Suez Canal blockage presents major lessons for Italian risk community

The beaching of the Ever Given, the cargo ship that ran aground in the Suez Canal, blocking the critical passageway for six days, ended once the freighter was unwedged and the flow of vessels resumed. Working off the queue of hundreds of boats that opted to wait instead of turning south towards the Cape of Good Hope and circumnavigating Africa has taken some time, however.

According to observers, the setbacks for fleet operators have not ended yet. First of all, the late deliveries, both for goods that waited for the Suez Canal to be freed and for cargo containers that chose to extend their journey, must be considered.

Furthermore, the impact on port activity needs to be estimated. The drop in business caused by the obstruction will likely be followed by congestion in incoming traffic. This is going to create delays caused by completion of the paperwork and the unloading of the merchandise.

“With the Suez Canal gridlock, a rare but very high-impact event not factored into risk assessment analysis became reality. Indeed, until now, such a scenario had been considered as a political risk, not as a consequence of a navigation mishap. The accident should be cause for reflection, especially because the consequences of indirect damage risk being more significant than the direct damage incurred by the ship,” stated Carlo Cosimi, vice-president of Italian risk and insurance management association Anra and head of corporate insurance and risk financing for Saipem, an Italian multinational oilfield services company.

The repercussions of a total blockage of the Suez Canal have significant implications for the European, Asian and North American markets. Replanning the routes towards the Cape of Good Hope and the western coast of Africa may lead to an overall delay of 15-20 days. This includes seven or eight days because of the longer navigation times and another ten days between the waiting and unloading operations at the ports of call.

“There will surely be consequences and delays within the supply chain of several sectors, since some of the ships were transporting semi-finished products or raw materials needed for the processing industries, which, in turn, will suffer setbacks and discontinuities,” added Mr Cosimi.

Experts from Intesa Sanpaolo, an Italian banking group, have estimated that, in 2020, as much as 40.1% of the overall maritime trade in the country, worth €82.8bn, passed through the Suez Canal.

This level may well rise over time because the canal is an essential junction for trade between Italy and Asia, which will inevitably increase because of the Belt and Road initiative connecting the Italian peninsula with China.

Because of its position, stretched out between the Mediterranean Sea and northern Europe, Italy is the leading European country for short-range transport within the sea basin between Europe, north Africa and the Middle East, with 216 million tons of goods and a market share of 36%, according to the Italian Navigation Institute.

Food is probably the sector most highly exposed to an obstruction of the Suez Canal. Coldiretti, an association of Italian agrarian entrepreneurs, has said the impact will be particularly felt by food and farming import/export activities with China.

All the main packaged Italian products, from wine to extra virgin olive oil, will experience some difficulties. Chinese imports of tomato concentrate (volume has been estimated at 70 million kilos in 2020) will be blocked.

Even before the pandemic, an incident such as the one involving the Ever Given would have caused significant indirect damage to the sector. But following the complications experienced by the agricultural raw materials market during the pandemic, the impact may be even more significant.

It is interesting to note, however, that, after several months of slowdown, the start of 2021 has been positive. The shipping of ‘Made in Italy’ agricultural products to China has increased by 19.4%.

The fallout of the blockage on the cost of oil, and therefore of energy products, must still be fully assessed. An estimated 80% of the internal commercial transport in Italy is carried out on wheels, compared to the European average of 73%, based on 2018 data.

Finally, the insurance implications must also be considered. According to Mr Cosimi, the immediate impact will be felt by the hull and machinery insurance coverage of shipowners on salvage operations. The damages that may be claimed by the authorities that manage the Suez Canal may include the protection and indemnity insurance coverage held by the affected ship.

“At such a time, it appears hasty to quantify in advance the claims from every third-party damaged by the shipowners, even if one may easily think that they will be very significant and accompanied by long-lasting legal disputes,” commented Mr Cosimi.

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