When Shipping Routes Are Disrupted: Who Bears the Risk Under a Maritime Con

A maritime contract may look straightforward when it is signed.

The cargo is identified.
The price is agreed.
The vessel is nominated.
The loading and discharge ports are specified.
The delivery date is set.

Then something happens.

A war breaks out. A major shipping route becomes unsafe. A port closes. A vessel changes course. Insurance premiums increase dramatically. The cargo arrives weeks late.

The commercial consequences can be substantial.

But the legal question is even more important:

Who bears the risk?

Maritime Disruption Is No Longer an Exceptional Scenario

Global maritime trade has experienced repeated disruptions in recent years.

The Red Sea and Suez Canal, the Black Sea, the Panama Canal and, more recently, the Strait of Hormuz have demonstrated how quickly geopolitical and environmental events can affect shipping routes and supply chains.

Maritime transport carries more than 80% of global merchandise trade by volume. When a major maritime chokepoint is disrupted, the consequences can extend far beyond the shipping industry.

Freight costs, fuel prices, insurance premiums, delivery schedules and contractual obligations may all be affected.

For businesses buying or selling goods internationally, the shipping contract therefore deserves much more attention than simply choosing a vessel and agreeing a freight rate.

What Happens When the Agreed Route Is No Longer Available?

Suppose a seller agrees to deliver cargo from one port to another.

The contract assumes a particular maritime route.

Before shipment, however, the route becomes dangerous because of military activity.

The carrier decides to avoid the area and takes a significantly longer route.

Several questions immediately arise:

• Was the carrier entitled to deviate?

• Can the carrier charge additional costs?

• Who bears the additional fuel expense?

• What happens to the delivery deadline?

• Is the delay covered by force majeure?

• Can the buyer reject the cargo because of late delivery?

• Is additional insurance required?

• Who pays the war-risk premium?

There is no universal answer.

The answer depends on the contract, the applicable law, the charterparty or bill of lading, incorporated terms and the precise circumstances of the disruption.

Force Majeure Does Not Automatically Solve Everything

Businesses often assume that war, sanctions or a blocked shipping route automatically constitute force majeure.

That assumption is dangerous.

Force majeure is a contractual and legal concept whose effect depends on the applicable law and the wording of the relevant clause.

A well-drafted clause may expressly address events such as:

• war;

• hostilities;

• piracy;

• embargoes;

• sanctions;

• government restrictions;

• port closures;

• prolonged transport disruption; and

• other events beyond the reasonable control of the affected party.

The ICC's model Force Majeure Clause, for example, expressly includes war, sanctions, trade restrictions, acts of authority and prolonged transport disruption among the events that may fall within the clause.

But the occurrence of an event alone is not necessarily enough.

The contract may require the affected party to demonstrate that the event actually prevented or impeded performance and that its consequences could not reasonably have been avoided or overcome.

Delay and Impossibility Are Not the Same Thing

One of the most important distinctions is between delay and inability to perform.

A shipping route may become significantly more expensive or time-consuming without becoming completely impossible.

For example:

Route A is no longer commercially attractive, but Route B remains legally and physically available.

Does that mean the carrier or seller can claim force majeure?

Not necessarily.

The answer may depend on whether the contractual standard is "impossible," "prevented," "impeded," "unreasonable," or another formulation.

This is why generic force majeure wording can be inadequate for sophisticated international transactions.

Who Pays for the Extra Costs?

A route disruption can create several additional costs:

• higher freight;

• additional fuel;

• war-risk insurance;

• storage;

• port charges;

• demurrage;

• detention;

• transshipment;

• inspection;

• security costs; and

• alternative transportation.

The key question is not simply whether these costs were caused by the disruption.

It is:

Which party agreed to bear this category of risk?

The answer may be found in the charterparty, bill of lading, sale contract, Incoterm, insurance arrangements or incorporated standard terms.

These contracts should therefore be read together rather than in isolation.

Incoterms Do Not Solve Every Maritime Risk

Incoterms are important because they allocate specific responsibilities concerning delivery, costs and risk between buyer and seller.

But they are not a complete maritime risk-management system.

An Incoterm does not necessarily determine:

• whether a carrier may deviate from a route;

• whether a force majeure clause applies;

• whether a charterparty permits additional charges;

• whether a sanctions-related refusal is justified;

• whether demurrage is payable;

• or whether a party has a right to terminate.

In other words:

Choosing the right Incoterm is important—but it is not the same as drafting the right contract.

Sanctions Can Create a Second Layer of Risk

Maritime transactions increasingly involve sanctions issues.

A vessel may be commercially available but unacceptable from a sanctions perspective.

A cargo may be lawful to sell but restricted for export.

A bank may refuse payment.

An insurer may decline coverage.

A counterparty or beneficial owner may become sanctioned.

This means that shipping contracts should not be examined separately from sanctions and trade-control requirements.

A company may need contractual provisions dealing with:

• sanctions compliance;

• vessel and counterparty screening;

• ownership and control;

• destination restrictions;

• end-use;

• payment restrictions;

• suspension;

• termination; and

• alternative performance.

Demurrage Can Become a Major Dispute

Delays at loading and discharge ports can produce substantial demurrage claims.

When a disruption occurs, however, the parties may disagree about whether the relevant delay falls within the agreed demurrage regime or whether another contractual provision excuses the delay.

For example:

A vessel arrives at the port but cannot berth because of security restrictions.

Who pays?

Or:

A vessel is diverted and arrives several days late.

Does the additional time count?

Or:

A port closes temporarily because of military escalation.

Is the resulting delay contractually excused?

These questions should ideally be answered in the contract before the dispute occurs.

Drafting for Disruption: Five Questions Every Maritime Contract Should Answer

Before entering into a significant international maritime transaction, parties should consider at least five questions.

1. What happens if the agreed route becomes unsafe?

The contract should address deviation, alternative routes and related costs.

2. What happens if a port becomes unavailable?

The parties should consider alternative ports, additional transportation and allocation of costs.

3. What happens if sanctions or export restrictions arise?

The contract should establish suspension, compliance and termination mechanisms.

4. What happens if the cargo is delayed?

The contract should address delivery deadlines, demurrage, detention and available remedies.

5. When can either party walk away?

A temporary disruption may be manageable.

A six-month disruption may destroy the commercial purpose of the transaction.

The contract should establish when prolonged disruption gives either party a right to terminate.

The Real Problem Is Usually Risk Allocation

When a major maritime disruption occurs, businesses often focus on the immediate question:

"Who caused the delay?"

That is not always the most useful legal question.

The better question is:

"Who agreed to bear the consequences of this type of event?"

International maritime contracts exist partly to allocate these risks before they materialize.

A carefully drafted agreement can determine whether the parties renegotiate, suspend performance, reroute the cargo, share additional costs or terminate the transaction.

A poorly drafted agreement can leave both sides arguing over who should pay after the losses have already accumulated.

Final Takeaway

Maritime risk cannot be eliminated.

Wars, sanctions, port closures, geopolitical tensions, extreme weather and supply-chain disruptions can affect even carefully planned international transactions.

But legal uncertainty can be reduced.

The key is to address disruption before the vessel sails.

A strong maritime contract should not only answer:

Where is the cargo going?

It should also answer:

What happens if it cannot get there as planned?

At B&P Legal Group, we assist businesses involved in cross-border transactions in identifying and allocating contractual risks arising from international trade, transportation, sanctions and multi-jurisdictional commercial relationships.

In international shipping, the most expensive clause is sometimes the clause that was never written.