Vessel delays due to COVID-19: Who bears the costs?

Introduction

On 26 March 2020 President Muhammadu Buhari announced that only cargo vessels which have been at sea for more than 14 days can dock in Nigerian ports. Following this announcement, some commentators have expressed fears of a tightening of supplies. Although most cargo originates from the Far East and the United States, it trans-ships at intermediate ports before arriving in Nigeria.

Far East-originating cargo will traverse the Indian Ocean, stopping at Durban, Port Louis, Cape Town, Luanda, Tema and Cotonou, among other ports. US East Coast-originating cargo is often trans-shipped at hubs such as Algericas before continuing to the West African ports of Abidjan, Tema and Cotonou en route to Nigeria.

The 14 days referred to by the president will start from the last port of call, which means that vessels trans-shipping in Tema or Cotonou (one to two days sailing time) before arriving in Nigeria will be subject to delays of at least 12 days before berthing.

Demurrage and liability for delay

The implications of this measure concern demurrage and liability for delay. Although the Nigerian Ports Authority asked terminal operators to suspend demurrage charges for 21 days (which expired in the third week of April 2020), this luxury was not available in carrier-shipper transactions, which are largely guided by contractual arrangement. The latter is straightforward, as the bill of lading terms often favour the owners. However, owners of liner ships must deal with added delay costs. Ships on charter will issue a notice of readiness (NOR) on arriving in a port, thus activating the calculation of laytime and attendant demurrage.

One element that can invalidate a NOR is 'free pratique' (i.e. a confirmation from port authorities that a vessel is free from infectious diseases and can enter a port). Vessels usually obtain free pratique on arriving at a berth as a matter of course and thus a valid NOR is issued before inspection. However, where a vessel has called at a port affected by COVID-19, free pratique ceases to be a mere formality and a valid NOR cannot be issued on arrival. If a valid NOR cannot be issued until free pratique has been granted, significant delays may occur. These must be borne by the shipowner unless the charterparty provides otherwise.

Container ships will most likely bear the costs of a delay, with a surcharge likely imposed on shippers. For chartered ships, disputes will arise as to the validity of the NOR and the commencement of laytime occasioning demurrage unless a bail-out is forthcoming for cargo owners. Notably, if a vessel or any of its crew are quarantined and this causes delays in loading or discharge operations, the vessel may be prevented from obtaining a valid NOR.

In a time charter, delays are generally borne by the charterer unless it can rely on an off-hire clause in the charterparty. If crewmembers are found to be COVID-19 positive or the vessel is detained or quarantined, the working of the vessel may be affected. This may enable charterers to place the vessel off-hire for the time lost, but this will depend on the off-hire clause.

Laytime and demurrage disputes will be determined by reference to the charterparty. Charterers will seek to rely on exceptions to laytime and demurrage to minimise or absolve themselves from liability for demurrage. Laytime exceptions generally do not apply once a vessel is on demurrage, and general provisions excepting delays do not apply to laytime and demurrage unless expressly provided by way of an agreement.

Force majeure

Although force majeure has been a hot topic during the COVID-19 pandemic, its consideration is subject to a force majeure provision being included in the relevant charterparty and will be considered along with a determination of whether the contract has been frustrated. Where the contract contains a force majeure provision, the occurrence of a force majeure event may alter the parties' obligations and liabilities under the contract. Where no such express provision exists, a contract may, subject to express provisions to the contrary, be deemed frustrated where an event occurs without the default of either party, the effect of which is to destroy the identity of the charter service or render it, as a matter of business, completely different to the service contemplated by the parties.

Comment

Most shipowners have drafted clauses to excuse themselves and their ship from any liability arising from delays caused by COVID-19. Parties must conduct due diligence to ensure that such clauses cover all relevant circumstances.