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Alerts and Updates

Suez Canal Now Apparently Open, but Cargo Shippers Face Obstacles with Delay Damages

March 29, 2021

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The impact that the obstruction of the Suez Canal has had on businesses around the world will likely be felt for some time.

Shippers whose cargoes have been delayed by the grounding of the container ship Ever Given will likely face obstacles in recovering damages caused by the delay. The Ever Given, which is one of the world’s largest container ships at over 400 meters in length, ran aground on March 23, 2021, while transiting northbound in the Suez Canal, completely blocking all traffic. The 120-year-old Suez Canal is one of the world’s most transited waterways, and the consequences of the multiday disruption to ocean carrier traffic will be felt by shippers and consumers alike. To minimize the impact of delays caused by the Ever Given, some vessel operators with ships waiting to enter the canal rerouted ships around the Horn of Africa, which increases their operating costs and adds considerable time to each voyage, while other vessel operators stayed put, hoping the Ever Given would be refloated quickly. On March 29, it was widely reported that the Ever Given had been refloated, and as such canal transit may soon resume.

With this good news, shippers with cargo aboard the Ever Given and other delayed vessels will be able to more accurately project the scope of their cargo delays, and will likely be assessing their delay costs and looking at how to recover such costs. As a start, shippers often purchase their own standard cargo insurance, so they will likely first focus on such insurance to compensate them for their losses. Unfortunately, standard cargo insurance typically does not cover delay damages. Shippers may also purchase additional insurance to cover damages from delays, but this additional layer of insurance is often expensive and many shippers do not supplement their standard coverage.

Shippers with cargo aboard the Ever Given not covered by their own cargo insurance will likely next focus on the entities that the shippers contracted with to carry their cargoes (via bills of lading). Such entities can include the vessel owner, operator and/or charterer, which typically have in place what is known as P&I Club coverage to cover damages these entities may be legally obligated to pay. It has been reported that the owner of the Ever Given, Shoei Kisen Kaisha Ltd., has $3.1 billion of P&I Club coverage available via pooling agreements and reinsurance. While this is promising news for shippers, typical bills of lading often have clauses that may be used as defenses to such vessel claims such as force majeure clauses as well as other clauses that may limit recoverable damages. As such, there is no guarantee that shippers of cargo aboard the Ever Given will be able to recover all of or even a portion of their delay damages from P&I Club coverage. Moreover, the cause of the grounding, which is still under investigation, will also influence the ability to recover damages from P&I Club coverage.

Finally, as to shippers with cargo aboard other delayed vessels not covered by their own cargo insurance, because such entities lack contractual privity with the owner, operator and/or charterer of the Ever Given, pursuing delay claims against such entities may be very difficult.

The impact that the obstruction of the Suez Canal has had on businesses around the world will likely be felt for some time. While the filing of insurance claims and/or litigation from various shippers and insurers is surely on the horizon, the success of those efforts will depend on many factors, including the terms of each shipper’s individual insurance policies, bills of lading and the cause of the grounding, which is still under investigation.

For More Information

If you have any questions about this Alert, please contact Robert B. Hopkins, Joseph J. Pangaro, any of the attorneys in our Transportation, Automotive and Logistics Industry Group, any of the attorneys in our Maritime, Shipping and International Trade Group or the attorney in the firm with whom you are regularly in contact. 

Disclaimer: This Alert has been prepared and published for informational purposes only and is not offered, nor should be construed, as legal advice. For more information, please see the firm's full disclaimer.