CHINESE cargo owners may face significant financial risks after the container ship Dali collided with a Baltimore bridge last week, as an insurance specialist from a shipping company told Caixin that the shipowner may declare “general average” due to the huge losses caused by the accident.

General average refers to a legal principle in maritime law under which all stakeholders – including shipowners, carriers and cargo owners – proportionately share the losses caused by a voluntary sacrifice of part of a ship or cargo to save the whole in an emergency.

As the Dali, a Singapore-flagged ship ultimately bound for China, contained goods exported from the United States to China, this means many Chinese cargo owners may have to pay out of pocket for the accident.

Incidents declaring general average are not common, and many cargo owners may not be aware of it, the insurance specialist warned, and much of the cargo on board may not be insured.

The cost of the Dali crashing into the Francis Scott Key Bridge in Baltimore on Mar 26 is estimated to amount to up to US$4 billion in compensation, according to US media reports quoting Marcos Alvarez, managing director of global insurance ratings at Morningstar DBRS. That would make it the largest recorded single maritime insurance loss in history.

The disaster resulted in two deaths, with four people missing presumed dead after falling into the Patapsco River. The bridge’s collapse has severely disrupted Baltimore post operations, with US officials saying it could take weeks to a month to clear the waterway.

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The Dali was built in 2015 and was capable of carrying 9,962 standard containers. At the time of the accident, it had just left the port of Baltimore, planning to sail to Colombo, Sri Lanka, via the Cape of Good Hope and then to ports in China.

The ship is managed by Synergy Marine Group and owned by Singapore shipowner Grace Ocean Private, leased by container shipping giant Maersk.

Zhao Yifei, associate professor at the Antai College of Economics and Management of Shanghai Jiao Tong University, told Caixin that in this incident, Maersk is merely a lessee, and the shipowner Grace Ocean Private must bear responsibility.

In practice, most of the bill will ultimately fall within the marine insurance and indemnity field, with the first US$100 million shared by the 12 member institutions of the International Group of P&I Clubs, and the remaining amount transferred to the reinsurance market, Prof Zhao said.

The group is a mutual insurance organisation voluntarily established by shipowners, to which members pay insurance premiums to jointly share the liability losses and compensation that each member should bear.

The Britannia P&I Club, a member of the International Group of P&I Clubs, is the indemnity organisation for the Dali. According to the group’s compensation mechanism, Britannia P&I will pay US$10 million, with the part from US$10 million to US$100 million shared by the other 11 member institutions.

The part exceeding US$100 million will be settled through a reinsurance plan, with the International Group of P&I Clubs holding a general excess loss reinsurance valued at US$3.1 billion. Reinsurance refers to the process whereby an insurance company insures itself through another insurance company to reduce losses and risks.

The bridge hit by the Dali is about 2.6 km long, with an annual traffic volume of about 11.5 million vehicles, and acts as the gateway to the port of Baltimore, which is the ninth-largest port in the US.

The largest liability for insurance payments will be the rebuilding of the bridge, with several parties putting the cost as high as US$600 million. According to shipping industry news provider Lloyd’s List, the main insurer for the bridge is the Chubb Group.

Meanwhile, the shipowner is seeking to be exempt from liability or face reduced compensation responsibility.

On Monday (Apr 1), Grace Ocean Private and Synergy Marine Group submitted documents to the District Court of Maryland, stating that the accident was not caused by the negligence, carelessness or neglect of the applicants, the vessel or any other person or entity responsible for the applicants, and that they should not be responsible for any loss or damage caused by the disaster.

The two companies added that if they were to bear responsibility, the compensation amount should not exceed the current value of the ship and its cargo, with a compensation cap of US$43.67 million. CAIXIN GLOBAL