News / Shippers brace for extra costs as carriers invoke force majeure

© Andrii Yalanskyi

With US east and Gulf coast ports inaccessible and carriers unable to fulfil contracts, contract provisions have cushioned the blow for box lines, but leaving shippers to swallow the extra costs.  

Matthew Gore, partner at law firm HFW, told The Loadstar: “If carriers are unable to fulfil their contracts… there will typically be provisions which will excuse them from performance where this is due to matters which are outside of their control.” 

He was referring to a force majeure clause in contracts, which carriers ONE, CMA CGM and APL have already enacted. 

Force majeure generally refers to an unforeseen event preventing a party from fulfilling a contract, like earthquakes, floods or fires, and human-inspired events like wars and strikes. 

Patrizia Kern, chief insurance officer at embedded cargo insurance provider Breeze, told The Loadstar strikes may qualify as force majeure events if reasonable steps had been taken to avoid them and “if they are the sole reason for the contract’s non-performance”. 

She explained that in the context of the ILA port strikes, whether force majeure applied “will depend on the specific language in the contracts between shippers, carriers and other stakeholders”.  

“If contracts include strikes or labour disputes as qualifying events, then the parties could invoke the force majeure provision,” she said. 

And Mr Gore added: Declaring force majeure “typically excuses a party from performance of its obligations under a contract.”

The provisions listed in bills of lading might grant carriers liberty on routings and discharges at alternative ports – but this is not currently an option given the scope of the strike. Carriers are also able to suspend carriage and store the goods ashore, afloat or even abandon carriage and deliver the goods to a safe and convenient place at their discretion.  

Indeed, director of the Gobal Shipper’s Forum, James Hookham, told The Loadstar: “The house contracts issued by the shipping lines contain clauses that will excuse the carrier from the performance obligations… So, I think cargo on the water will just have to wait it out.” 

Such clauses are generally found under the headings “Methods and Routes of Carriage” and “Matters Affecting Performance”, as seen in Maersk’s terms of carriage’.

Mr Gore noted that invoking force majeure quashed a shipper’s chance of a refund and could also mean they had to pay any additional costs of carriage, storage and delivery, unless these were “suspended or waived by the carrier”. 

Mr Hookham added: “The bigger issue here will be attempted imposition of surcharges… ‘carriers’ and ‘refunds’ are two words rarely seen in the same sentence in the container shipping industry. GSF sees no reason to believe this will change any time soon.” 

However, it’s not all bad news for shippers: he explained that force majeure provisions “cut both ways” and shippers unable to fulfil minimum volume commitments would likely also be excused on these grounds. 

But that silver lining is a thin one – with the Q4 holiday season fast approaching, it would be difficult to find a shipper struggling to fulfil minimum volume, and the initiative to declare force majeure lies solely with the carrier. 

“If the shipper disagrees, the only route is to challenge the decision in court, and that will take years,” Mr Hookham concluded.