Container carriers and terminal operators could increasingly come to blows as COVID-19 rewrites the global business equation. A now-escalating court battle in New York could be a taste of things to come.
In one corner: Maersk Line and Hamburg Sud, owned by AP Moller-Maersk (APM), the largest container carrier operator in the world, with group revenues of $39 billion in 2019.
In the other corner: Vancouver, British Columbia-based Global Container Terminals (GCT), which operates the terminals in Staten Island, New York, and Bayonne, New Jersey, plus two in British Columbia. GCT is owned by the Ontario Teachers’ Pension Fund, IMF Investors and British Columbia Investment Management, which among them have aggregate funds under management of $534 billion — equivalent to the gross domestic product of Egypt.
As previously reported by FreightWaves, Maersk signed a contract to use the GCT Staten Island terminal for its services, including those of Maersk Line, SeaLand and Hamburg Sud, until Dec. 31, 2022, or Dec. 31, 2021, if it gave six months’ notice.
Maersk told GCT in a letter on April 10 that it was preemptively leaving and switching calls to its own company’s facility, the APM Terminals (APMT) site in Elizabeth, New Jersey, as of May 1. Maersk told GCT it was willing to pay a settlement of $5.5 million, including an early termination fee of $2.1 million and additional consideration of $3.4 million.
On April 20, GCT sought an emergency restraining order against Maersk to prevent the carrier’s departure. The judge ruled against the GCT on April 28, but the door was left open for GCT to sue Maersk for damages.
Late Wednesday, GCT filed that suit.
The terminal operator alleged, “Maersk breached its agreement with GCT solely because Maersk and its corporate parent and affiliated terminal operator thought they could make more money by doing so, without any regard to the extreme harm and damage Maersk’s breach would cause to GCT. Shifting economic self-interest simply does not permit Maersk to breach its binding contractual obligations to the detriment of GCT.
“Maersk’s offer totaling approximately $5.5 million was entirely inadequate to compensate GCT for the losses Maersk has caused, and will continue to cause, GCT through Maersk’s breach of the parties’ agreement,” wrote GCT’s newly hired legal team from the Manhattan-headquartered “white shoe” firm Sullivan & Cromwell.
“Instead, the severe economic harm GCT has suffered and will continue to suffer due to Maersk’s breach — the ‘losses’ for which Maersk agreed it would be ‘responsible’ if it breached its obligations under the agreement — will amount to tens of millions of dollars, reflecting the drastic and untimely termination of more than 45% of GCT’s business with virtually no notice.”
GCT is seeking a trial and arguing for an award of all damages stemming from Maersk’s early departure, plus attorney’s fees and other relief.
In court filings and in prior written responses to FreightWaves, Maersk denied any wrongdoing in its decision to switch services to APMT Elizabeth.
Following GCT’s initial plea for a restraining order, Maersk told FreightWaves, “We believe claims that GCT, which is owned by multi-billion-dollar investment funds, will go out of business as a result of this contract dispute to be intentionally inflated to create unnecessary fear during this time of uncertainty and the product of a litigation strategy to distract from the contractual rights and remedies that GCT previously negotiated and now regrets.
“It is regrettable that GCT has violated its confidentiality obligations by making settlement discussions publicly available, but in the current environment in which other transportation providers are seeking force majeure and other protections, Maersk has continued to deliver a reliable product and business continuity to its customers and this move will only reinforce Maersk’s ability to continue to keep the supply chain moving and essential goods moving to customers.”
In court filings opposing the restraining order filed in late April, Maersk alleged that GCT was “feigning shock and surprise” about Maersk’s decision to shift its services. It argued that GCT “unquestionably knew Maersk planned to transfer the business to APMT when space became available,” and filed copies of correspondences in court to prove that claim.
“Ultimately, space became available at APMT sooner than Maersk anticipated. Given the uncertain economic environment caused by COVID-19, Maersk made the business decision to terminate the [contract] early,” said the carrier in a previous court filing.