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Super container vessels recurring difficulties expose increasing risks to marine insurance market

25 March 2021

Jonathan Moss, Head of Marine & Trade at global legal business DWF, comments on the impact to the marine insurance market as the Suez Canal continues to be blocked by super container vessel.

Jonathan Moss comments: "The Suez Canal has been described as 'an artery of world trade' connecting the Mediterranean with the Red Sea. The vessel involved in the incident, operated by Taiwanese transport company Evergreen Marine, has blocked the path of other vessels which are now trapped in lines in both directions at the Canal. The ramification of the events on Tuesday could be far-reaching; with experts suggesting the resumption of marine traffic at the Canal may take several days. The incident will undoubtedly precipitate delay, with a bottleneck of vessels full of cargo scheduled to be passing through the Canal in the coming days, all facing delays. This issue is particularly pertinent for the oil and gas industry, as the Canal provides passage of shipments from the Middle East into Europe. 

"Evergreen Marine said the ship was "suspected of being hit by a sudden strong wind, causing the hull to deviate... and accidentally hit the bottom and run aground". For the insurance industry, who will likely be engaged with a flurry of claims in relation to the incident and the resulting tailbacks, the sudden strong gust of wind that caused the hull to deviate and run aground may trigger parties relying on force majeure clauses in many shipping contracts suspending obligations under bills of lading and charterparties, and conceivably leading to termination of contracts.

"Hull & Machinery Underwriters will have received notifications from the Insured Vessel Owners with the respective P&I Clubs put on notice. Given the scale of the incident and the ensuing bottleneck, its effects will be felt across the supply chain with claims for demurrage, container demurrage, delay, non-delivery, damaged goods and contamination. The incident is likely to cause further hardening of the marine insurance market, particularly in relation to Hull & Machinery, Cargo and Marine Professional Indemnity lines. The Marine Insurance Market has undergone significant change over the past few years with carriers exiting the market owing to unprofitable returns and internal restructuring, leaving limited capacity. 

"The grounding of the vessel, the length of four football pitches, represents a recurring modern trend. The advent of ultra-large vessels has led to a reduction in the frequency of maritime casualty claims but the size of individual losses has increased exponentially. With premiums rising, the costs will be borne by end users, the purchasers of goods, particularly as vessels are being forced to navigate longer routes at extra cost with the canal being blocked.  

"There are more and more reported instances of super container vessels encountering difficulties when navigating traditional canal passages, with the incident itself exposing the increased risk insurers expose themselves to when providing cover for such vessels. Whilst the shipping companies save costs by operating larger ships, the marine insurance market is bracing itself for claims both at sea and on land. Huge investment is required for the super containers' associated infrastructure including dredging port facilities, lowering access routes and berths, building larger cranes and storage facilities with claims increasingly arising from negligent design and construction."

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