In the Red Sea, Yemen’s Houthi rebels are stirring up trouble, creating safety and insurance complexities. Our article breaks down the challenges, risks and insurance covers involved.
The Red Sea situation
Yemen’s Houthi rebels are carrying out attacks against vessels sailing through the Red Sea. With missile and drone strikes they target commercial vessels, which the Houthi rebels believe to be connected to Israeli and/or American interests. This has significant repercussions, not only in terms of the damage inflicted on the vessels, but also due to its widespread impact on global trade. More than 12% of global trade and more than 40% of Asia-Europe trade is passing through the Red Sea to transit via the Suez Canal.
As the only alternative, many ships have already diverted by taking the longer route via the Cape of Good Hope. Such diversions, while ensuring safety, add approximately 3.000 nautical miles (amounting to around 10 days) to the vessel’s journey. The situation can cause issues to the safety of crew, the vessel and cargo. Moreover, attention must be paid to the contractual relations and liabilities under Charterparties, Bills of Lading and other related documents.
The risks for commercial vessels and companies
In a latest update published on 15th January 2024 coalition forces and BIMCO continue to recommend shipping companies to avoid shipping operations in the Red Sea area. Thus, it is commonly agreed that there is a high degree of risk to commercial vessels and companies.
Based on the above information, it is crucial for charterers to be mindful that the owners of the vessel may have the discretion to declare the route designated by the charterers as unsafe for both the vessel and its crew. Consequently, owners may issue a notice to charterers, prompting them to provide new orders for a secure route. The consequences are something that the Charterer will likely bear themselves because it is highly unlikely that insurance cover can be obtained for such things. If the owners’ discretionary power is exercised and the vessel needs to be rerouted, this can have a large commercial impact with potential losses for the Charterer.
Notwithstanding the above, the Charterer may try to convince the shipowner to follow the Charterer’s instructions, which may mean striking certain less restrictive clauses and inserting clauses whereby the Charterer will be forced in a regime of strict liability. In such clauses, the Charterer will bear all liability for any issues, costs, losses, damages to the vessel and such should an issue occur when Owners follow Charterers’ instructions. This must also be considered as a commercial risk because the Charterers Liability insurance will likely not cover claims arising from strict liability or “hold harmless” clauses.
Of course, each situation should be carefully examined on its own merits. For instance, the Charterparty might include standard BIMCO clauses, such as the BIMCO Piracy clause for Time Charters (TCs) and Voyage Charters (VCs), or the BIMCO Conwartime or Voywar Clause, alongside any other tailor-made clauses specifically incorporated into the Charterparty. Also, in a recent case fοr one of our assureds, the Charterparty contained the Conwartime 2004 clause, instead of the later version 2013. In this case, it could be argued that 2004 was more beneficial for the Charterers than the 2013 version.
As Charterers Liability underwriters we are perhaps overly cautious, however that is not to protect our own position, but it is to send a strong signal to our assureds to exercise caution themselves. As much as we understand the value of cost and operational efficiency, we do not wish to trivialize the real risks and dangers currently faced in the Red Sea for vessels transiting the Suez Canal.
IMU is here for you
Our main concern at IMU is to concentrate on the position of our assureds and attempt to assist them in managing this fast-developing and tricky situation brought on by the unrest in the area. We can always try to assist with our advice, which may eventually reduce exposure and we can attempt to prevent financial losses, but each case needs to be carefully studied on its own merits.
Please contact us for any questions or study of contracts and wordings before you proceed.
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