Who will pay the price of the Suez Canal blockage?

While the world’s attention is directed towards the floatation of the container ship in the Suez Canal, talks are circulating about indemnification and whether it will be for the delayed ships or the Suez Canal.

The disruption of navigation in the Suez Canal led to the increase in the number of vessels waiting to cross the shipping channel to more than 300 ships. It is expected to increase.

The Egyptian regime is watching with concern the talks revolving around the possibility that the Suez Canal Authority will have to pay compensation to damaged ships. The Egyptian economy suffers from accumulated debts. This prompted the regime to push current and former officials to say that the Suez Canal Authority would not be able to pay indemnification. Losses resulting from the disruption of navigation in the canal and then the inability of ships to transit to transport their cargo to the target port destinations opened the door to questions about the nature of the affected parties’ compensation and who bears the potential compensation.

The most prominent conversations about compensation were led by Osama Rabie, head of the Suez Canal Authority, who said that his country’s authorities are considering granting compensation to ships that have stopped in the canal’s waiting areas until the ship floats. In an official statement, Rabei said that “ships stalled in the waiting areas will stop until navigation is fully resumed, and once the ship floats, the navigation traffic will work throughout the day to compensate for the delay, in addition to studying the granting of compensation to ships that were blocked.” Rabei’s speech confirms that Egypt will pay compensation to ships stalled due to disrupted navigation in the canal and delays in crossing.

However, the Suez Canal’s former head, Mohab Mamish, rejected this proposition and said that Egypt would not bear indemnification for the delay. On the contrary, it has the right to request compensation from the company that owns the delinquent ship. Mamish said that the responsibility of managing the ship Ever Given belongs to the captain of the vessel only, and not the responsibility of the navigating guides in the canal. He pointed out that the guides’ opinions in the Suez Canal are only indicative of the ship’s captain, according to the agreements signed between the Suez Canal Authority and the companies. Mamish’s position is based on the historic Constantinople Agreement signed in 1888 on freedom of navigation in the Suez Canal, which does not provide for the canal to provide any compensation for transit ships.

The regulations governing the transit of ships, according to Mamish, indicate that potential compensation will transfer its responsibilities to each of the companies that own or chartered the vessel. However, Evergreen, the company that charters the ship, said in an official statement that there are expected costs for the ship’s floatation, which will be borne by the Choi Kessen company, which owns it. The statement explicitly states, “Since the vessel is chartered, the liability for the expenses incurred in the floatation process; the liability of the third party (against third parties) and the cost of repair (if any) shall be borne by the owner company.” Choi Kissent also issued a statement apologising for causing a great deal of concern in the global trade movement, without mentioning any compensation.

Hugo Wayne Williams, head of Thomas Miller company that runs the British Protection and Indemnity Club, announced that the stranded container ship Ever Given is insured by the club. He explained that the club issued a statement regarding the compensation position of the Ever Given, stating: “We understand that the ship was suspended due to strong winds while it was passing (with two Suez Canal supervisors on board), while it was heading north through the canal, on its way to Rotterdam, Netherlands.”

The British Protection and Compensation Club confirmed that all crew members are safe, and there have been no reports of contamination or damage to what it carries on board. The club did not indicate its claim for compensation or its consent to pay indemnification. However, international news agencies revealed that Choi Kisen company and the ship’s insurance companies would face claims for indemnification amounting to millions of dollars. According to the sources: “Likely, the owners of the goods on board the ship and on the other ships stranded in the canal will demand compensation from the insurance company on the delinquent ship, as a result of the losses incurred by the perishable goods or failure to comply with the delivery dates.”

Rahul Khanna, global head of maritime risk advice at Allianz, agrees when he says the Suez Canal might also demand compensation for “damage to the shipping course.” The value of the compensation depends on the size of the damage that occurred on the shipping course of the Suez Canal, the cost of the float, the lost transit revenues, as well as the losses suffered by shipping companies due to late delivery dates and possible damage to goods such as food commodities. It was not clear until now a specific date for the completion of the floatation of the ship.

David Smith, head of marine liabilities and ship hulls, estimated the losses resulting from this accident for the insurance industry at more than $100 million. “The final bill will consist of compensation for delay, loss of revenue for the Suez Canal, cost of reflux, and potential damage to goods,” Smith said.