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This article originally featured in Maritime Risk International, October 2024.
The increased use of lithium-ion batteries worldwide has been notable in recent years. In a relatively short space of time they have become one of the main storage solutions in society, particularly in household electronics and mobile phones (part of the reason phones can do more for longer and yet are lighter) and, of course, in the now widely used electronic vehicles (EVs).
Factors contributing to their increase in popularity include their higher energy density (assisted by the lightweight lithium metal), their longer life cycle and their versatility. Their popularity is only going to increase – it is widely estimated that the global demand for lithium-ion battery cells will be 4,700 gigawatt-hours in 2030 – a more than sevenfold increase from the 700 gigawatt-hours recorded in 2022.
Travel risk
Where there is an increase in global demand for a product, there is also an increase in the carriage of that product and this presents increased challenges for the entire supply chain industry. As has been widely publicised, lithium-ion batteries present a fire risk, which can be caused by something inherent in the battery (by reason of material defects, their construction or contamination), some physical damage that might have occurred in their handling, electrical abuse (such as overcharging) or thermal abuse, i.e. exposure to high temperatures. All of this can lead to what is known as a thermal runway – a chain reaction which can cause an uncontrollable rise in temperature. A quick search on the internet shows the devastation this can quickly cause.
Nor is it just the fact that they can cause such ferocious fires – the challenge to extinguish the fire is not one that can always be met with traditional fire-fighting techniques, such as water or foam. These are chemical fires and, even when they might have been put out, they can start again as a result of the heat that is still within the cell(s). Such fires can even burn underwater, although large amounts of water might cool battery cells to stop the thermal runway. CO2 foam can even make the situation worse. For this reason, there is considerable effort from the industry to address how these risks can be tackled.
It is clear that lithium-ion batteries can be dangerous and is why they and EVs are included in the International Maritime Dangerous Goods Code (IMDG Code), classed as a Class 9 material. These are “miscellaneous dangerous substances and articles” and are goods that present a danger but are not covered by other IMDG classes.
Contracts for the carriage of goods
Even though lithium-ion batteries carry a significant danger, as recognised by the IMDG Code, what does that mean for owners and a charterer (or shipper and carrier)?
Under English common law, when goods are carried under contract of affreightment, there is an implied undertaking that the cargo will not be shipped unless the carrier/owners are expressly made aware of the dangerous nature of the cargo or the carrier is (or ought to be) aware. As per Effort Shipping Co Ltd v Linden Management SA (The Giannis NK) [1998] 1 Lloyd’s Rep 337, it is irrelevant that the shipper of the goods might not (or could not) have been aware themselves and it is therefore, in effect, a strict obligation.
"If lithium-ion batteries or EVs are specifically named as the cargo, an owner has agreed to carry that cargo and cannot rely on an exclusion to refuse its carriage or hold the charterers responsible for losses."
Contracts will make provision for dangerous goods, although it does not stray far from the common law. The NYPE 1946 refers to “lawful” merchandise rather than dangerous cargo, but then incorporates the US Carriage of Goods Act which deals with dangerous cargo at section 4(6). This is the same as article IV, rule 6 of the Hague or Hague-Visby Rules, which permits the carrier or the owners to land or destroy any “Goods of an inflammable, explosive or dangerous nature” which the carrier/ owner has not consented to carry with knowledge of their nature and the shipper/charterer is then liable for all losses and damages arising. The clause also provides that even where the carrier/owner has consented to the carriage with knowledge of the nature of the goods, but the cargo becomes a danger to the ship, they have the right to land or destroy the cargo.
The Baltime form and NYPE 1993 and 2015 all specifically exclude dangerous cargo (although may well incorporate a clause paramount in any event).
Owners’ consent and knowledge
The presence of dangerous cargo exclusions and the potential classification of the cargo as dangerous does not necessarily prevent it from being transported, however. If lithium-ion batteries or EVs are specifically named as the cargo that is to be carried, an owner has agreed to carry that cargo and cannot then rely on an exclusion to refuse its carriage or hold the charterers responsible for losses arising. Nor can they rely on the clause paramount because if the cargo is named, the owner knows what is being shipped (although they have the liberty to land or destroy the cargo if it then becomes a danger to the ship).
