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REPUBLICA PRESS
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Freight (Cargo)

Clearing the Suez Canal Took Days. Figuring Out the Costs May Take Years.

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TOKYO — It took six days to prise free a giant container ship that ran aground and clogged the Suez Canal, one of the world’s most crucial shipping arteries. It could take years to sort out who will pay for the mess.

Cargo companies, insurers, government authorities and a phalanx of lawyers, all with different agendas and potential assessments, will not only need to determine the total damage, but also what went wrong. When they eventually finish digging through the morass, the insurers of the ship’s Japanese owner are likely to bear the brunt of the financial pain.

The costs could add up quickly.

There are the repairs for any physical damage to the Ever Given, the quarter-mile-long ship that got stuck in the Suez. There is the bill for the tugboats and front-end loaders that dug the beached vessel out from the mud. The authority that operates the Suez Canal has already said the crisis has cost the Egyptian government up to $90 million in lost toll revenue as hundreds of ships waited to pass through the blocked waterway or took other routes.

And the stalled ship held up as much as $10 billion of cargo a day from moving through the canal, including cars, oil, livestock, laptops, sneakers, electronics and toilet paper. Companies delivering goods may have to pay customers for missed deadlines. If any agricultural goods went bad, producers may look to recoup lost revenue.

Richard Oloruntoba, an associate professor of supply chain management at the Curtin Business School in Perth, Australia.

Jeff N.K. Lee, a lawyer in Taipei who specializes in commercial and transportation law.

“While the ship is just parked there, the cargo isn’t actually being damaged,” Mr. Lee said. “The only damage is that it’s delayed.”

“Say I have a batch of cloth, and on top of the time it took to come to Taiwan, it got stuck for six or seven days,” he said. “It just sat there. Will it go bad? It won’t.”

There is a caveat. The ship’s owner could have to pay for cargo delays, if its crew is found to be at fault for the accident.

Some so-called third-party claims related to delayed cargo may be covered by yet another insurer for the ship, the UK P&I Club. The same goes for any claims by the Suez Canal Authority, which operates the waterway and might file over any loss of revenue.

Nick Shaw, chief executive of the International Group of Protection and Indemnity Clubs, the umbrella group that includes the UK P&I Club, said the insurer would “make decisions together with the shipowner as to which ones had validity and which ones are illegitimate.”

Adding to the complexity of the Suez accident are the layers upon layers of insurance. Reinsurers, companies that covers the risk of other insurance companies, come into play for claims above $100 million. Between insurance and reinsurance, the ship’s owner has coverage for those third-party claims up to $3.1 billion, although few experts believe the damages will run that high.

The sheer size of the Ever Given makes the situation all the more labyrinthine. Aside from time of war, the Suez Canal has never been blocked quite so spectacularly or for as long a time as it was with the Ever Given, and this is the biggest ship to run aground.

The ship is as long the Empire State Building is tall, with the capacity to carry 20,000 containers stacked 12 to 14 high. The Ever Given is one of a fleet of 13 in a series designed by Imabari, part of a push to lower the costs per container and make the ships more competitive in an increasingly fierce market dominated by Chinese and South Korean shipbuilders.

“The bigger the ships get, the risk is whenever you have an incident like this is that you are putting more of your eggs into one basket,” said Simon Heaney, senior manager of container research at Drewry UK, a shipping consultancy. “So the claims will magnify.”

Raymond Zhong and Amy Chang Chien contributed reporting from Taipei, Taiwan. Vivian Yee contributed from Cairo and Makiko Inoue, Hisako Ueno, Hikari Hida from Tokyo.

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‘I’ve Never Seen Anything Like This’: Chaos Strikes Global Shipping

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Off the coast of Los Angeles, more than two dozen container ships filled with exercise bikes, electronics and other highly sought imports have been idling for as long as two weeks.

In Kansas City, farmers are struggling to ship soybeans to buyers in Asia. In China, furniture destined for North America piles up on factory floors.

Around the planet, the pandemic has disrupted trade to an extraordinary degree, driving up the cost of shipping goods and adding a fresh challenge to the global economic recovery. The virus has thrown off the choreography of moving cargo from one continent to another.

At the center of the storm is the shipping container, the workhorse of globalization.

Americans stuck in their homes have set off a surge of orders from factories in China, much of it carried across the Pacific in containers — the metal boxes that move goods in towering stacks atop enormous vessels. As households in the United States have filled bedrooms with office furniture and basements with treadmills, the demand for shipping has outstripped the availability of containers in Asia, yielding shortages there just as the boxes pile up at American ports.

record-high freight prices in reporting more than $2.7 billion in pretax earnings in the last three months of 2020.

No one knows how long the upheaval will last, though some experts assume containers will remain scarce through the end of the year, as the factories that make them — nearly all of them in China — scramble to catch up with demand.

Since they were first deployed in 1956, containers have revolutionized trade by allowing goods to be packed into standard size receptacles and hoisted by cranes onto rail cars and trucks — effectively shrinking the globe.

Containers are how flat panel displays made in South Korea are moved to plants in China that assemble smartphones and laptops, and how those finished devices are shipped across the Pacific to the United States.

Any hitch means delay and extra cost for someone. The pandemic has disrupted every part of the journey.

Peloton outlined plans to invest $100 million in air shipping and expedited ocean freight.

But even in normal times, airfreight is roughly eight times the cost of sea shipment. Most airfreight is carried in the cargo holds of passenger jets. With air travel severely constrained, so are available cargo slots.

Some shippers have rearranged their schedules, stopping off in Oakland, Calif., 400 miles to the north, before continuing to Los Angeles. But containers are stacked on ships in configurations set by their destinations. A sudden change in plans means moving the stacks around like a Jenga game.

And the port in Oakland is dealing with its own pandemic problems. Dockworkers are home tending to children who are not in school, said Bryan Brandes, the port’s maritime director.

“In normal times, vessels come directly into Oakland,” Mr. Brandes said. “Right now, we’re ranging anywhere from seven to 11 vessels at anchorage.”

The dysfunction on the American West Coast has caused problems thousands of miles away.

Scoular, one of the largest agricultural exporters in the United States, loads grain and soybeans into containers at terminals like Chicago and Kansas City, and then sends them by rail to Pacific ports en route to Asia.

Given the prices fetched by containers in Asia, shipping carriers are increasingly unloading in California and then immediately putting empty boxes back on ships for the return leg to Asia, without waiting to load grain or other American exports. That has left companies like Scoular scrambling to secure passage.

Delays at the ports frequently bump Scoular’s containers to different vessels, forcing the company to redo its customs paperwork — another delay.

“It’s the schedule reliability that is a problem,” said Sean Healy, Scoular’s carrier relations manager. “It’s a global issue.”

In recent weeks, shipping carriers have aggressively moved empty containers to Asia, increasing availability there, according to data from Container xChange, a consultant in Hamburg, Germany.

Some experts assume that as vaccinations increase and life returns to normal, Americans will again shift their spending — from goods back to experiences — reducing the need for containers.

But even as that happens, retailers will begin building up inventories for the holiday shopping binge.

The stimulus spending plan moving through Congress may generate hiring that could prompt another wave of buying, as previously jobless people replace aging appliances and add to their wardrobes.

“There could be a whole other subset of consumers out there that haven’t been able to consume,” said Michael Brown, a container analyst at KBW in New York. “You are potentially looking at some shortages for quite some time.”

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