reason for the grounding has not yet been determined, it is speculated that high winds may have contributed to the vessel veering off course resulting in the bow and stern grounding along opposite banks of the canal, thus blocking all vessel traffic within the canal itself. After an intensive salvage effort over the course of 6 days, the vessel was re-floated on March 29th. However, with the vessel re-floated and traffic within the canal allowed to resume, the difficult work of settling claims resulting from the incident has begun which just may prove as arduous as the salvage efforts undertaken to re-float the vessel.

The Ever Given was reportedly holding up an estimated $9.6B of goods each day while lodged on the banks of the canal, which equates to $400M of global trade being hindered per hour. When considering the numbers, the magnitude and dramatic effect this incident has had on the global supply chain is clear.

The mega-ship with a carrying capacity of 20,000 TEU’s is operated by the Taiwanese company Evergreen Marine and is one of the largest ships in the world. While the new class of mega-ships offers some unique advantages in the economies of scale, there have also been incidents attributed in part to their sheer size. Container ships have been rapidly increasing in size in recent years, as the average size has nearly doubled in the past decade. While the size of the ships has been steadily increasing, other elements of the global supply chain network have had to increase as well to accommodate this trend. The Suez Canal itself was built in 1859, and while it was, and still to this day, is an incredible feat of modern engineering, the size of these new mega-ships could not have been imagined when it was originally designed, and there have been several expansion projects throughout the years.

A major kink in the line of global supply was exposed while the Ever Given was blocking passage of the Suez Canal. The 120 mile passage, which handles about 12% of total global trade, held up more than 300 vessels with many more re-routed for the longer passage around South Africa’s Cape of Good Hope, as best efforts could not free the ship for over six days, and many feared at the time it would be more.

Although the ship has been freed, thanks in part to environmental influences, namely a full moon which raised water levels a foot-and-a-half higher than normal tides, there are longer lasting impacts to the global supply chain. Mike Yarwood, TT Club’s Managing Director commented on the event from a loss prevention perspective and warned of future consequences: “Beyond the delay to cargo onboard those ships affected, there will inevitably be a knock-on impact for those involved in discharging the containers at destination ports when they finally arrive, as well as the final mile delivery carriers. While the immediate impact may be a lack of cargo arriving when expected, presenting market supply challenges, it is when the cargo does start to turn-up that further potential risks emerge.”

The concern is that arrival of large volumes of containers at ports that are already backlogged in many cases and suffering from diminished capacity will only serve to exacerbate the situation of congestion; particularly Europe where truck shortages are expected to continue to soar. This could place stress on already overworked drivers and add to the challenges that shippers are facing currently when trying to plan for and move goods throughout the region.

While the ship is physically free from the embankment, it is legally still stuck. The Suez Canal Authority (SCA) is reportedly claiming at least $900M against the shipowner/operator in damages and fines attributed to the incident. Once the Ever Given was unstuck from the banks of the narrow channel of the Suez, the vessel sailed up the canal into a wider reservoir section known as the Great Bitter Lake where it was impounded by a court in Ismailia, Egypt where it will remain until the involved parties can come to a settlement on financial compensation.

The breakdown of the final compensation figure has not yet been confirmed, however it is believed to include $300M in salvage bonus, $300M for loss of reputation, and the remaining $300M in fines, lost revenue, cost to repair the canal, and cost to salvage vessel. What final compensation value the involved parties settle on will make a significant difference to the cargo owners that have containers onboard the vessel who will be responsible for their respective General Average (GA) contribution. The cargo vs. ship split on payment is currently estimated at around 80 / 20, meaning that the cargo owners will be expected to bear a larger brunt of the GA cost.

The vessel will not be released until the shipowner can reach an agreement with the SCA, which translates to further delay for the cargo onboard. Independent investigations of the condition of the vessel are being conducted by the SCA, and the Panama Flag State. The ship management company BSM has worked with the vessel’s classification society ABS to inspect the vessel and it has been cleared for onward passage to Port Said to be assessed again before departing for the next port of call in Rotterdam. It is well-known however, that GA claims can be drawn out and complicated to settle, with so many involved parties and interests.

While the vessel has been refloated and canal operations returned to normal, negotiations between the SCA and the shipowner/operator are continuing with recent reports stating that agreements between the two parties may be getting closer which would be welcome news for cargo owners who anxiously await access to their cargo.

Sources:

Suez blockage is holding up $9.6bn of goods a day - BBC News

Suez Canal blockage: Supply Chain risks assessed - Sea News Global Maritime News

What Happened to Suez Canal Ship? How a Desert Wind Blew Global Trade Off Course - Bloomberg

Update: Continuing COVID Impacts on the Supply Chain (falveycargounderwriting.com)

Suez Canal: Ever Given Container Ship Got Stuck in High Winds, Dust Storm (businessinsider.com)

Everywhere You Look, the Global Supply Chain Is a Mess - WSJ

Ports around the globe brace for massive post-Suez cargo logjams - The Loadstar

Suez Canal Opens, but Shipping Will Be Snarled for Months - WSJ