General Average

In the modern world of global commerce, it isn’t easy being small. Yes, if you go on the internet to book passage for a container of your precious cargo, the ship line will accommodate you. But you may be sorry. You’ll have to pay the carrier’s published rate for your box, which will undoubtedly be far higher than the rates negotiated by the large manufacturers, retailers, and freight forwarders that ship hundreds of containers each week. You’ll be subject to all sorts of indignities from customs authorities and security officials who are suspicious of unfamiliar shippers, likely delaying your goods. And, in case you haven’t heard, you may be on the hook if something goes wrong with the ship that is carrying your cargo.

In the eight days since Evergreen Marine’s ship Ever Given was freed from the muck of the Suez Canal and sent north to the Great Bitter Lake for inspection, it’s become clear that small shippers are likely to be among the biggest losers from its ignominious grounding. The reason is something called the General Average, a practice that requires a shipowner and the shippers whose cargo is aboard to share the costs of saving the vessel after a major casualty.

In this case, the shipowner, the Japanese company Shoei Kisen, has declared a General Average and has engaged a London-based insurance adjuster called Richards Hogg Lindley to figure out the value of each of the thousands of shipments on board. Once the cost of the casualty has been determined, each owner will be assessed a proportionate share of the costs, usually expressed as a percentage of the value of its cargo.

Figuring out the cost of the casualty will take a while. In order to get the ship underway sooner, the cargo owners are expected to put up deposits to have their cargo released. For most big companies with goods aboard, that should be no problem: they’ll call their marine insurers, who will provide guarantees. But small shippers — think of a tiny umbrella manufacturer in south China, or a Belgian discount store with an order of cheap blouses on the way — may have skipped marine insurance to save money. To gain control of their cargo, they’ll need to put up cash deposits, but they may be hard pressed to raise the cash without controlling the cargo. If they fail to resolve this chicken-and-egg problem, the ship owner can hold and, eventually, sell the goods. Some of the shippers may lack the resources to withstand the loss.

As maritime accidents go, the grounding of Ever Given will probably not be among the most costly. Even so, there are likely to be many parties that claim damages, including Egypt’s Suez Canal Authority and the owners of the hundreds of vessels that were delayed while the canal was closed. We can expect to see enough claims and counterclaims to keep lawyers busy for years. And I expect we’ll read the sad stories of small business owners with big dreams, who discovered that the global marketplace hides risks they’d never thought about, such as responsibility for an accident they did not cause.

Tags: Suez Canal