EVER GIVEN – One Year Later

TheEVER GIVEN shipping accident in the Suez Canal has far-reaching consequences for supply chains.

Not only are all the companies whose goods were in the 18,000 containers of the EVER GIVEN affected, but also those whose goods were transported by the 400 cargo ships that reached their destination only after a considerable delay due to the traffic jam.

The container ship MS EVER GIVEN ran aground in the Suez Canal a year ago. The delays in delivery caused by the accident are still noticeable today – and are also shaking up the insurance market.

This picture went around the world on 23 March 2021: The stranded giant freighter MS EVER GIVEN – with a length of almost 400 metres and a width of 60 metres, one of the largest container ships in the world – lies transversely in the Suez Canal, blocking one of the most important trade routes. Fully packed cargo ships are jammed in front of the canal entrance and forced to wait seven days to continue their journey.

The shipping accident in the Suez Canal has far-reaching consequences for supply chains. Not only are all the companies whose goods were in the 18,000 containers of the EVER GIVEN affected, but also those whose goods were transported by the 400 cargo ships that reached their destination only after a considerable delay due to the traffic jam. Ultimately, this also pushes transport insurance to its limits.

High-risk transport

On the busy sea route between Asia and Europe, cargo ships are usually loaded to their maximum capacity, which poses a safety risk for the crew and the cargo, especially in bad weather. For example, crosswinds can cause very large container ships like the EVER GIVEN to run aground on a sandbank in a narrow waterway. The ever-increasing size of cargo ships also increases the risk and makes salvage operations more difficult in the event of an accident.

Supply chain mess

Even before the blockade of the Suez Canal, industries were struggling with supply bottlenecks. Incidents like that of the EVER GIVEN are the last straw. There are dramatic interruptions in the supply chain or even a production standstill but any case delays. In Europe, the automotive, chemical and pharmaceutical industries were particularly affected by the Suez Canal disaster, as were large discount retailers that source their goods from Asia.

Transport insurance and its limits

In the area of classic goods transport insurance, damage, as well as additional costs incurred for goods that are directly on the affected means of transport, can be insured to a large extent. This also includes the so-called general average, which exists when the captain arranges for extraordinary expenses to be incurred to rescue the vessel from an immediate and common peril, such as the sea throwing of goods, the flooding of holds in the event of a fire, or tugging and dredging operations, as in the case of EVER GIVEN.

Especially in the case of general average, the insurance cover enables the goods on the damaged vessel to be released. Those who are not insured have to pay themselves – a not inconsiderable cost risk. In the case of the EVER GIVEN, claims payments in the high three-digit millions were made by the insurers and reinsurers.

The situation is different for goods on ships that are only indirectly affected by the time delay. The mere delay of the voyage does not trigger a claim under conventional transport insurance policies, and this is precisely what is now bringing a new insurance company onto the scene.

New insurance for trade disruption and its limits

To provide a solution for indirect risks such as travel delays, a so-called “Trade Disruption Insurance” (TDI) has been developed on the London market. Unlike traditional business interruption insurance, this parametric solution covers those costs, expenses and lost profits that result from events that do not cause physical damage.

To stay with the specific case of the shipping accident, the blockage of waterways can be chosen as the coverage trigger. If the insured event occurs, payment of the agreed limit (less the deductible taken) is made. In this way, losses caused by delays or non-arrival of goods can also be covered.

The new TDI insurance is designed for major loss scenarios and can be customised. It can also be extended, for example, to cover loss of earnings, contractual penalties, liquidated damages or other costs and expenses such as additional financing costs. It thus offers a comprehensive solution for a complex risk that is becoming ever higher due to global development.

Related Insights

Sell my clothes I’m going to heaven!

There are still companies that are apparently based on the famous saying of the poet K.W.J. Ferdinand Sauter (*1804, + 1854). Although they take care of their business properly, they do not take care of the contracts on which it is based. Apparently, Sauter had already had experience with customers in this regard, having worked for an insurance company for a number of years.