If the owner has consented to the carriage of lithium-ion batteries or EVs, they should have a reasonable knowledge of what is required for the safe carriage of these goods, such as ensuring that they are not stowed in an area where they can be exposed to such heat that it could cause a thermal runway.
This consent only extends to the lithium-ion batteries or EVs in their normal state, however. While they might be categorised as dangerous by the IMDG, they are perfectly capable of being (and are) shipped safely if without some defect that would give rise to heating. The cargo in their normal state, and without defects, is the risk that the owners agree to bear – not risks associated with defective lithium-ion batteries or EVs. As discussed, it does not matter that the charterers might not be aware of the defects which then, perhaps, start a fire on board – they bear the risk of unknown defects if they ship the goods seemingly in their normal state.
The obvious practical problem for the industry which arises is of course the one that is all too familiar – the misdeclaration of cargo. As the use of lithium-ion batteries becomes more and more prevalent, they will be seen in more and more goods. That could mean goods being shipped that make no reference to the lithium-ion batteries contained therein, which would in all likelihood mean that a charterer is in breach of their obligation not to ship dangerous goods which the owners have not consented to.
Seaworthiness
We have seen that this cargo presents a new type of risk, but it is one that, if the owners have consented to carry, they should be aware of. However, what does that mean in the context of the owners’ obligations?
Generally speaking, the owners must deliver a seaworthy vessel. When the Hague or Hague-Visby Rules are incorporated, that obligation is reduced to one of due diligence, but then applies to the commencement of each voyage (which can be multiple times under a time charter). In the context of carrying or consenting to carry a dangerous cargo, this means that the vessel must be suitable to carry that cargo, which will include ensuring that the vessel is sufficiently capable of dealing with problems that may arise as a result of carrying this cargo, i.e. fire.
As discussed, fires arising from lithium-ion batteries and EVs are not the usual type of fires found on board vessels and general fire-fighting equipment and traditional fire-fighting training for the crew is of limited assistance.
Arguably therefore, if owners consent to the carriage of lithium-ion batteries or EVs, but do not ensure that their vessels have specialist equipment for these types of fires and their crew specialist training, their vessel will be unseaworthy. This could result in a significant shift in the standard that will be looked at when considering the seaworthiness of vessels when this type of carriage is involved.
Even where the charterers are at fault because, for example, the reason that a fire might have started was defective batteries, the owners still have a seaworthiness obligation. The fire might start because of the charterers’ breach, but it could then increase because the owner, who knew they were carrying lithium-ion batteries, did not have adequate firefighting capabilities on board.
“If owners consent to the carriage of lithium-ion batteries or EVs, but do not ensure that their vessels have specialist equipment for these types of fires and their crew specialist training, their vessel will be unseaworthy”.
Evidence
The legal principles can be put down on paper, but from a litigation point of view, evidencing the cause of the loss can be incredibly difficult. It is of course important to identify why the lithium-ion batteries started their thermal runway – was it an inherent problem with the batteries (and therefore not a risk that the owners agreed to bear) or were they fine (and so the owner agreed to their carriage and the risks associated with them) and the thermal runway started for some other reason for which the owners might have been responsible. The fires are incredibly destructive and there is little evidence left after an event.
Prevention
Lithium-ion batteries are another example of technology emerging that requires rapid adjustment to its demands. The first is from a practical view, i.e. the systems on board to safely carry and handle these goods.
The impact of lithium-ion battery goods is being noted around the world, even gaining mention in the recent King’s Speech in the UK, and is firmly on the agenda of the IMO. However, this in turn could mean that we will re-assess the vessel’s legal obligations when carrying these cargoes. The increased use of batteries worldwide is going to mean that there will be plenty for the industry to address, but hopefully this can be frontloaded at the preventative stage.
Shipping and international trade