Crisis averted?: Despite deal on longshore strike, legal issues loom

On October 4, 2024 millions of people breathed a collective sigh of relief when the International Longshoremen’s Association (ILA) and the United States Maritime Alliance (USMX) reached a temporary agreement to delay the planned strike until January, 2025.

While this news brings short term relief, the impending strike carries the same legal and commercial issues, in addition to some new ones, resulting from the publicity and forewarning around the strike.

Businesses in the maritime industry should review their contracts, charter-parties, bills of lading and similar agreements for language related to strikes and similar delays. Attention should also be taken of any actions or policy changes by counterparties, as well as a review of insurance policies, coverage and premiums – whether from the insurer or the insured’s perspective.

Disruptions on the East Coast

The ILA strike has led to significant slowdowns at major East Coast ports, creating a backlog of cargo that has far-reaching effects on supply chains. Shipping companies, facing delays and uncertain timelines, are redirecting vessels to West Coast ports to expedite deliveries. This sudden influx of cargo is overwhelming already busy ports like Los Angeles and Long Beach, leading to increased congestion and extended waiting times.

Legal implications for the carriers, charterers, and shipowners with the January 2025 strike

1. Force Majeure Clauses are unlikely to apply to the 2025 strike because it is foreseeable.

Force Majeure Clauses account for unforeseeable events that are out of the control of the parties and makes performance of the contract impossible or significantly different from what the parties agreed. These clauses often include a list of qualifying events like wars, government actions, and strikes. These clauses may vary across contracts and their application depends on the precise wording of the clause.

Since the ILA’s strike was well publicized before its original start date, and the delay is receiving considerable media coverage, it is unlikely that a strike in January will be recognized as an unforeseen event. Those who are considering relying on a Force Majeure Clause for claims arising from strike delays should take this into consideration.

2. Heightened risk of demurrage/off hire costs for charterers.

For voyage charterparties the general rule is that once the vessel has provided notice of readiness and lay time has commenced, the limited window of time to load and unload cargo has begun. Once that window has expired, demurrage begins and the charterer will be charged for the additional time to load and unload. In the event of a strike, demurrage fees can accumulate even if ports are completely shut down. This could subject charterers to extremely expensive additional charges.

For time charterparties, laytime and demurrage are not as much of an issue, but a charterer may seek to recover lost time due to the strike under an off-hire clause. The probability of success under an off-hire clause depends on the exact wording of the clause.

3. Deviation provisions would be prudent.

Those concerned with the impact of the January 2025 strike may seek to deviate from the original voyage plan and attempt to call a port on the west coast of the United States, which was and is not subject to the planned strike. The carrier’s legal ability to do this depends on the specific provisions of the charterparty or bill of lading. Most carriers working with container cargo include provisions in their bills of lading that give themselves the right to deviate, suspend, or abandon carriage because of delay.

If the contract does not include a deviation provision, and there is cargo loss, then the deviation will be assessed either as reasonable or unreasonable. Under COGSA, reasonable deviations include those taken to save life or property at sea. Unreasonable deviations include those made for the purpose of loading or unloading cargo or passengers. Coordination between carriers and shippers regarding deviations may be beneficial to all parties by minimizing risk of loss and avoiding inadvertent mis-delivery of the cargo.

Implications for the insurance industry with the January 2025 strike

As the situation unfolds, the insurance industry is likely to face a range of challenges and opportunities. Increased congestion and shipping delays raise the risk of cargo damage, loss, and business interruptions. Insurers may see a rise in claims related to these disruptions, including:

1. Cargo Damage Claims: With vessels being rerouted and unloaded in more congested conditions, the likelihood of damage to cargo increases, leading to more claims.
2. Business Interruption Insurance: Companies relying on timely deliveries may find themselves unable to meet consumer demand, potentially leading to claims for business interruption losses.
3. Rising Premiums: As risks associated with supply chain disruptions escalate, insurers may respond by increasing premiums for policies related to cargo transport and business interruption.
4. Increased Demand for Risk Management Solutions: Businesses may seek out more comprehensive insurance products and risk management strategies to protect against future disruptions. This could lead to a greater emphasis on policies that cover supply chain vulnerabilities.

Insurers should review the coverage provided to their insureds, especially with regard to cargo damage and business interruption. This might also be an appropriate time to review insurance premiums for policies related to cargo transport and business interruption to verify that coverage is economically viable for both the insurer and the insured.

Comment

ILA’s strike is delayed but it is not too early to prepare for the issues that may come with a renewed strike in January, 2025. Companies can begin reviewing their charter parties and bills of lading for relevant clauses and provisions about delays and deviations. Insurers should review the coverage provided to insured’s, and specially review coverage in regards to cargo damage and business interruption, as well as their related premiums. Companies, whether shipowners, carriers, charterers, or insurers, should also take note of any actions taken by ports or other parties to contracts in the form of temporary policies and surcharges related to standstills at East Coast ports and potential congestion at West Coast ports.

Moreover, although the US ports strike is currently suspended due to the ILA union and USMX ownership group reaching a deal on wage increases, the main point of contention, i.e., port automation, still remains to be resolved by the January 15, 2025, deadline. Presently, the crisis seems averted, yet the strike will likely be renewed – and maritime actors and businesses should plan accordingly.

Read other items in Marine Brief - November 2024