HomeBill of LadingMatters affecting carrier's performance in the context of the Red Sea situation

Matters affecting carrier’s performance in the context of the Red Sea situation

On the 18th of December 2023, CMA CGM, the world’s 3rd largest container shipping line provided an update on the situation in the Red Sea and a Notice of Force Majeure..

Aside from expressing their deep concern about the attacks on commercial vessels, the notice read that “CMA CGM has decided, in accordance with the clause 10 of its bill of lading, to reroute some of its vessels currently sailing to and from U.S., to and from North Europe and to and from Asia or Indian Subcontinent via the Cape of Good Hope at the southern tip of Africa.

What are the implications of Clause 10 of CMA CGM’s bill of lading..??

Clause 10 refers to MATTERS AFFECTING PERFORMANCE and reads as follows :

10. MATTERS AFFECTING PERFORMANCE

If at any time the Carriage is or likely to be affected by any hindrance, risk, delay, difficulty or disadvantage of any kind (other than the inability of the Goods safely or properly to be carried or carried further which is provided for in Clause 24 infra) and howsoever arising (even though the circumstances giving rise to such hindrance, risk, delay, difficulty or disadvantage existed at the time this contract was entered into or the Goods were received for Carriage), the Carrier (whether or not the Carriage is commenced) may, without prior notice to the Merchant and at the sole discretion of the Carrier, either :

(a) carry the Goods to the contracted Port of Discharge or Place of Delivery, whichever is applicable, either by the intended or the alternative route to that indicated in this Bill of Lading or that which is usual for Goods consigned to that Port of Discharge or Place of Delivery. If the Carrier elects to invoke the terms of this Clause 10 (a) hereof, he shall be entitled to charge such additional Freight, including extra war risk charge as the Carrier may determine, or

(b) suspend the Carriage of the Goods and store them ashore or afloat upon the Terms and Conditions of this Bill of Lading and endeavour to forward them as soon as possible, but the Carrier makes no representations as to the maximum period of suspension. If the Carrier elects to invoke the Terms and Conditions of this Clause 10 (b) then, he shall be entitled to charge such additional Freight as the Carrier may determine, or

(c) abandon the Carriage of the Goods and place the Goods at the Merchant’s disposal at any place or port which the Carrier may deem safe and convenient, whereupon the responsibility of the Carrier in respect of such Goods shall cease. The Carrier shall nevertheless be entitled to full Freight on the Goods received for Carriage, and the Merchant shall pay any additional costs of the Carriage to, and delivery and storage at, such place or port.

If the Carrier elects to use an alternative route under Clause 10 (a) or to suspend the Carriage under Clause 10 (b) this shall not prejudice its right subsequently to abandon the Carriage under Clause 10 (c).

The clause outlines the carrier’s rights and options in situations where the carriage of goods is affected by various hindrances, risks, delays, difficulties, or disadvantages..

This clause is particularly relevant in the context of the current situation in the Red Sea, with the heightened risk due to the war-like situation, attacks on ships by Houthi rebels, and the subsequent rerouting of ships via the Cape of Good Hope, avoiding the Suez Canal..

What do these clauses mean..??

Here’s a breakdown of its key elements and implications for clients :

Clause 10 (a) – Flexibility in Carriage Route and Method
This means the carrier (CMA CGM) has the right to alter the route or method of transporting the goods to the intended port of discharge or delivery place mentioned in the bill of lading using any alternative route available for which the carrier can charge additional freight, including extra charges for war risks..

Example: rerouting ships on a longer route via Cape of Good Hope (around Africa) instead of through the Suez Canal

Clients can expect to pay more charges for the particular shipment covered in the bill of lading, something they might not have catered for when finalizing their product pricing..

Clause 10 (b) – Suspension and Storage of Goods
Due to the situation that has rendered delivery of the goods impossible or delayed, through this clause, the carrier can exercise their right to suspend the carriage of goods and store them, either on land or at sea at their discretion under the terms and conditions of the Bill of Lading..

Example: If the passage around Africa is not viable due to costs or demand of cargo, the carrier might choose to drop off the goods at a port closer to Suez, say Jebel Ali in UAE, and not perform further carriage..

While the carrier will attempt to forward the goods as soon as possible, they cannot commit to the period till which the goods will remain in their custody and all the charges applicable for this suspension and storage will be to the client’s account..

Who will pay these additional costs will of course be subject to who has possession of the Title to the Goods at that moment..

Clause 10 (c) – Abandonment of Carriage
In addition to the above, in extreme cases where the situation may become untenable, the carrier may decide to abandon the carriage entirely and offload the goods at a location that they deem safe and convenient location..

If this happens, the carrier’s responsibility for the carriage of goods will then end at this point and it is up to the client to arrange the movement of the goods further to the place of delivery mentioned in the bill of lading..

Example: In this case, the carrier’s responsibility will end in Jebel Ali in UAE, and the client has to arrange for the goods to be moved from Jebel Ali to their actual intended destination using their own means..

The carrier however is still entitled to full freight on the goods, but any additional costs for carriage, delivery, and storage at the new location will be for the account of the client..

Implications for Clients

Needless to say, this situation has serious implications for the client as they

  • face increased shipping and associated costs such as war risk surcharge, increase in insurance premium, etc due to the re-routing
  • experience significant delays in the delivery of goods
  • face uncertainty in terms of when the goods may be delivered, if at all
  • are open to the potential abandonment of the goods at a totally different location which aggravates the situation and costs further

Conclusion

This situation of course is not unique to CMA CGM, but all lines have similar clauses that lay out terms and conditions more or less in line with the above..

As an example, Maersk covers it under Clause 20, Hapag Lloyd covers it under Clause 18, MSC covers it under Clause 19 of their bills of lading, and so on..

The bottom line of course is that in the context of the current tensions in the Red Sea, these clauses give the carriers considerable flexibility to respond to the evolving situation..

It however also places a potential burden on clients in terms of higher costs, delays, and uncertainty..

Clients who are currently in the process of arranging their shipments need to be prepared for these possibilities and may want to consider additional insurance or other protective measures to mitigate these risks..

Hariesh Manaadiar
Hariesh Manaadiarhttps://www.shippingandfreightresource.com
I am Hariesh Manaadiar, the Founder of Shipping and Freight Resource.. I have been in the dynamic shipping and freight industry for over three decades and have worked in several sectors.. I share my experiences and knowledge of the industry through this blog for those looking for help in the industry.. Stay subscribed for more free useful content about shipping, freight, maritime, logistics, supply chain and trade..

1 COMMENT

  1. Whilst people are commenting to say that the cost will increase, you must remember that a large Container carrier vessel is paying a hefty fee to transit the canal, 500,000 to 1,000,000 USD so the additional cost of fuel is at least in part recovered by the saving in toll, in addition with the current downturn in volumes it means that the vessels can be deployed on the Asia to Europe routes rather than have new vessels at anchor until the trade volumes improve.

LEAVE A REPLY

Please enter your comment!
Please enter your name here

This site uses Akismet to reduce spam. Learn how your comment data is processed.

RELATED ARTICLES

SUBSCRIBE

Enter your email address to subscribe for free and be notified about new content on this site

Join 45.6K other subscribers

LET'S SOCIALIZE

Most Popular