Sauter’s words were finally set to music for a well-known wine tavern song. And while we’re on the subject of songs, let’s add one more thing, a children’s song – modified to fit the topic: “Vallerie and vallera – contracts are there to be checked!”

But now specifically: The author of this article was recently shown by a south-east European freight forwarder – it could of course also have been an Austrian one – very proudly of the framework agreement he had created himself for orders from customers, with which the freight forwarder wanted to limit his liability as much as possible. But more on that later!

Freight forwarder or carrier: a small difference with a big impact

In most countries with a developed legal culture there is a clear terminological distinction between freight forwarder and carrier. To put it very simply: freight forwarders organise transports, carriers carry them out.

Freight forwarders usually have quite limited liability, while carriers have stricter liability with higher amounts. However, as far as liability is concerned, there are exceptions to this rule in some countries, e.g. Austria, whose UGB is quoted below:

  • Self-admission: § 412 reads: (1) Unless otherwise specified, the freight forwarder is authorised to carry out the transport of the goods himself. (2) If he makes use of this authority, he also has the rights and obligations of a carrier or shipper; he can demand the commission, the costs that otherwise regularly occur in forwarding transactions and the usual freight.
  • Fixed-cost forwarding: this is regulated in § 413 (1): If the forwarder has agreed with the consignor on a certain rate of transport costs, he exclusively has the rights and obligations of a freight forwarder. In such a case, he can only demand commissions if this has been specifically agreed.
  • Groupage forwarding: § 413 (2) determines: If the freight forwarder effects the shipment of the goods together with the goods of other consignors on the basis of a freight contract concluded for his account for a groupage, the provisions of paragraph 1 apply, even if an agreement on a certain rate of transport costs has not taken place. In this case, the freight forwarder can demand freight that is reasonable under the circumstances, but no more than the freight that is customary for the transport of the individual goods.

“Having the duties of a carrier” means, among other things: also, to be liable like a carrier in this case. To show the difference: A freight forwarder is generally liable – without going into details such as maximum amounts, waiver of liability in certain cases etc. – according to the General Austrian Forwarder Conditions with 1.09 EUR per lost kilogram of gross weight, but a freight forwarder according to Art 23 of the CMR usually with 8.33 SDR per kilogram gross weight, converted with about 10 EURO/kg. Being burdened with only about a tenth of the standard liability in the event of damage naturally makes it attractive for freight forwarders not to have to be treated like a freight forwarder in terms of liability.

Forwarder or carrier: a question of liability

What are the reasons why freight forwarders have the duties of a carrier in the aforementioned cases? In the case of § 412 UGB it is obvious: why should a forwarder who concludes a forwarding contract – but is not just a so-called “sofa forwarder” with a desk, laptop and telephone, but does not have his own vehicle fleet – but then himself carries out transport with its own vehicles, be treated differently than any other carrier?

In the case of so-called fixed-cost forwarding, the explanation is that a freight forwarder could be tempted to choose a good, inexpensive carrier, but not the best, who might also have higher freight rates. In the case of freight forwarding at fixed costs, the freight forwarder generally does not disclose his commission and is therefore tempted to focus on maximizing profits at the expense of the carrier’s quality. They may not have the latest equipment, not the best drivers, not the most modern technical equipment, not the best know-how about transport routes, guarded parking lots, etc., which means that damage can occur more easily. And because this increases the risk for the customer of the freight forwarder, he is also subject to stricter liability. Similar considerations apply to groupage shipping. In the case of consolidated loads, goods are also more likely to be damaged or lost, as experience has shown.

