How the lockdown has hit shipping and what’s being done about it (9.06.20)

The massive effects of the Covid-19 lockdown on shipping, insurance, contracts and dispute resolution were surveyed in a recent webinar organised by the LSLC Young Maritime Professionals group.

Addressing the challenges and issues, Kevin Cooper, Partner, of hosts MFB Solicitors summarised the early impact of the crisis on the marine industry and considered the long term implications. Manos Karanikolas of the TT Club surveyed the emerging claims climate and provided broad guidance on dealing with those arising.

The session was organised under the auspices of the London Shipping Law Centre and chaired by YMP Chairman Francesca Cappa. Some 110 registered for the webinar, one fifth of them from Italy, France, Norway, Luxembourg, Pakistan and other countries.

Kevin Cooper highlighted early evidence of economic contraction around the globe. A World Trade Organisation report has said that global trade was expected to fall by up to one third in the near future. The International Monetary Fund recently predicted that overall losses would exceed US$7 trillion—greater than the economies of Germany and Japan combined. US unemployment quickly reached its highest level since the 1930s. China had suffered its first quarterly contraction since 1976.

Effects on vessels
Postulating from early trends, the hardest hit shipping sector was likely to be car carriers, which quickly suffered a drop of more than one third in demand for vehicle exports. In the ferry sector, major operators had made redundant or furloughed many employees and put a number of vessels into layup. Inter-ferry, the trade body, found that business had halved across the industry. Efforts to address the situation had included a £28.5 million support package from the UK Government. “The ferry companies should recover in time, trading across short sea routes.”

The passenger sector was likely to continue to suffer. Some cruise lines were holding back on resuming operations, trying gauge when they might return to profit. The largest, Carnival Corporation, had raised emergency funds from banks and investors. Many tourist destinations had suffered from a dearth of cruise passengers helping to keep local shops and attractions going.

The boxship/container sector had contracted substantially, with well over 500 cancelled sailings and lay ups from mid-May to mid-June—although freight rates had recently rallied. Cost cutting by container lines could only go so far, as they had to be ready for improved trading. However, insolvencies were a distinct prospect.

The bulk trade sector appeared not to have been hit so badly. Capesizes had seen very good rates since early in the year. Tankers had benefitted from stockpiling of cheap oil due to forward pricing—some of it by the oil companies themselves. This had largely ended when OPEC scaled down production. The LPG industry had had low rates throughout the crisis.

Shipbuilding and scrubber refits had been delayed, leading to redundancies. Bunker sales had been the lowest for 30 years. The sale & purchase market had been very quiet and ship recycling had all but shut down. Salvors had been wary of new contracts, due variously to Covid-19 and the pre-existing business situation. Limits to foreign travel had prompted surveyors and salvors to make reciprocal arrangements with organisations in other countries.

Precautionary measures around the globe had seriously affected crew changeovers. Some crew had been kept on board for much longer than usual and, unfortunately, there had been suicides. Some countries, including Hong Kong, had tried to alleviate the problem via crew changeover hubs. Recruiting crew, especially officers, was becoming more difficult.

Marine insurance
The impact on marine insurance would continue to be substantial. The Diamond Princess and other cruise vessels had been subject to claims contending that they should not have been used for further voyages once infections on board had been identified. Insurers, including the P&I clubs, had been providing risk management advice to members, such as systems in place to protect crews. Port congestion and quarantine had also brought about delay-related claims but perhaps fewer than the P&I clubs might have expected. Shipowners needed to comply with the latest advice, fully briefing crews about risks and ensuring adequate PPE.

The risks of future pandemics would require the latest modelling techniques for pricing cover, developing plans and maintaining insurers’ solvency. A spate of webinars on avoiding and managing insolvency had indicated a boom time for insolvency practitioners—but not for anyone else.

After the Ebola outbreak of 2015, BIMCO had prepared infectious and contagious diseases clauses for time and voyage charter parties—clauses flexible enough to adapt to outbreak circumstances. However, adoption had been limited. Given that Covid-19 and perhaps other diseases might be around for some time, such clauses should be included in contracts, allocating risk between parties. This should reduce the scope for argument and formal disputes.

Dispute resolution
In terms of arbitration tribunals, alternative dispute resolution and investigations, jurisdictions had reacted differently. In the UK, the Lord Chief Justice had provided early guidance for more applications to be considered on paper or virtually, not least in the Commercial and Admiralty Courts. Experience as been generally positive with courts and tribunals quick to adapt to the new environment—perhaps permanently changing the way disputes are managed and resolved.

Uncollected cargo: industry perspective
Manos Karanikolos, TT Club claims executive, confirmed that uncollected cargo “has long been a major challenge for the major figures in the supply chain, attracting constant debate, attention and advice.” Failure to collect cargo resulted in storage, demurrage, detention and other costs which could quickly spiral.

