In Part I regarding the Ever Given we looked at the ultra-large container ship that was grounded in the Suez Canal and what the owner’s declaration of General Average means. But what about third parties that were involved?

What happens to the other vessels affected by the incident?

For merchants who have cargo on the many vessels delayed by the incident, they have no recourse to their carrier for any delay that they may suffer. Neither do they have a marine insurance claim for losses arising from the delay. A delay in transit is not a marine risk – the cargo is not wet, lost, or damaged. This adequately illustrates that no one has ‘all-risks’ cover. The marine insurance industry (quite rightly) offers ‘most risks’ cover. A delay in transit (or a delay in performance) may be insured separately, outside of marine cover, but it is a specialized arrangement attracting a high premium.

If nothing else, the event highlights the fundamental flaw in the concept of Just In Time (JIT) stock control. All business is risk, and nothing is guaranteed. For many buyers, whatever they may have saved historically by carrying limited stocks will now most probably be spent on premium airfreight services simply to keep their businesses going.

Who else will feel the impact of the Ever Given being grounded?

World trade as a whole will also be greatly impacted. There is a common complaint of “sea blindness”, a claim made by those connected with sea freight in some way, made against people who tend to overlook (or substantially underestimate) the importance of sea trade. This incident is an opportunity to highlight the connection between sea freight and civilization: you can’t have one without the other.

Our developed and developing global, interconnected network of supply and demand is both the strength and weakness of modern times. The congestion of so many products, materials and parts will have a ripple effect on all production everywhere, which may be felt acutely with a corresponding delay immediately, or it may be felt in the unexpected increase in costs at a future point. The Ever Given is a 200,000-tonne example of the butterfly effect, and the cost of this incident will be borne by us all in one way or another.

Even if the insurance industry can absorb the immense losses they face, the shipping lines in general will increase their freight rates to compensate for the delays to so many vessels, delays which have reduced the profitability of the vessel’s operation, and which must find compensation in increased freight rates or short-term surcharges.

There is an old adage about putting too many eggs in one basket – whatever slight error or circumstance caused the vessel in question to run aground on both banks of The Canal, the consequence, as I mentioned, will send ripples through the global economy and supply chain for some time yet. However, on a positive note, it may give rise to a set of rules, regulations or perhaps even a massive engineering project that will render this an isolated, if educational, experience for all.

There may also be ramifications in the seller and buyer’s private contracts. Aside from the exposure to sellers who may have sold on F-prefixed terms but nevertheless have been named as the shipper, C-prefixed sellers who sold without insurance cover are equally exposed. It is because of the risk of a General Average that the commercial term c.i.f. exists – the seller buys insurance for the buyer, so that the shipper is less likely to face a situation where the consignee abandons their interest to avoid a GA Contribution.

Worst placed are D-prefixed sellers

In a D-prefix contract (at least, under the Incoterms rules), the arrival of cargo is a contractual obligation of the seller (as opposed to a C-prefixed sale where despatch is key, and where the sale is one of documents, not of the cargo the documents may coincidentally refer to). This highlights the importance of commercial (as opposed to marine) insurance, and the D-prefixed seller on the Ever Given, if adequately insured commercially, may be able to claim if faced with late delivery penalties or cancelled contracts. Conversely, the D-prefixed seller without commercial cover may find themselves exposed.

Commercial terms establish – privately – the various rights and obligations of the parties to the sales contract. But business is all (and only ever) about money, and whether a buyer will avoid their role as consignee, or whether a seller can be held accountable for their performance, will both more likely come down to the payment conditions of the contract rather than the commercial term. If the uninsured buyer has not yet paid, abandonment is more likely; if the seller has been paid, performance is harder to enforce.

Overall: all education is expensive – the more you spend, the more you learn. Some merchants and service-providers somewhere in the world will be paying enough through these current circumstances to get a First-Class Degree from the University of Life, with a Distinction. For others, the Ever Given may be the final exam that comes about whether they attended their lessons or not, and whatever is learnt academically from this incident we must remember that real people will have lost real money, opportunities and perhaps even their livelihoods.

The sea is a harsh mistress. Training is an investment, not a cost.

Frequently asked questions about General Average