Comment: the impact of Arabian Gulf vessel attacks on shipping and logistics

Jeb Clulow, partner, Reed Smith, London looks at the impact of the Iran tensions on shipping in the region
Jeb Clulow
Jeb Clulow

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As readers will be aware, the Strait of Hormuz is the only sea passage to the important ports in the Arabian Gulf. The attacks on tankers transiting the Strait of Hormuz on 12 May and 13 June 2019 have had an immediate impact on terms of insurance premiums for shipowners.

In this article, we consider the ramifications for the shipping and logistics industry.

Insurance

Following the attacks, the Joint War Committee designated the Arabian Gulf and its adjacent waters as a high-risk area. Shipowners whose vessels transit through this area are required to pay additional premiums to maintain their insurance cover.

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Whether such additional insurance costs can be passed on to charterers or cargo owners will generally depend on the wording of the charterparty and bill of lading.

An example of a charterparty clause which may allow for costs to be passed on to charterers is as follows:

“If the vessel is ordered to trade in areas where there is war or threat of war, Charterers shall reimburse Owners for any additional insurance premia, ...”

Normally under a bill of lading, a carrier would not be able to pass to the cargo owners such additional insurance costs save for the extreme circumstances discussed in the next section.

May the shipowner or carrier refuse to call at ports within the Arabian Gulf?

The general position is that under a charterparty, the shipowner is required to follow the charterers’ orders. Similarly, under a bill of lading the carrier is required to proceed to the place of destination listed in the bill of lading.

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If the shipowner or carrier failed to do so, then, absent a specific clause allowing a deviation, it would be liable for any damages, including the costs of carriage of the cargo to the agreed destination.

In the charter context a common clause is the CONWARTIME or VOYWAR war risks clause. These generally provide that if the master of the vessel has considered the situation and concluded that there is ‘likely to be’ or ‘may be’ a danger if the vessel proceeds, then the shipowner may be relieved of having to enter within that high risk area. The words “likely” and “may” suggest different levels of probability, with the former connoting a greater chance of exposure to danger and the latter being further down on the scale of probability. In general, this wording is permissive and gives the Master some discretion.   

A bill of lading for containerised cargo will typically have clauses permitting alternative performance such as transhipment, but these will not relieve a carrier from taking the cargo to the agreed destination. A bill of lading may have a war risks clause, which might read as follows: it should “appear” that the vessel “would” be exposed “to the risk of seizure, damage or delay, in consequence of war or warlike operations”. Such wording suggests that more extreme circumstances would be required for a carrier to bring himself within the ambit of this clause.

In the present circumstances, where there have been only two attacks causing damage to tankers, it is unlikely that they would justify a Master refusing to proceed through the Strait of Hormuz. 

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It is also worth mentioning that on 11 July, it was reported that three Iranian vessels sought to interfere with a BP tanker passing through the Strait of Hormuz and were warned off by a British naval vessel. It is said that the Iranian vessels complied with the instructions of the British naval vessel and the transit of the BP tanker was not affected with and no damage was done to her. It is also reported that a US led military coalition plans to offer support to commercial shipping transiting the Strait of Hormuz.

Shipowners/carriers should consider the continuing developments in the Arabian Gulf but as it currently stands, it is probably unlikely that shipowners/carriers will have the right to refuse to transit the Strait of Hormuz.

About the author: For 20 years Jeb has helped clients with shipping, logistics, sale of goods, offshore and construction issues. He has extensive international arbitration and court experience.

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