Insurance issues in Ever Given's wake
Issues around the Ever Given’s stranding are complex and potentially open up several avenues for insureds to collect under the cargo policy.
The running aground of the 1,312-foot Ever Given cargo ship in the Suez Canal was a historic event but only just the latest in a growing number of cargo transportation issues.
More than 400 ships were stranded during the six-day blockage of the canal, which is one of the world’s busiest channels, handling roughly 30% of container volume transits and the shortest Asia-Europe trade route.
It took five days to clear the backlog of ships waiting to pass through the canal after the Ever Given was dislodged on March 29, further taxing an already strained global supply chain. This latest incident will have global impacts, particularly on industries that depend on raw materials or construction supplies.
Amidst a surge in demand for consumer goods, the cargo shipping industry has already been significantly impacted by pandemic-related constraints, including a global shortage of container capacity, high rates of ship cancellations, and slower handling speeds due to labor shortages at ports.
The big picture is that in light of already strained transportation of cargo throughout the world, this latest incident will further exacerbate delays and potential loss or damage to cargo.
Insureds could find several ways to collect
The Ever Green’s owner, Japanese firm Shoei Kisen KK, and its insurers could face claims for loss of revenue and from other ships whose passage was disrupted. The stranding of the vessel from a cargo insurance perspective is complex and potentially opens up several avenues for insureds to collect under the cargo policy.
While cargo policies generally exclude delay and inherent vice, as well as loss of market, there are coverages such as overdue conveyance, landing & warehousing, and voyage frustration, which are potentially opened up in addition to the already-covered items such as Sue & Labor and General Average should a claim be brought. There are also many broker forms, which could potentially broaden coverage beyond the norm.
Short-term implications could include less of an appetite for what was not too long ago considered the best of the cargo business to underwrite: ocean transit. Larger vessels built to accommodate growing consumer demand face increased risks from storms at sea, causing containers to fall overboard, as happened on at least five of the largest class of container ships during this year’s winter storm season in the Pacific.
There is also a greater risk of loss of control from high winds, which may be the case in the Ever Given grounding. The recent container losses, as well as this event, highlight the fact that with vessels getting bigger and having more capacity, the risk of larger transit losses is higher than ever and may cause underwriters to revalue the price of insurance.
The U.S. marine market has been in the throes of hardening for the better part of the last 10 months. Before the stranding of the Ever Given in the Suez Canal, there was evidence of the market actually plateauing, with rates beginning to level off, perhaps signaling more advantages for brokers and insureds. This event may help push this off and instead force a longer continuation of the hardening market. We have already seen early catastrophic activity with the Texas winter freeze and tornadic activity in the southeast and this event only reinforces the potential for big claims on the cargo side.
As the storm season ramps up and pent-up consumer demand continues to rise, the high level of risk and claims potential for cargo transit seem a foregone conclusion. A continued hardening of the market will force cargo companies to seek insurance providers with not only the appetite, but the technical expertise necessary to underwrite complex marine coverage.
John Ellis is head of ocean marine, U.S, at Canopius.
Opinions expressed here are the author’s own.
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