Restricted movement during lockdown had reduced and distorted markets and supply chains. Some could no longer use or pay for the seasonable and perishable goods they had ordered, variously locked out in transhipment at port terminals, freight forwarders’ premises, warehouses and distribution centres. Some had even ceased trading. Disagreements between seller and purchaser had led to rescinded contracts.

Even in functioning ports, ‘safe’ working and limited labour availability had added to congestion, producing full warehouses and reducing storage capacity for incoming containers and cargo. Hardest hit have always been non-essential products, such as personal effects, scrap and metal waste, used computer equipment and illegal trades such as wildlife trafficking and counterfeit items. Sometimes storage and demurrage charges exceed the worth of low value commodities, thereby increasing the likelihood of abandonment.

Whatever the situation, goods had to keep moving. The Shipping Council had urged governments to support policies ensuring a fluid flow of cargoes through container terminals. The Global Freight Forwarding Association had called on carriers and terminals to exercise restraint in applying extra charges; and on shipping lines and terminals to take a similar approach to demurrage and detention charges and practices. “There is no point in trying to enforce terms and charges on a cargo receiver if he cannot comply.”

In practice, shipping lines had been offering solutions, including storage at origin and at transhipment hubs closer to markets; and streamlining delivery. In the UK, container hauliers have been co-operating to offer shippers off-port storage solutions.

Freight forwarders and logistics operators were usually the first parties—perhaps the only traceable ones—to be approached by shipping lines with loss claims, particularly if mentioned as shipper or consignee on the bill of lading; or for having arranged the booking. Freight forwarders’ liability insurance was an added attraction.

Shipping lines sometimes required shipper, consignee, receiver and/or freight forwarder to be jointly and severally liable for all accrued costs. A freight forwarder acting as ‘agent only’ for the shipper might be able to avoid liability. However, if contracted directly with a shipping line and appearing as shipper or consignee on the bill of lading, full contractual liability for all costs was likely.

Uncollected cargo: dealing with a growing problem
Mr Karanikolos offered a series of measures by which stakeholders in the supply chain might protect themselves and deal with the problems and consequences of non-collection.

Get ready for problems…..
* Keep up to date with commercial and technical trends and developments; and social and political circumstances, such as sanctions
*Stay in touch with customers to hear about delays and transit problems early on
*‘Risky’ cargoes should be noted in advance, having regard to collector track record, uncollected cargo hotspots and commodities most likely to be abandoned. Data should be fed into management controls, enabling companies to take appropriate action and to prevent or minimise losses as situations develop
*Ensure standard terms and conditions are sufficiently incorporated into all new service or transport contracts
*Make sure your business can deliver the required level of performance whatever the circumstances
*Before accepting bookings in problematic areas, seek risk advice from local agents and correspondents.

…and when they occur
*Assess every occurrence on its own merits
*Contact your liability insurers immediately
*Explore realistic options on transportation and warehousing to minimise accumulated costs
*Contact defaulting shippers and consignees immediately and give them deadlines to collect the goods and settle outstanding costs
*After the expiry of free time, send formal certification to the parties, setting out contractual rights and obligations. If there is no satisfactory response, obtain instructions from the shipper on next steps, e.g. changing the consignee’s name, modifying the shipment’s destination and arranging re-export
*Involve local expertise at the destination port to assist with onward movement, storage or even destruction of cargo
*Obtain legal advice prior to exercising any liens to guard against subsequent claims.
“Whatever reassurances are given, remain on full alert till the case is resolved. Quick action might be essential to minimise exposure.”


Video hearings will increase
Courts and arbitrations had been embracing video conferencing technology increasingly over the past few months, according to Kevin Cooper. While about 80 per cent of LMAA arbitrations had traditionally been conducted on paper, civil proceedings and arbitrations were already well versed in taking evidence via video-link. A lengthy Lloyd’s Open Form arbitration, for example, could be conducted by video conferencing.

Unlike conventional courts and rooms, all participants could be seen in close-up—- particularly useful when taking witness testimonies. Advocates should keep their distance from the camera, particularly if looking uncomfortable in dealing with difficult points. A separate messaging system for teams, such as What’s App, has been an improvement on post-it notes.

In mediations, parties could have their own rooms but get together in a plenary room. The mediator could switch between rooms just as in an on-the-spot mediation. Given travelling difficulties, more mediations were likely to be conducted by video conferencing in future.

Virtual communication had become increasingly important in business contact and marketing, bolstered by reduced travel opportunities.

Lawyers and witnesses had already been involved in remote casualty investigations. While remote communication was no substitute for face-to-face contact with crew and for assisting the master in dealing with the authorities, screen-sharing offering real time conversations was “not a bad second best. Electronic communications need to be developed and refined but I don’t think there is any turning back.”

The link to view this webinar:

Martin Rowland
Consultant – LSLC