Suez Canal Update: Practical guidance on cargo issues

The vessel has been refloated on 29 March 2021 and the Canal has reopened, but it remains unclear exactly how long it will take for the backlog of hundreds of vessels waiting to transit the Canal to clear, with some experts estimating that it will take at least 10 days to clear the backlog on either end of the Suez Canal.

An estimated 12% of global trade passes through the Suez Canal, comprising more than one billion tonnes of goods each year, which means that the practical and legal consequences of this disruption should not be underestimated. This is why the Club issued a series of FAQs, identifying some common concerns arising out of this incident and its aftermath, and offering some practical guidance where possible:

What is the position of EVER GIVEN cargo interests?

Those parties with any interest in the cargo or boxes onboard the Vessel find themselves in a particularly complex situation, with issues of potential cargo loss/delay, salvage, and general average to consider. It would not be sensible to try to deal with the position of any such members in this alert.

Rather, if operators are involved in any manner with cargo onboard the Vessel, please contact your usual claims handler at the club as a priority.

What is the position of third-party vessels transiting the Canal?

For those vessels that were transiting the Canal at the time of the incident, the possibility of simply ‘turning around’ did not exist.

Any owner or charterer that found themselves in this position should be at least considering potential claims in tort against:

1. the owners/operators of the Vessel, and
2. the Suez Canal Authority.

The club can assist in advising on such claims. However, any such claims will be subject to local law. They are unlikely to be straightforward in the circumstances. Owners with loss of hire insurance should notify their underwriters.

-Time charterers

Assuming that a third party vessel was ‘stuck’ waiting for the Incident to be resolved, under most time charters the vessel will have remained on hire, and bunkers used during the waiting period will have been for charterers’ account. This is because congestion is usually a risk borne by charterers, although it is of course always necessary to check your contract.

Time charterers with loss of hire insurance should notify their insurers forthwith.

-Voyage charterers

Conversely, the situation is likely to be different for most voyage charterers in the same position, subject to what has been agreed in the charter. This is simply because freight is usually calculated on a lumpsum voyage basis, and laytime and demurrage regimes only apply during loading and discharging. Equally, the cost of bunkers is included in most voyage charters as part of the freight.

In other words, affected voyage charterers are unlikely to find themselves paying extra for the extended duration of the voyage, subject to what their contracts say. That said, of course, they may face other issues, especially with regards to sale contract arrangements and cargo claims if there are consequential financial losses for delay or cargo is perishable.

What is the position of queuing third-party vessels?

The number of vessels actually ‘trapped’ in the Canal was dwarfed by the number

1. queuing at either end of the Canal; or
2. heading for the Canal but facing a decision on whether to wait off the Canal or reroute via the Cape of Good Hope.

In most cases, it is expected that queuing vessels will now simply wait their turn to transit the Canal, given the lengthy detour involved in taking the Cape of Good Hope route.

However, any operators still considering rerouting vessels for any reason should carefully consider whether this is contractually permissible and not, for instance, an unlawful deviation.

Ideally, any decision to reroute should be agreed by all interested parties, including owners, charterers, and cargo interests, although this may not always be realistic. Operators should also be aware of the club’s P&I rules in relation to the potential impact of any deviation on cover for cargo claims and speak to the club if in doubt, ideally before any decision to reroute is made.

Decisions on whether or not to reroute particular vessels are unlikely to be simple, even though the Canal is now open again. What is particularly unclear is how many vessels will now ‘rush’ for the Canal and add to congestion there.

Charterparty laycans

Many charter fixtures with fast-approaching laycans will have been thrown into disarray by the unexpectedly lengthy ballast/approach voyages some vessels now face.

Affected owners and charterers should review their contractual rights and obligations in the event that it seems likely that their vessel will miss the laycan.

For instance, a number of standard form charterparties deal with just this situation, allowing owners to serve notice that their vessel is likely to be late, and requiring charterers to decide whether or not to accept the new laycan or cancel the fixture.

Matters are complicated by the reported significant increase in freight rates being experienced in, for instance, the oil and gas tanker sector.

In other words, even if a charterer may be entitled to cancel an upcoming fixture for delay, this may not be in its commercial interest.

Cargo claims

It is highly likely that the incident and its aftermath will result in an upsurge in cargo claims. It is difficult to generalize about how these should be handled, and potentially affected members are asked to contact the club.

In the broadest possible terms, it is usually true to say that most container lines and other carriers may have less to worry about in terms of the potential for delay claims concerning cargoes that are not perishable. Generally speaking, it would be unusual for a carrier of such goods to be held liable for delays of the kind currently being experienced.

On the other hand, the situation in relation to perishable and/or otherwise sensitive cargoes may be different. Examples include refrigerated container cargoes and bulk foodstuffs. It is possible that those carriers who chose not to reroute will end up facing claims that they should have in order to properly care for perishable goods. (Ignoring, for now, the question of whether such claims would likely succeed.)

However, the live question is now whether those parties who took the calculated gamble to stay in the queue, rather than reroute, may end up being able to demonstrate that this was the right choice. Ultimately, it will be a question of fact in each case.

Some of the major container lines, whose vessels generally carry a mixture of dry and reefer containers made early decisions to start rerouting via South Africa, and there may now be a further period of disruption as vessels are repositioned and the effects of the Canal reopening work themselves out.

Other owners and charterers have been considering whether this is an approach that they should also be adopting. However, it was never an easy decision in circumstances where the Cape of Good Hope route may add 10-14 days or more to journeys and results in significantly increased usage of bunkers, and the analysis of pros and cons may look very different now that the Canal is open once more.

Explore more FAQs by Standard Club on the issue