Suez blockage: the potential for recourse

Out-Law Analysis | 01 Apr 2021 | 3:30 pm | 5 min. read

Businesses are likely to find it difficult to recover costs incurred as a consequence of the recent blockage of the Suez canal by the grounding of large container ship, the Ever Given.

The five day blockage to one of the world's major trading arteries is estimated to have impacted hundreds of other vessels seeking to enter the canal or forced to take the longer voyage around the Cape of Good Hope. Though the Ever Given has now been freed, the traffic jam could take several days to clear and  knock-on effects could take far longer to work through the supply chain.

The significance of the incident

The impact of the blockage will be felt in numerous small ways around the world. This includes the costs of delay to the delivery of cargo, and possible costs of obtaining replacement goods, perhaps by air, where they are time critical. Freight rates are likely to increase to reflect the relative scarcity of vessels in the right place and in time to satisfy future bookings, and as ship owners seek to recover some of the additional costs of waiting at the Suez canal or deviating via the Cape.

There may be congestion at major ports, such as Rotterdam, as delayed vessels start to arrive in close succession. The incident may also exacerbate the existing global shortage of containers as a result of Covid-19 and changing consumption patterns over the past year.

The potential for recourse

Despite reports of a potential raft of insurance and legal claims, recovering compensation for the effects of the blockage may be a challenge. There will no doubt be claims in relation to the direct costs of freeing the vessel, including costs of the salvage and dredging operations, possible damage to the canal itself and loss of transit fees, although most of these will be recovered once the ships in the queue pass through. Owners of cargo on the Ever Given may have to contribute to these costs, although that contribution should be covered by insurance.

Other losses, while significant in aggregate, will be relatively small in most cases. Even if it were economically viable for to pursue a claim, the legal avenues are limited.

Dickman Richard

Richard Dickman

Legal Director

Where an incident such as this does cause delay, the economic consequences may be significant, but the losses are likely to be distributed throughout the supply chain

Assuming that the cargo on the Ever Given is not damaged, any loss will be as a result of delay. The risk of delay is inherent in the carriage of goods by sea. As a result, ship owners and sellers of goods in overseas transactions rarely guarantee the arrival of the goods by a particular date. As long as the goods are loaded within an agreed period, given that the cost of freight is usually fixed, the assumption is that the ship will proceed to the discharge port as quickly as it reasonably can so that it can be available for the next freight-earning voyage.

For the consignee of cargo in a container on the Ever Given, it is unlikely to be possible to bring a claim against the ship owner, Evergreen – which will be insured with a protection and indemnity (P&I) club – even if the grounding was caused by negligence of the captain or crew, which is unclear at this stage. Evergreen’s standard terms and conditions, like those of most major operators of container vessels, state that the carrier does not undertake that the goods will arrive at the port of discharge at any particular time or to meet any particular market or use. If bespoke terms were agreed, then they would need to be checked to see whether there is any departure from the usual position.

Likewise, consignees of cargo on vessels held up in the queue waiting to enter the canal or on vessels which diverted via the Cape will find it difficult to bring a claim against either the owner of the carrying vessel or the owners of the Ever Given itself. As regards the carrying vessel, the owner may be able to rely not only on a provision relieving it of liability for any delay but also on force majeure. Depending on the wording, the force majeure clause would excuse the ship owner from delay or failure to perform for specified reasons, typically including accidents. A ship owner would normally be within its rights to proceed by any reasonable route, so deviating via the Cape would not itself give rise to a claim.

As regards a consignee of cargo on another vessel bringing a claim against the owners of the Ever Given, as there is no contractual relationship, it would be necessary, under English law, to establish a duty of care, breach of that duty of care, loss which is not too remote and, most importantly, physical damage to property. Mere delay to the delivery of goods is regarded as pure economic loss, which would not be recoverable in these circumstances. If, however, the goods are perishable and suffer damage as a result of the delay then it is conceivable that a claim could be brought, although the loss may still be too remote. However, as Egyptian law is likely to apply to any such claim, it may be possible to bring a claim.

Delays due to congestion at discharge ports could lead to claims by ship owners for demurrage, or liquidated damages for delay. Demurrage would kick-in only once the vessel arrives at the discharge port. Charterers of bulk carriers or buyers of bulk commodities could be liable for demurrage, but consignees of cargo in containers would typically not be liable for demurrage, unless and until the container has been on-loaded from the vessel.

There may be disputes relating to future bookings on vessels which cannot be fulfilled due to the knock-on effect of the delay. This could affect sellers of goods on CIF (cost, insurance and freight) terms that have undertaken to arrange the ocean carriage, with the freight costs included in the price. They could face claims if they fail to ship the goods within the agreed period, particularly if the buyer then has to obtain substitute goods elsewhere at a higher price. However, provided that the goods are shipped in time, the seller will have discharged its delivery obligations, and the buyer will have to look to the contract of carriage with the ship owner or insurance policy for any claims.

The risk of loss or damage to the goods, or delay, will have passed to the buyer on loading. A cargo insurance policy will typically cover the loss of or damage to the goods, but not delay. If a consignee is considering an insurance claim as a result of delay, it will be necessary to examine the relevant policy carefully to see whether any provision has been made to cover losses due to delay.

Where delay to the arrival of goods has affected the performance of another contract – such as a construction contract making use of materials or equipment which has been delayed) – to make a claim, it would be necessary to show that substitute equipment or materials cannot be obtained, even at higher cost, and that the loss caused by the delay was foreseeable. It might be possible to rely on force majeure in defence of such a claim, again depending on the precise wording and scope of the force majeure clause. Often, the force majeure clause requires that performance of the contract be prevented rather than merely delayed. In this case, even if the blockage had continued for a longer period, it is difficult to say that the carriage of any cargo would have been prevented in circumstances where there is an alternative route available via the Cape of Good Hope, albeit at significant additional cost and duration.

This incident illustrates the dependence of the global trade system on the Suez canal, and the reliance on just-in-time deliveries, despite the lack of guarantees. Where an incident such as this does cause delay, the economic consequences may be significant, but the losses are likely to be distributed throughout the supply chain.