Too early to assess Suez grounding pool hit, International Group says

It is still too early to assess the size of the likely claim on the International Group pool arising from the past month’s shutdown of the Suez Canal in the wake of the grounding of Ever Given, according to the chief executive of the influential group of protection and indemnity (P&I) clubs.

But the clear potential for a massive hit will be of major concern for the marine mutuals on the hook, at a time when pool claim levels have hit successive all-time highs in each of the past three years.

The sheer extent of claims has been the main driving force for big general increases at the past two renewal rounds, which clustered around 7.5% in 2019/20 and between 5% and 10% in 2020/21.

If liability for Suez, primarily first instance salvage costs and compensation for loss of revenue, comes in at the level many are now openly braced for, the impact would be felt by all shipowners in the shape of further higher premiums next time round.

The claim now looks certain to exceed the $10m retention layer held by the UK Club, with which the Evergreen boxship was entered.

In that eventuality, it will become a pool claim, with the payout up to $100m shared between the 13 International Group affiliates according to a weighted formula.

If the claim tops nine figures, the burden above that figure will fall on the reinsurance markets, which take on the risk under what is the world’s largest reinsurance contract.

As Lloyd’s List reported last week, Suez Canal Authority (SCA) chairman, Osama Rabie, told Egyptian television he is minded to seek $1bn.

The SCA has a reputation for inflating past salvage claims, according to market sources, who added Egypt has an incentive to go large to make up for lost foreign currency earnings from tourism as a result of the pandemic.

That there may be some leeway on the numbers is indicated in a report from Associated Press, which said Rabie had said he hopes talks with the ship’s Japanese owner, Shoei Kisen Kaisha, can be concluded without legal action.

“We are discussing with them a peaceful resolution to the matter without resorting to the judiciary,” it quoted him as having said.

Even so, the anticipated claim will probably be in the order of the low hundreds of millions of dollars, which would be entirely justified.

A spokesperson for the UK Club confirmed the SCA has yet to specify its liability claim, which will be considered once it lands.

“No formal claim from the SCA relating to the grounding of Ever Given in the Suez Canal has been received by either the owner of the ship or the UK Club. However, as the vessel’s liability insurer, all valid claims will be considered by the club,” he said.

International Group chief executive, Nick Shaw, said: “It is too early to speculate on the claims that might be brought and the quantum of the same.

“The UK Club is the holding club for the shipowner and will be the first to be approached in this regard.

“We are very pleased the vessel was freed in a matter of days and traffic is flowing freely through the canal again.”

Meanwhile, Shoei Kisen has declared general average, which means cargo interests will be exposed to a proportionate contribution towards salvage costs.

Richards Hogg Lindley has been appointed average adjuster, the Charles Taylor Group unit’s head of marine hull, Andrew Slade, confirmed, although he declined to discuss the issue further.

Average adjuster sources said while the claim would be hugely complex, given the 20,000 teu Ever Given was carrying thousands of 20 ft and 40 ft boxes, with up to 20 cargo interests per box, it would in many other ways be a straightforward old-fashioned general average.

There are no reports of extensive damage to cargo, meaning most of the claim will be towards the cost of Smit’s salvage efforts, which were additional to the SCA’s initial salvage efforts. These entailed the use of 11 tugs and three dredgers, so the bill will not be cheap.

Hull and machinery underwriters will have to make a substantial contribution to the general average. Ever Given’s hull and machinery insurance is underwritten in the Japanese market.

Some cargo interests may lodge claims for delay, but these would seem to be excluded under rule 3C of the York Antwerp Rules, which says: “Demurrage, loss of market and any loss or damage sustained or expense incurred by reason of delay, whether on the voyage or subsequently, and any indirect loss whatsoever, shall not be allowed as general average.”

Meanwhile, information in the public domain shows shipping law firm HFW has filed a limitation of liability claim on behalf of Shoei Kisen in the Admiralty Court, against Evergreen and “all other persons claiming or being entitled to claim damages by reason of the grounding of the Ever Given along the Suez Canal”. HFW declined to comment on the matter.

Lloyd’s List Intelligence’s vessel tracking service has Ever Given (IMO: 9811000) at anchor in the Great Bitter Lake, where it is undergoing a number of technical investigations.

A spokesperson for technical manager Bernhard Schulte Shipmanagement said investigations are being conducted by the SCA and flag state, Panama. Investigators from the vessel's classification society ABS are also understood to have boarded the vessel and begun inspections. Experts appointed by the UK Club are also carrying out an investigation, as is a technical team from BSM.

The SCA has requested access to the voyage data recorder and other materials and data, which has been granted.

“All 25 Indian national crew remain on board and are assisting with the investigations and hull inspections. All crew are in good health. We are not aware of any criminal investigations or charges,” the BSM spokesperson added.

LLI data shows 114 ships aggregating 9.1 million dwt were currently waiting to transit the Suez Canal on April 6. However, a statement issued by the SCA over the weekend said the backlog of vessels stranded by the grounding of the Ever Given had been cleared over the weekend.

This article first appeared in Lloyd's List, a sister publication of Insurance Day