Marine - market insights Q3/Q4 2024

Geo-political tensions

As already heightened exposures to geopolitical risks continue to escalate, the shipping industry continues to bear the brunt of the impact, with disruption in the Red Sea set to persist for at least a further six months. The global economy relies on maritime traffic, and the ongoing challenges to routes and safe ports has resulted in an increase in delays and losses to cargoes and vessels, in addition to the risk to crew.

What this has highlighted is the future risk to any of the world’s global ‘chokepoints’ – areas already subject to heavy shipping congestion which, as a result of sanctions or conflicts, could result in further claims for marine insurers to consider.

Houthi threat

Houthi militants based in Yemen have been launching attacks on commercial shipping transiting the Red Sea since late 2023. In a recent shift in tactics, the Houthis have begun launching unmanned drone boats filled with explosives. In late June 2024, two vessels were attacked only three days apart. There have been two further notable attacks in July and August on the Chios Lion and Sounion (both tankers).

These types of attacks raise issues around whether standard marine hull and war risk policy warranties regarding the use of armed guards and BMP 5 (guidance on best management practices regarding maritime security in the region) remain fit for purpose. BMP 5 is guidance developed to deter piracy, but there is nothing contained therein that is directed to the avoidance of a drone boat attack, albeit the Joint Maritime Information Centre (via the UKMTO) are providing some industry guidance.  

These attacks raise the risk of damage to vessels due to the accuracy of these strikes, and they show no sign of abating as Iran and its proxies continue to launch retaliatory attacks against Israel.  

Iranian vessel seizures

In July 2024, the ADVANTAGE SWEET sailed into international waters for the first time since its seizure by the IRGC in April 2023. The ST. NIKOLAS (formerly SUEZ RAJAN) remains at Bandar Abbas as Iran continues its ‘tit-for-tat’ seizures as part of the long-running dispute with the US following its withdrawal from the JCPOA. Its Turkish owned cargo of Iraqi crude oil was successfully recovered via a ship-to-ship transfer in July. The MSC ARIES also remains at Bandar Abbas apparently because of its Israeli ownership connections.

Russian sanctions – dark fleet

The continued implementation of sanctions has resulted in a dark or shadow fleet of vessels navigating busy shipping lanes. These vessels – estimated to include 638 tankers – are often operating without P&I cover, are poorly maintained, sailing with technical deficiencies, and deploying ship-to-ship transfers to avoid port inspections and to mask the origins of cargoes.

This all increases the risk of a significant marine accident, as evidenced by the recent collision involving the CERES 1 oil tanker on 19 July. Malaysian maritime authorities referred to the vessel disappearing and then reconnecting with vessel tracking services in, in their opinion, an attempt to ‘run away’.

Sanctions targeting oil tankers 

In May 2024, there was a shift in the UK’s approach to sanctions, with the introduction of new powers allowing sanctions to be applied directly to ships, rather than to the owners or managers. Initially the UK targeted four Russian linked oil tankers and in July, new prime Minister Keir Starmer announced sanctions against a further 11 vessels. 

In June, the EU imposed sanctions on 17 vessels and the US has imposed sanctions on 42 vessels in the early part of 2024. It remains to be seen whether or not these sanctions are seen as an effective way of targeting the dark or shadow fleet.

Climate impacts

The shipping industry has had to accommodate long standing restrictions on the numbers and size of vessels able to navigate the Panama Canal due to a lack of fresh water needed to operate the locks. 

In welcome news, the water levels of Gatun and Alhajuela Lakes have recently risen above those recorded on the same date in 2023, finally easing the blocks caused by restricted passages. 

Further, in July 2024, Panama’s Supreme Court held that construction of a new reservoir to feed the Panama Canal would be allowed. However, it has been warned that the project may take up to six years to complete.

Supply chains

We are already seeing delays and reports of limited availability of items in the run up to Christmas. Seasonal stocks are not arriving, or have even been shipped, in advance of the festive season. Many retailers tried to get ahead of the game by ordering their goods earlier, but counterintuitively, this has led to more delays and congestion in ports and warehouses.

Baltimore bridge collapse  

The Federal Bureau of Investigation and the National Transportation Safety Board investigations into the cause of the crash on 26 March 2024 remain ongoing.

Case developments

Geopolitical risks driving judicial scrutiny of the meaning of ‘seizure’ 

Hamilton Corporate Member Ltd. And others v. Afghan Global Insurance Ltd. and others [2024] 

The High Court ruled that a logistics company which had their warehouse seized by the Taliban could not recover their losses of US$41 million from their political violence policy provided by Lloyd’s reinsurers, due to the “clear wording” of the policy which excluded cover for losses caused by seizure. 

Supreme Court reinforces importance of contractual certainty

RTI Ltd v MUR Shipping BV [2024] 

This Supreme Court decision is the first judgment to rule on whether or not charterparty force majeure clauses require the affected party to accept an offer of non-contractual performance from party declaring force majeure. The Supreme Court held that they do not.