Commercial Awareness Update: Look at The New Suez Canal Crisis, UKSC Rules on Asda Employees and More

What’s been happening in the commercial world this week? Read on to find out!

UKSC Rules on Asda Employee Case: Shops Workers vs Warehouse Staff

On Friday, the UK Supreme Court ruled in favour of supermarket workers in a landmark equal pay claim – the biggest ever in the private sector. The ruling could cost Asda up to £500m in compensation claims.

What is the background to the dispute?

In 2016, thousands of predominantly female staff took Asda to an employment tribunal, over equal pay concerns. The claimants alleged that shop floor workers received 80p to £3 per hour less than their depot counterparts, the majority of which were male. The Employment Appeal Tribunal and subsequent 2019 Court of Appeal ruling agreed with the shop floor workers that the two roles could be compared for equal pay purposes. Now, 35,000 workers are involved in the case. Delivering the judgement in court, Supreme Court Justice Lady Arden explained that although the two roles could be compared with each other for equal pay purposes, the workers still needed to prove the work they do is of equal value. This second stage will take place in the employment tribunal but, if Asda continues to appeal, the case could make its way to the Supreme Court again.

Friday’s decision is likely to have widespread ramifications. Sainsbury’s, Tesco, Morrisons and the Co-op, who all have similar staffing models and pay structures to Asda, are also defending against their own equal pay claims. If all five lose, backdated pay claims could reach £8bn.

The case also brings up the concept of warranties and indemnities in an acquisition. In October last year, the Issa brothers bought Asda for £6.8bn from American multinational retail cooperation Walmart. The sale is awaiting competition regulator approval. However, the key point here is considering whether it is Walmart or the Issa brothers who will shell out compensation to workers.

The UKSC has recently embarked on a series of rulings to protect British workers. Read more about Uber’s ruling here.

Talking point: What are warranties and indemnities and where have they been relevant in previous mergers & acquisitions?

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Ever Given Disrupts Global Trade: The Importance of Containerisation

On Tuesday, the Ever Given ran aground in the Suez Canal, preventing the passage of ships and revealing the fragility of global supply chains. The commercial container ship was stuck for six days, holding up more than 300 vessels and $9.6bn worth of goods a day. Although the Suez Canal has been shut down twice before – for the Suez Crisis of 1956 and the 1967 Arab-Israeli War, the cost of the current situation is set to far-exceed the global costs of both crises, potentially reaching over $100bn.

Normally, the Suez Canal allows for the passage of $3-9bn worth of goods a day across 50 ships. This translates to over $1trillion worth a year and 12% of all world trade. In the past, the Suez Canal mainly facilitated the Middle East oil trade; now only 18% of ships carry oil and 50% are container ships.

The Ever Given is one of the world’s largest container ships, currently carrying over 20,000 containers with consumer products such as shoes, sweatshirts, furniture, solar panels and computers amongst others. The ship was travelling from Shanghai to Rotterdam from where the containers would be distributed across Europe.

Although the Suez Canal Authority (SCA) believed the ship may have been stuck for at least another week, on Monday trade was able to resume after the Ever Given was freed. However, this news came after some companies had already made temporary rearrangements to their global trade. This, it should be noted, is an expensive and politically difficult process. Oil tanker Marlin Santorini is just one of the many vessels which have rerouted around the Cape of Good Hope, on the southern tip of Africa. What are some of the problems caused by the Ever Given blockage?

• The Cape of Good Hope diversion will add 6,000 miles and $300,000 in fuel costs to a ship’s journey. If the cargo is for the UK, this will add around 10 days to the delivery times. Some commentators have raised piracy concerns in using the diversion route.
• The delays are likely to worsen supply chain issues, which in turn may cause inflationary price rises for consumers. Swedish furniture giant Ikea and bulldozer Caterpillar are two of the many companies who have expressed concern.
• Whilst some cargo, grain, iron ore and commodities can withstand a week or two delay, other containers will carry perishable goods and vital medical equipment. This may need to be airlifted, incurring extra costs.
• Given so many ships have been held up at the Suez Canal, there is now a global shortage for export ships at global ports, meaning companies may now see price rises to use commercial container ships.

So who will pay for the crisis? Insurance broker McGill and Partners have predicted the final bill, covering compensation for delays and damage to cargo, loss of revenue for the SCA and cost of refloating the ship, will exceed $100m. Ever Given’s hub and machinery is insured on the Japanese marine insurance market. As mentioned above, the Suez Canal Authority (SCA) will lose out whilst the Canal is closed to traffic. Lastly, Egypt, for whom the Canal is not only a source of national pride, but also an essential provider of foreign money to the national economy. Therefore, the Ever Given has revealed how fragile global supply chains really are.

Talking points: Why are global supply chains so weak at the moment? How might the Ever Given incident change global trade routes?