Shipping in the UAE: latest developments and topics to watch

The United Arab Emirates continues to be a critical hub for global shipping. It, like all other major centres for maritime trade, has had to respond to significant changes and disruption in recent years.

As we enter 2022 early signs suggest that recovery from the impact of the pandemic is well underway, and the region is addressing questions raised by climate risks and the threat of piracy. Here we highlight some of the key developments in the region for both insurers and their insureds.

Coronavirus

Throughout 2020 and 2021 the UAE shipping industry saw drastic falls in cargo shipments in the wake of restrictions imposed on imports by governments across the globe in response to the COVID-19 pandemic. However, 2022 has seen record numbers in the region’s cargo volumes, exemplified by the 45 million tonnes of cargo handled through Sovereign Wealth Fund owned Abu Dhabi Ports throughout the back end of 2021, a 50% increase on the previous year. This, coupled with the gradual easing of global government restrictions on cargo imports indicates a welcome upturn in the fortunes of the UAE’s shipping industry.

Whilst the recent upsurge is positive news, it has required swift adaptation to new methods of working and business priorities by the region’s logistics operators. The rapid growth in e-commerce, transition to remote working conditions and a greater focus on pharmaceutical logistics are just a few examples of the challenges the region’s hauliers have had to negotiate in order to combat the ravaging effects of the pandemic on global supply chains.

The UAE continues to put its freight and logistics market at the forefront of its planning in striving for economic diversification, and in recognising the country’s strategic location between both the East and West, funding and development projects will see the already impressive logistics infrastructure and integrated transport system enhanced, ensuring the industry can meet increased demands as the world re-opens.

Insurance

The Abu Dhabi Court of Cassation recently upheld an appeal relating to a claim for indemnity for loss of an oil rig under a port risk insurance policy.

The claim was dismissed by reason of the insured’s failure to notify insurers of risks occurring during the policy term within the time limits prescribed under Article 389(1) of the UAE’s Commercial Maritime Law which required the insured to:

Notify the insurer of circumstances… which are such as to increase the risks borne by the insurer within three days from the date that he knows of the same... If notification is not given within the said period, it shall be permissible for the insurer to cancel the contract.

The underlying insurance contract contained an express warranty by the insured, not to conduct hot works on the rig during the term of the policy. The insured submitted a claim for indemnity of the value of the rig following its total loss, described by the insured as being due to high tide. However, insurers’ investigations found that a fire had broken out on the rig, suspected to be as a result of hot works, which led to its loss and accordingly denied cover. Following the denial of cover, the insured brought a claim in the Abu Dhabi Courts.

The claim progressed all the way to the Abu Dhabi Court of Cassation which upheld the decisions of the lower courts to dismiss the insured’s claim. This comes as a reminder to insured’s in the UAE to err on the side of caution in keeping insurers fully appraised of all material facts relevant to the underlying risk being insured, and to do so within the tight timeframes imposed by UAE maritime law or face the unenviable situation of having cover denied in the event of a loss.

Piracy and war

As geo-political tensions rise across the Gulf with a spate of missile attacks on the UAE by Yemen based rebel military group, the Houthi movement, the UAE has stepped up its civil defence measures including those to protect vessels operating in UAE waters and surrounding ports.

The recent missile attacks come after a series of vessel hijackings by the Houthi group across the Red Sea, most recently against the Saudi chartered and UAE flag bearing cargo vessel, the ‘Rawabi’.

Alongside ‘booby trapped’ vessels, sea mine deployments and port seizures, these increased acts of piracy in the Red Sea’s international waters indicate a strategic approach beyond pure military motivation, targeting vessels crossing transit lanes accounting for around two thirds of the world’s oil transport, leading to a heightened threat to international trade and shipping in the region.

Seen as a vitally important strategic region in the wider conflict against piracy around the Horn of Africa and Eastern Africa, the UAE has welcomed both regional and international coalition to combat the Houthi movement’s increasing threat to regional waters. The recent emergence of regional marine military defence companies such as Dubai based Aksum Marine Industries, manufacturers of armoured defence vessels, (recently announcing its attendance at Dubai’s upcoming World Police Summit) emphasises the importance placed on ensuring the future stability of the UAE’s waters.

Sustainability

The UAE’s Ministry of Energy and Infrastructure has recently announced plans via its Hydrogen Leadership Roadmap to promote the country’s maritime energy transition to hydrogen derived energy in support of the Global Ports Hydrogen Coalition and in a bid for net-zero carbon emissions by 2050.

Part of the plan is to revamp the region’s maritime industry to produce ‘green hydrogen’ and process it into ammonia to be used both in ships as bunker fuel and for export. The strategies could see an extra revenue for exports from the region and an increase in emission related regulation for vessels operating in the surrounding waters. Whilst hydrogen powered container ships may seem some way off, Swiss based start-up The Jet, the world’s first zero emission, hydrogen powered ‘flying boat’ set to premier in Dubai in 2023 indicates the movement towards clean energy operations out of UAE ports may not be too far away.

Read other items in Marine Brief - February 2022