Middle East war affects shipping

Aug 8, 2006
Author: Anisa Govender of Shepstone & Wylie

Protracted fighting in the Middle East threatens the shipping economy and should raise concerns about contracts among ship owners, charterers and shippers operating in the area, Shepstone & Wylie's Anisa Govender said on Tuesday.


Anisa Govender

Govender said the huge cost to life following the conflict between Israel and Hezbollah in Lebanon mirrored the economic backlash on international commerce, specifically shipping trade.

"Apart from the huge increase in fuel prices which is likely to be passed onto ships, ship-owners, charterers, traders, consignees and insurers will no doubt be rifling through contracts and insurance policies to determine what effect the hostilities will have on war risk and “force majeure’ clauses in their contracts,” she says.

Lebanon and Israel border the Mediterranean Sea, a shipping hub with traffic flowing from Europe to the Indian Ocean via the Suez Canal. The canal is currently Egypt’s third-largest revenue source, recording a record US $ 3,5bn in annual transit fee income to June.

However, Govender said returns in the second half-year depended on whether or not a ceasefire was secured for the region.

In light of the recent conflict, she said the bulk of international shipping contracts excluded loss, damage or expenses caused by war or civil strife, but could be covered under a separate clause. When hostilities were threatened or ongoing, the insurance company may impose an additional premium to maintain the cover.

She believed the insurance companies would declare ships may not currently call on Lebanon and Israel without paying the additional premium. This placed the onus on shipping lines and owners to disclose information regarding a vessel’s intended voyage into a war zone.

However, she countered that ship owners and charterers ensure that any risk clause within their contracts contained several basic elements. These included a method that identified when the war risk clause came into effect; a provision that allowed the owner or caption to refuse venturing into dangerous ports; details on who incurred the additional costs associated with war risk activities; cancellation rights; details on dealing with the cargo in the case of war and particulars on dealing with terrorism.

Govender said there were several situations in which contracts between ship owners and charter companies could be cancelled in the event of war and that both parties should examine their contracts to establish whether the current conflict was applicable.

Shippers beware: Most war risk clauses allow the vessel to discharge cargo at the first safe port or to deviate from the intended voyage at the shipper's or merchant's risk and cost.

Historically, the canal has borne the brunt of Middle East hostilities, closing down during the Arab-Israeli War in 1967 and again three years later when hostilities erupted between Egypt and Israel. Reopened in 1975 after being cleared of mines and war wreckage, the canal suffered due to the closure and traffic volumes declined during the 1980s.

Govender is an attorney specialising in maritime law with Durban firm Shepstone & Wylie