Navigating the Waves of War: The Impact of Conflict in Shipping Industry

Navigating the Waves of War: The Impact of Conflict in Shipping Industry

Navigating the Waves of War: The Impact of Conflict in Shipping Industry

War has far-reaching consequences that extend beyond the battlegrounds. Shipping plays a pivotal role in the global economy, facilitating the movement of goods across borders and connecting nations. In times of war, the effects on shipping can be both immediate and enduring, impacting various aspects of the industry.

Insurance Costs

Inherent risks associated with shipping are exacerbated during times of war. Insurance costs for maritime assets skyrocketed at an unaffordable rate as insurers factor elevated threat of damages, loss, or seizure. Insurers might also impose additional premiums or exclude certain regions from coverage altogether. The London Market’s Joint War Committee (JWC) publishes a list of areas of perceived enhanced risk in relation to hull war, strikes, terrorism and related perils.

Once an area is perceived as a ‘High Risk’ area, the underwriter shall give a notice to the standard war risk insurance subscriber, canceling and reinstating the insurance policy excluding the new high risk area from coverage.

Ukraine-Russia War

This is one of the effects of the Ukraine-Russia War, where vessel owners who subscribes to the standard war risk insurance are no longer covered. Owners might have to purchase additional premiums insurance coverage, when the Black Sea adjacent to Ukraine-Russia is listed as a ‘High Risk’ area.

Gaza-Israel War

Currently, vessels are attacked by drones, missile strike, and seized by the Yemen’s Houthis in the Red Sea as a global consequence of the Israel-Gaza war. The Houthis have threatened to target Israeli vessels in the waterway, demanding Israel to stop the aggression towards Gaza. In response to these attacks, the JWC has widened the ‘High Risk’ area in the Red Sea.

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Constructive Total Loss (CTL)

Vessels in a war-torn region often suffer from destruction, attacks, seized, or trapped. CTL is whereby the vessel is effectively loss but not actually destroyed, is a unique concept in marine insurance. In claiming CTL, Owners must show they have been deprived of ownership of the vessel within reasonable time, also called as the “Bamburi test”.

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This test was developed during the Iran-Iraq Tanker War in the 1980-1988, where almost 70 vessels were trapped in the Persian Gulf during the war. Justice Staughton in The Bamburi [1982], held that a 12-month duration is deemed satisfactory to determine what is regarded as “reasonable time”.

Notice from Owners is required to address the situation to relevant parties such as the banks, charterers, insurers, and cargo owners. Subsequent notice is essential after the expiration of the 12-months period and a proper notice of abandonment shall be given. Owners must ensure that the vessel is unlikely to be recovered at the time these notices were sent.

Conclusion

The effect of war on the shipping industry is a complex interplay of geopolitical, and economic factors. From disruptions of trade routes and increased security concerns, and to the rising costs on insurance and damages which affect the global economy, the shipping industry must adapt to the challenges posed in the ever-changing landscape of war, finding ways to navigate through troubled waters.

By Rahayu Partnership, Malaysia
Law Firm Website: www.rahayupartnership.com

ABOUT THE AUTHOR

Rahayu Partnership is a boutique law firm specializing largely in admiralty, marine insurance and general and commercial litigation work. The firm is part of the Joseph Tan Jude Benny (JTJB) Global Network and this unique association with JTJB has made us the most dynamic and progressive maritime law firm in Malaysia, exporting our skills and services to the world. Our firm has considerable expertise in both contentious and non-contentious aspects of shipping law, advising on matters ranging from ship arrest and release, collision, charter parties, sale & purchase of ships, cargo claims to marine casualties and from admiralty processes to insurance law.

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