Reinsurance News

Industry costs from Suez obstruction to exceed $100m: McGill & Partners

25th March 2021 - Author: Matt Sheehan

Analysts at specialist broker McGill and Partners believe that the re/insurance industry could be looking at costs in excess of $100 million due to the ongoing obstruction in the Suez Canal.

Suez Canal

(Suez Canal Authority via AP)

The vital trade waterway through Egypt has been blocked by a grounded ship since Tuesday, resulting in a backlog of some 150 ships now waiting to pass through the route.

Reports suggest that it may be possible to move the Ever Given by Monday, when the tide should be high enough to dislodge the 400m-long, 224,000-tonne container vessel. But a specialist salvage company assisting the operation says the process could take weeks.

The ship had been en route from Yantian to Rotterdam before it lost the ability to steer due to high winds and a dust storm, which caused it to run aground diagonally across part of the Suez passage.

We reported yesterday that the Ever Given alone is thought to be carrying goods worth $89 million, with Russell analysis warning that the blockage could jeopardise the $40 billion of goods that flow between the Chinese and Dutch ports.

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David Smith, Head of Hull and Marine Liabilities at McGill and Partners, notes that a figure of $100 million has been mentioned by some as a possible loss for the re/insurance industry.

But the global significance of the incident and the setbacks in freeing the Ever Given are likely to push these costs much higher, he suggests.

“The final bill – which will be made up of compensation for delays, loss of revenue for the Canal Authority, potential damage to cargo and the cost of refloating the ship, is likely to be even more expensive,” Smith said in reference to the $100 million estimate.

“For some time now the salvage industry has been warning that container ships are simply getting too big for situations like this to be resolved efficiently and economically,” he added. “This incident may force shipbuilders, owners and cargo operators to sit up and listen.”

The MV Ever Given is a Panama-flagged vessel operated by Taiwanese company Evergreen and owned by Shoei Kisen Kaisha Ltd, of Japan. It’s thought to be capable of carrying 20,000 containers, some of which may have to be removed to make the vessel lighter and easier to move.

Currently, local authorities are using dredgers to remove material from around the ship where its bow appears to be wedged into the canal’s eastern bank, while tug boats are on hand to assist the effort.

On average, nearly 50 vessels pass along the Suez Canal each day under normal circumstances, although at times the number can be much higher than that, with about 12% of global trade passing through the 120-mile canal.

John Glen, an economist at the Chartered Institute of Procurement & Supply, suggested that UK businesses could see delays of up to 10 days if backlogged ships are forced to reroute around the southern tip of Africa. “If this does happen it will inevitably lead to shortages of goods and inflationary price rises for consumers,” he noted.

Meanwhile, energy consultancy Wood Mackenzie believes that a minimum of 16 tankers carrying crude oil and refined fuel are among the ships facing delays, which could support a lift in oil prices.

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