By Aditya Danturty
Introduction
Post the of Somali piracy in 2009, the next wave of maritime disruption in the middle east is underway. The deteriorating situation between Israel and Palestine has destabilised the middle east. This has led to the Houthis, a radical Yemeni organisation, targeting commercial vessels in the Suez Canal, causing hazardous conditions due to the threat of hijacking in the merchant shipping world. The Houthi action is primarily concentrated in the crucial Red Sea route. The hijacking offensive has necessitated action from the navies of the world, having sent frigates and destroyers to safeguard the route. Thus, the situation in the crucial naval region has deteriorated rapidly at the expense of the global economy.
Increased Rates
The conflict has created difficulties for the merchant shipping industry, which has been forced to divert ships towards the Cape of Good Hope. This causes a considerable increase in time of transportation and causes ballooning costs. The severe economic consequences have burdened the European market. In such a scenario, the industry has voiced its support for the implementation of the provisions of the union customs code based on article VII of the General Agreement on Tariffs and Trade. These provisions call for the freight and insurance premiums of goods to be added to the customs value. This will reduce the tax and customs burden to that which is corresponding to the average rates in the event of normal passage through the Suez Canal.
Regulatory challenges
Various jurisdictions have responded to the crisis to keep maritime costs down. In the United States, the Federal Maritime Commission is responsible for regulating maritime trade pertaining to US ports. The US Code of Federal Regulations bars any change in rate which increases the cost to a shipper earlier those 30 days after publication of the said change. The FMC is however considering to make this transition sooner due to the ongoing crisis. The expansion of the European Union Emission Trading System to the maritime sector is also hiking maritime rates.
The issue of detouring
A legal conundrum that has emerged with the conflict is the legality of detouring. Taking a safer route during such a situation seems like a logical decision to make. However, whether it is legal to do so depends on a number of factors including the terms of the charterparty, the wordings of the insurance policies of the ships and the letters of indemnity which may be equipped to include transiting the Red Sea.
The increase in seeking such insurance and indemnity has led to a significant surge in price of war-risk insurance premiums. It is pertinent to note that war risk costs are passed to charterers under the war risks clause where it is incorporated into the charterparty. Detouring has also led to questions on claims for damages and unilateral termination of contracts on facing excess charges due to taking a longer route.
Conclusion
The Red Sea conflict has thus created various difficulties in the maritime trade sector. It has posed a challenge to governments and maritime regulators to minimize the disruption. Private entities face burgeoning costs and increased risk exposure due to the current crisis. This upheaval has led to uncertainty in the global markets. A swift resolution to the conflict is necessary
Centre for Maritime Law 