Suez Canal Blocked! Time to go 3D?
Suez Canal Blocked! Time to go 3D?
The 2020 pandemic affected ships and crews,… and still does.
Argentina saw the most disruptive labour disputes of the last several years. The Suez canal is obstructed by a ship gone aground, affecting over 300 ships.
… Sounds as if the black swan developed into a colony!
But should these events really be looked at as black swans, i.e. an unpredictable or unforeseen event, typically one with extreme consequences?
No, far from it!
The Suez Canal was the stage of several groundings during 2020, and the same can be said about the Parana River or the Mississippi River.
The Ebola and SARS epidemics badly affected ship movements only a few years ago.
Stowaways and refugees force ships to divert to refuge ports.
Port facilities are destroyed by storms, forcing ships to divert where shore facilities are still in working order, and the only steady element of climate is its constant change.
And the list goes on…
There are many ways in which a delay can affect a voyage, and with it the flow of income, and it is always surprising (and frustrating) to see that the consciousness of there being tools to hedge against such delays only surfaces when the heat starts burning the earnings. It should be in the insurance program of every ship operator before an event occurs!
Generally speaking, the two main (and de facto mandatory) dimensions of shipowners’ risk management concern the protection against physical damages (H&M) and Liabilities (P&I).
« They have in common
the exclusion for loss of earnings. »
Whilst this type of loss is excluded by H&M and by P&I, it can be covered through a loss of hire cover, but a loss of hire cover can only be triggered by a H&M claim and does not insure it below 14 days, and the first 14 days are the most painful!
The ships awaiting to transit the canal
The operators of the ships that are blocked will have to bear the costs during the delay.
Owners operating on spot market basis will exceed the estimated duration of voyage, most probably without having the opportunity to adjust the freight amount.
Time Charterers operating a chartered in ship will not be able to put the ship off-hire and will therefore have to keep paying hire to the owner of the ship, whilst not benefiting from the ship.
The grounded ship
It is already clear at this stage that the event will give rise to a H&M claim, which in turn means that if mainstream LoH cover is in place the owner will only recover the declared earnings from the 15th day onwards, up to the agreed single event limit.
The owner of the grounded ship therefore will lose the earnings for the first 14 days.
The majority of Nordic Marine clients are ship owners and the majority of perils insured against are the ship related perils, both H&M and P&I.