Back to the introductory remarks! The supposedly resourceful freight forwarder had created an “order document” which was entitled “transport order” and with which clients were to place orders with him. In the form itself it was pointed out that the contractor acts as a freight forwarder – also under commercial law – and acts on the basis of the general freight forwarder conditions of his association, but the text then referred to “freight payment”, “due date of freight” etc. Due to the text in the document, the conclusion of an “original freight contract” can be assumed. In this case, there is no need for a “detour” via self-employment, fixed-cost or groupage freight forwarding, since the CMR (“Convention on the Contract for the International Carriage of Goods by Road”) as an international treaty is mandatory for international road haulage. Article 1 of the same states: “This Convention applies to every contract for the carriage of goods by road for reward by means of vehicles…”. And Art. 41 CMR stipulates that an agreement may not be used to deviate directly or indirectly from this convention, otherwise it will be void and have no legal effect. It follows that in this case anyone who concludes a contract of carriage (also known as a transport contract or contract of carriage) by accepting a “transport order” (or similar) is liable under freight law. This also applies to freight forwarders.

The “resourceful” freight forwarder should have had his “order document” checked by a lawyer, or e.g. by a knowledgeable employee of GrECo. An insurance broker like GrECo, who runs “Transport” as a group practice, is of course able to advise customers on how to minimize liability risks and ultimately save on insurance premiums due to dealing with a large number of claims. It goes without saying that GrECo, if a claim does occur, supports the policyholder with expertise and accompanies him through the settlement of the claim in the best possible way. Experience is one of the most important assets that GrECo can offer, especially with internationality in transport , apart from excellent contacts to lawyers, average adjusters and experts whose involvement is often a necessity in the event of major claims.

Related Insights

Otmar Tuma

Instructor Transportation & Logistics

Be aware: Macron law in transport & logistics!

Independently from new regulations Transport & Logistics companies are liable for the cargo

After a long-lasting debate in EU the so-called Macron law was put in force after several local implementations were applied on national level. Firstly, Belgium and France followed by other countries banned the opportunity for truck drivers to sleep in the truck cabin, although all manufacturers applied all necessary conditions for a comfortable rest in the vehicle.

The law is seen in the majority of CEE countries as a discriminating enforcement by Western European governments who made their best to decrease the aggressive competition of Eastern European transport companies dominating the transport and logistics market in the last decades especially after the EU expansion in Poland, Baltics, Romania and Bulgaria. Besides it brings many problems for the insurance industry, due to compulsory absence of drivers out of the vehicles in certain cases especially when regulating their resting slots.

This article focuses on the special hot topic directly or indirectly connected with the new regulations on the market – robbery of cargoes or total theft of vehicles increased in numbers as a logical tendency to above legislation changes!

From theoretically good intentions to chaos in practice

A problem with many unforeseeable aspects as a ticking time bomb was initiated on May 31, 2017, when the EU Commission published a large “Mobility Package” that aims, among other things, to make a number of changes to Regulation (EC) 561/2006 with regard to travel and rest times. For example, a change was proposed to the effect that the weekly 45-hour rest period or any other longer rest period must be spent in appropriate accommodation with adequate sleeping and sanitary facilities. So, sleeping in driver’s cabs should therefore be impossible across the EU for the longer compulsory resting time.

After many months of discussions, disputes, strikes by transport and logistics business also directly in Brussels regarding the above changes and other restrictions mainly on more frequent trips back to and from homeland, the law was practically put in force. One of the major consequence of this is that drivers will either spend their weekly rest periods in accommodation provided by or paid for by the employer or – if it can be arranged – at home and the trucks will therefore have to be left alone. And here it comes to the major point for the insurance industry: What if a truck and its goods are stolen from a trailer during this period?

But let us firstly look at the major insurance problem: It is not a secret that theft and robbery have been major risks in the transport and logistics industry for many years already (more than 15.000 theft/robbery cases p.a. in Europe!). In addition, the illegal immigrants are also an issue! Based on data from Transported Asset Protection Association (TAPA) we see a significant increase of cases within last years – a special focus is given on the fact that more than 65% of cases of theft happen on unsecured parking (TAPA latest report December 2020).

