The Iran War and International Shipping: Navigating Disruption and Legal Risk in the International Shipping and Logistics Industries( continued from page 4)
Companies should also be mindful of delivery deadlines and liquidated damages or other fee provisions( detention and demurrage, and the like) that may result from delayed performance. Depending on where a company is located in the supply chain, companies should also consider upstream or downstream knock-on effects that may be compounded at each stage in the supply chain.
War Risk Insurance War risk insurance is a specialized policy typically covering damage or losses caused by war, terrorism, sabotage, riots, insurrection, or other similar perils, which are usually excluded from standard marine insurance policies. Shortly after the conflict began, many insurers issued notices cancelling coverage for vessels transiting through the Strait of Hormuz or in other adjacent waters or imposed substantial premium increases on such policies.
including overall delays and increased costs as a result of route changes, port congestion, cargo backlog, labor shortages, unpredictable shipping schedules, and capacity constraints reminiscent of conditions seen during the COVID-19 pandemic.
Legal Implications The operational disruption has given rise to an array of significant legal issues that participants in the shipping and logistics sectors must carefully navigate.
The operational disruption has given rise to an array of significant legal issues that participants in the shipping and logistics sectors must carefully navigate.
Contract Performance and Force Majeure Similar to QatarEnergy and Iraq as noted above, affected companies may consider invoking force majeure provisions in their affected supply contracts, charterparties, contracts of affreightment, or other applicable contracts. Whether or not the current hostilities qualify as a force majeure event under a given contract will depend on the specific contractual language at issue and each contract’ s governing law. Even in situations where performance technically remains possible, a substantial increase in costs to perform or the inability to maintain required insurances could be grounds for renegotiation of certain contractual terms or lend itself to claims of commercial impracticability depending on the facts and jurisdiction.
Companies should be mindful of the related legal implications. Charterparties and vessel financing documents often require that vessels carry certain types of insurances( including war risk coverage) and that the vessels be insured up to certain minimum levels. If war risk coverage is cancelled or becomes too cost prohibitive to maintain, parties may face a potential breach of contract if the coverage is not maintained or be limited in their ability to perform certain voyages without the coverage.
Companies should carefully review their insurance policies for any war risk exclusions or cancellation rights and should monitor any incoming notices from insurers regarding changes to coverage. Companies should also review their insurance requirement provisions in their relevant contracts to ensure continued compliance.
Carrier Surcharges and Contract Negotiations In response to the crisis and changes in war risk coverages, some carriers have introduced war risk surcharges and other emergency pricing adjustments. Companies should review their contract provisions to understand whether such increases are permitted and whether there are any limitations. In addition, given the drastic market changes in pricing, companies negotiating new contracts may also seek to stall or otherwise delay finalizing such contracts until the market is less volatile and pricing terms are more favorable.
Sanctions Compliance Over the last few decades, the United States along with the United Kingdom and the European Union have maintained robust sanctions programs against Iran, and this
( continued on page 6)
5 • MAINBRACE