Out of the Canal and into the Deep Sea: The Aftermath of the Suez Canal Blockage

A tidal wave of claims from affected parties?

What has happened?

The enormous Ever Given container ship was pried from the Suez Canal’s bank on the 29^th of March, and traffic through the Suez Canal resumed soon after. The blockage began when the vessel slammed into the bank on the 23^rd of March and was the Canal’s longest closure since it was shut for eight years following the 1967 Six-Day War.

What does this mean?

A backlog of hundreds of ships had built up. The waterway usually handles around 50 a day, but will probably transit significantly more than that in the coming weeks. It may take four days for traffic to return to normal, Suez Canal Authority Chairman Osama Rabie said at a Monday evening press conference. Earlier, a canal authority official said a week was more likely. [1]

Freight rates for the affected shipping routes are already rising due to the lower availability of tankers as some stay stuck and some take the longer route around the southern tip of Africa. Travelling via that route can add two weeks onto a vessel’s journey between Asia and Europe. The backlog of ships will lead to congestions at delivery ports when the ships that diverted and the ships that went through the Canal start arriving at those ports.

What are the legal impacts?

This incident largely affects the area of insurance law.

Accidents involving large container ships can cause property claims of over US$1 billion, but these are mostly related to salvage. However, given that the Ever Given should still be able to travel once freed, claims related to hull and cargo insurance, including salvage (which will be borne by the shipowner’s hull insurer), should remain significantly below this level. [2]

However, the shipowner’s protection and indemnity club will probably also face claims from the owners of the cargo on the Ever Given and of the other ships that are blocked in the Suez Canal for losses related to perishable goods and supply chain disruptions.

The blockage will reduce global reinsurers’ earnings which have already been adversely affected by the pandemic, winter storms in the US, and the Australian floods. Prices for marine reinsurance will rise further as a consequence. Fitch Ratings estimates losses may amount to hundreds of millions of Euros. [3]

Last year, global reinsurers reported heavy declines in earnings due to paid claims and claims reserves related to the pandemic. Therefore, the Suez Canal event will put additional strain on commercial insurance and reinsurance markets, pushing prices even higher in an already hardening market.

By Nickolaus Ng

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Footnotes:

[1] Aaron Clark et.al., ‘Lengthy Legal Battles Expected from Suez Canal’s Longest Closure in Almost 50 Years’ (Insurance Journal, 30^th March 2021) <https://www.insurancejournal.com/news/international/2021/03/30/607759.htm>

[2] ibid

[3] Fitch Ratings, ‘Suez Canal Blockage a Large Loss Event for Global Reinsurers’ (Fitch Ratings, 29^th March 2021) <https://www.fitchratings.com/research/insurance/suez-canal-blockage-large-loss-event-for-global-reinsurers-29-03-2021>