Source: TAPA website, latest report 01.2021 Tapa Global

We should also not forget that nevertheless of EU efforts to work on providing more and more secure parking lots their number is still insufficient to the increased traffic and the demand on industry side to use such facilities especially after new regulations are being implemented. A critical issue is that even if a transport company makes its best to plan, choose and try to use secured/guarded parking lot, the number of all fully compliant to the insurer`s requirements locations is very limited and often fully booked and impossible to make use of. And who does and how actually define what a secured/guarded parking lot means? There is no exact and common definition for this!

Source: LUTZ presentation

A Pandora box opened for unforeseeable increased risk cases!

The above then clearly describes the challenging development of the industry on one side and the dilemma of how to protect against the theft/robbery risk while at the same time a transport/logistics company is liable (also unlimited in case of gross negligence equal to willful misconduct of its drivers – Art. 29 CMR!) for damages and theft of the cargo and when at the same time drivers are not allowed to stay with their vehicles in certain cases for a longer period of time. However, an important question arises out of above: Where is the role of the respective insurance cover – a carrier`s and freight forwarder`s liability insurance should be enough, shouldn`t it?!

The answer is very tricky from Insurance industry’s point of view as in many of the cases, especially in CEE insurers simply apply restrictive coverages for keeping up the loss ratios low without taking into consideration that long term relationships with customers cannot be built by only increasing exclusions in wordings. Many CMR insurance policies contain provisions that can be extremely sensitive for carriers; the conditions vary from insurer to insurer and can include, for example, the following clauses:

  • Theft is generally excluded;
  • The theft of goods that are transported with a truck that is not parked in a guarded parking lot and / or does not have two independently functioning anti-theft devices is excluded;
  • The theft of vehicles including their loads or loads from vehicles that are manned by only one driver, although a crew of two would have been appropriate / necessary;
  • Thefts due to poor route planning are excluded;
  • The theft of high-quality goods that are not transported by trucks with box bodies fitted with security locks is excluded;
  • Theft from parked vehicles that are not guarded by certified personnel is exclude10

As you can see, there is no limit to the imagination of insurers when it comes to exclusions. Some policies also provide for deductibles, sometimes in the event of theft of up to 25% of the total value of the goods. Of course, a Cargo policy could partially solve the problem, but the general practice shows that normally transport and freight forwarding companies do not have as prerogative the responsibility for insuring the cargoes on first party principle as they are simply not owner of the good.

Check your policies – we can help!

Thus, having above situation, a professional transport and logistics company should make its choice for appropriate provider of insurance solution with broadest possible covers incl. coverage of Willful misconduct (in regards to the critical Art. 29 of CMR) as well as highest possible sums insured depending on the types of cargoes. But not only the wording is critical! The customers must choose out of the several insurance service providers, if possible, a respective so called Assekuradeur like W DROEGE or LUTZ, who are well known for their extensive and profound specialization in Transport & Logistics LoI.

These organisations do not only underwrite the business up to certain limits authorised by risk carriers, they also manage risks and claims to the benefit of the client by involving their loss adjusting partners, lawyer networks and other specialists. A risk carrier is only involved in very high claim and critical cases. They provide trainings and instructions for a better and optimized planning of transport schemes and advise on most critical potential risks.

Be aware and rely on your Transport & Logistics Specialty team!

The tendency of implementing steadily critical regulations is by far not yet over and for this, the industry is rather to be concentrated on actively fitting to new legislation and not passively waiting for insurers to protect them. The transport and logistics companies will further be “squeezed” between new and harder legislation on one side and the creativity of thieves and fraudulent acts within continuous market openness. Together with increased pressure of the ordering parties on our customers this means that we as broker must also act more energetic and steadily improve our offering finding the right insurance and risk solution.

The text is prepared with the special support of former General Manager Otmar Tuma from LUTZ Assekuranz team with excerpts from the Article in „blickpunkt lkw + bus“ Edition 51.

Related Insights

Hristo Charkov

Practice Leader Transportation & Logistics

T +359 888 810 100