Beware the cost of delay

In what must be one of the big stories of 2021, the Suez Canal was recently blocked by an enormous container ship. No one had ever previously thought this possible! As Andrew Robinson points out, this disaster – which had the world spellbound – has highlighted the potential costs of delay.

The pictures of the mega container ship, Ever Given, completely blocking the Suez Canal (the engineering marvel that created the greatest shortcut in history) no doubt caused havoc among the best-laid logistical plans. Not only were the containerised goods on that vessel delayed, but so too were the goods and ships waiting impatiently on either side of the stranded vessel.

The incident provides a timely reminder to anyone engaged in the freight operator business – whether as carrier, road haulier or cargo interest – that delays in delivery, for whatever reason, can have all sorts of costly consequences, the costs usually resting ultimately with the cargo interest.

Generally, in many transport agreements, losses suffered through the delay of a conveyance – be it a plane, train, truck or ship – are excluded. Transporters are understandably reluctant to agree to tight timelines, especially where the transportation of goods is subject to so many variables – the weather, traffic, delays by other service providers, strikes, border congestion etc.

Transporting goods within predictable time frames remains a challenging undertaking. Where goods are of a time-sensitive nature – especially frozen or chilled products – care must be taken to ensure that the goods are properly packed, always bearing in mind that delays may be encountered en route that might compromise the quality of those goods.

But what about insuring against this risk? Insuring against the risk of loss or damage through delay is an option – but many standard insurance terms (whether the insurance is cargo insurance or carrier’s liability insurance) exclude claims based on delays – although there are exceptions to this where loss through delay can be obtained through the inclusion of suitable extension clauses, and payment of the appropriate premium.

Covid has laid bare the difficulties that delays can cause to long supply chains – cargo and containers piled up in various terminals awaiting loading, transhipment or collection – and those who operated on a “just in time” logistics model were found wanting. The delivery of urgently required spare parts, equipment and medical supplies had to scramble for local options. Cargo that was delayed was not lost, as such, and claims arising out of the costs of having to bring goods to the intended place of destination by some other, more expensive means, were mostly absorbed by the cargo interest.

While carriers are contractually obliged to deliver the goods to an agreed destination, if they are prevented from doing so either by an event identified in the contract (such as the instances usually set out in a suitably drafted force majeure clause) or where it could be shown that the event causing the delay made it impossible for the carrier to perform as agreed, the carrier may not in breach of its obligation to deliver the goods and will not be liable for any losses caused by the non-delivery – in time or at all.

It follows that the issue of delay should be considered very carefully in all of the agreements that a party enters into when moving goods.

The cargo interest must consider what the risks are of the carrier being delayed and the effect that any delay, or any lengthy delay, may have on the cargo itself and the cargo interest’s business.

Where possible, the goods should be properly prepared and packed to last the contemplated trip, and any reasonably foreseeable delays. Cargo interests and carriers know the risks that they face when goods are being transported. Some goods have peculiar characteristics, or are part of an intricate supply chain process – in those cases particular care should be taken to understand the consequences of any delay and to mitigate those risks as best possible.

Both the carrier and the cargo interest should look to reach a suitable compromise whereby both the carrier and the cargo interest bear a part of the risk. Consistent delays may result in the transport agreement being cancelled or penalties applied. In order to better manage that risk, a transporter may require a limit on that sort of liability, having first established from its liability insurer that this risk will be covered in the amount so limited. No doubt the extra risk taken on by the carrier will result in an increased rate of freight, so that increase will need to be negotiated.

Cargo interests would do well to see what insurance cover is offered for losses arising out of delays and what impact the additional premiums will have on profitability. In this regard it is not uncommon to see standard goods in transit insurance wording being amended to allow cover for the consequences of goods being delayed in limited circumstances.

Delays are not inevitable, but they are possible and largely foreseeable. Regular reviews of the contracts of carriage and insurance are an important step in making sure that you are appropriately prepared to deal with the logistical and monetary consequences of delay.

The blockage of the Suez Canal: some “facts” – bust!

1. The Ever Given was knocked off course by a strong wind; this caused the blockage
The wind speed at the time was recorded at 40 knots, but the Suez Canal Authority told reporters that this was not the only reason that the ship became stranded. There was also a sandstorm at the time, for instance. An investigation will be needed to determine whether technical or human errors occurred, the authority has said.

2. Egypt’s first female ship captain was to blame for the blockage
Egypt’s first female ship captain Marwa Elselehdar was at the centre of a fake news campaign that blamed her for bringing one of the world’s most strategic shipping routes, the Suez Canal, to a halt, a BBC report said. But when reports emerged of the plight of Ever Given, 29-year-old Elselehdar was on duty hundreds of miles away in the Mediterranean port city of Alexandria.

3. The blockage crippled the global economy
Not quite. About 12% of global trade, around one million barrels of oil and roughly 8% of liquefied natural gas pass through the canal each day. So, the cost to the global economy was high, but not quite crippling.

4. The blockage was a planned or staged event to explain hyper-inflation
According to PolitiFact, there is absolutely no evidence to support this theory.

5. The incident was unprecedented
Also, not quite true. While a six-day blockage along the maritime route is rare, groundings are the most common cause of shipping incidents in the canal, with 25 in the past 10 years, according to global business insurer Allianz Global Corporate & Specialty SE.

6. The Suez Canal is easy to navigate
Not true. According to an excellent article in The Guardian, while the Suez may look serene, navigating big ships in shallow canals can be tricky. The article explains that ships take on board a “Suez pilot” and a “Suez crew”, who are mandated for their local knowledge. “It is well known that these officers must be ‘lubricated’ with cartons of Marlboro and goodies from the bond locker (the ship tuck-shop), leading to another crew nickname for Suez: the “Marlboro canal,” the article claims.

7. Trafficked children and dead bodies were removed from the Ever Given
Within days of the ship being freed, some websites posted stories that claimed that the US Navy SEALs had found dead bodies and over 1 000 trafficked children on board. Once again, this is fake news! Captain Bill Urban, a spokesman for US Central Command, told PolitiFact there is “no truth” to the rumour. The ship was not raided by the SEALs and there’s no evidence any children or bodies were found on board.