The Ever Given and the Blockage of the Suez Canal: What Next?

In the early hours of Tuesday, 23 March 2021, the 20,000 TEU containership Ever Given grounded whilst transiting northbound through the Suez Canal.

The grounding occurred in an area where traffic cannot pass in both directions, leading in effect to the closure of the Canal and an increasing backlog of ships waiting to transit.  On 25 March, Lloyd’s List reported 230+ ships were in the queue and by 29 March that number had risen to 429.  Other ships have begun to divert around the Cape, adding 10 days to a typical voyage duration.

Owners have engaged Smit and Nippon Salvage jointly on LOF terms to assist the Suez Canal Authority with refloating efforts.  A combination of a dredger and numerous tugs have been engaged in trying to free the vessel.  At the time of writing, it has been reported that Ever Given has been refloated and will be towed to the Bitter Lakes for further assessment.  Ships have since resumed their transits through the Canal.

Whilst groundings in the Suez Canal are not infrequent, and closures happen from time-to-time, the Ever Given incident has attracted worldwide attention and concerns have been raised about global supply chains.  Whilst the Canal is an important trading route, the vast majority of ocean trade does not transit the Canal and supply chains are resilient.  Freight rates are rising across multiple sectors and, though it will take longer for ships which have decided to go around the Cape to complete voyages, the resulting increase in operational expenses will at least be partially offset by having avoided Canal fees.

Ship operators affected by delays caused by the closure of the Canal may ask what exposures they face and so the rest of this article looks at those issues from the perspective of standard P&I and FD&D insurance cover.

P&I

P&I cover is normally provided on the basis that Members face liabilities for damage to or loss of cargo according to the Hague Rules (or the Hamburg Rules if they apply by compulsion of law).

The Hague Rules are underpinned by the concept that a carrier should only be liable for negligence in the performance of his carriage obligations.  In particular, the carrier’s obligation to take care of cargo under the Rules does not require the completion of a voyage within a particular time.  The English courts have also recently confirmed that, save for a very limited number of situations, such as negligently holding a course through a storm, decisions about the routing of a vessel are not a facet of a carrier’s obligation to take care of cargo; a carrier is not expected to make routing decisions which minimise risks to cargo.

It is unlikely, therefore, that a carrier will be liable under the Rules to cargo interests for natural cargo deterioration arising from a delay caused by the closure to the Canal, or for failing to deliver ‘on time’, even though the carrier might have had to make a choice whether to remain in the transit queue or divert around the Cape.

Under the Hamburg Rules, a carrier is liable when goods are not delivered within the time provided for in the contract of carriage by sea or, in the absence of such agreement, within the time which it would be reasonable to require of a diligent carrier having regard to the circumstances of the voyage.  Even under the Hamburg Rules, it is difficult to see how a carrier faced with the temporary closure of the Canal could be held liable for failing to diligently perform the voyage – though it may be necessary in such cases for the carrier to justify its decision to either wait at Port Suez/ Port Said or to divert around the Cape.

FD&D

It is hoped that the following general guidance on the position under time and voyage charters subject to English law will be of some assistance.   However, if Members have concerns related to a specific case affecting them, they should approach their usual FD&D points of contact at North to seek more case specific guidance.

Time Charters

To the extent the vessel has to transit the Canal to be delivered into the charter service, charterers will commonly have a right of cancellation if the laycan is not met, owners bear the time, risk and expense of getting the vessel to the place of delivery, and charterers may possibly have a claim sounding in damages in the event the vessel is delivered late, whether or not the charter is cancelled.

Once a vessel has been delivered, she is unlikely to be off-hire if she is only delayed in her transit through the Canal or, alternatively, should charterers, if this was considered to be the more cost-effective option, have ordered the vessel to take the Cape of Good Hope route instead.  Accordingly, time charterers would likely remain under an obligation to pay the net hire in full, as and when it falls due, and to provide and pay for the fuel and other usual operating expenses, such as Canal, pilotage and agency fees, that are ordinary for their account.

In the event time charterers are unable to redeliver a vessel within the maximum charter period, they may possibly face damages claims for the overrun period, usually at the charter hire rate, if any applicable market hire rate is lower during the period of overrun, or at any applicable market hire rate, if the charter hire rate is lower during the period of overrun.

Voyage Charters

As a general rule, owners largely bear the time, risk and expense of delay from such an incident, before the commencement of the approach voyage and once on the cargo carrying voyage.

If the vessel is yet to commence her approach voyage at a time when she can reasonably be expected to arrive at the place of loading on a timely basis, there is a risk that the commonly found exceptions to liability may not apply to protect owners from the consequences under a charter of not arriving promptly. Charterers commonly have a right to cancel the charter if the laycan is not met and possibly to claim damages for the consequences, whether or not the charter is cancelled.  However, if the vessel was already on the approach voyage when the incident intervened, owners are commonly protected from liability for the knock-on third party consequences of delay.

The owners would usually be compensated by freight for the cargo carrying leg of the voyage, even where the cargo carrying leg takes longer than anticipated, including usual operating expenses.  Accordingly, owners have had to consider whether to wait to transit the Canal or to take the alternative route around the Cape, if this possibly saves time or expenses overall.

Frustration & Force Majeure

The resulting delay from the temporary closure of the Canal, based on what is known to date and given its relatively modest duration, is very unlikely to frustrate either time or voyage charters.

Force majeure is not a common or statutory law concept under English law, although many charters commonly include exclusion clauses mentioning force majeure type events, which can include and address the consequences of delay.  However, such exclusion clauses are ordinarily read restrictively against the party that seeks to rely on them, and so may potentially not assist here.