The coronavirus outbreak has a significant impact on the shipping, aviation, and transport & trade industries. With ever more delays, closures of ports and terminals, suspension of freight services and a growing backlog of cargoes to be shipped, our Transport & Trade team provides some brief guidance for the above industries.
The coronavirus outbreak
The WHO has stated that the coronaviruses (CoV) are a large family of viruses that cause illnesses ranging from the common cold to more severe diseases such as Middle East Respiratory Syndrome (MERS-CoV) and Severe Acute Respiratory Syndrome (SARS-CoV). A novel coronavirus (nCoV) is a new strain that has not been previously identified in humans. The WHO provides ‘Situation Reports’ on a daily basis.
In the aviation industry, one of the consequences of the outbreak is the cancellation of many flights to and from the People’s Republic of China. This obviously not only affects passengers, but also has implications for bellyhold cargo capacity. This capacity has already been substantially reduced, and because of the shortage, airfreight rates are expected to rise by factor four or more.
The industry is tackling this implication partly by way of a modal shift. This solution, however, requires Chinese ports and rail terminals to operate fully, and this is an uncertain factor. Delays and supply chain implications are expected on a global scale.
Another implication of flight cancellations is the possible loss of historic rights to slots at Amsterdam Schiphol airport. Out of a series of slots, 80% must be ‘used’ in order to maintain them. If this requirement is not met, an airline may lose its historic rights for the next equivalent IATA season. Particularly at Schiphol airport, slot capacity is in high demand and once an airline loses its slot rights, it is very difficult to apply for new rights for the next equivalent season. Cancellations because of force majeure (the coronavirus outbreak) must be reported in time to the slot coordinator to prevent the loss of historic rights. AKD lawyers can assist airlines in this respect, so please contact Guido de Vos.
Terminals, Transport & Logistics
As a result of the reduction in demand, lines are reducing calls to China. Container transport is affected and cargoes are rerouted to other ports and terminals. Terminals in Shanghai and Xingang are facing congestion of reefer containers, with a shortage in available plugs. This also results in cargoes being rerouted and diverted. We expect congestion and/or other charges.
Another effect of the outbreak is that local governments throughout the world require screening of crew members and/or cargo upon arrival (such as Singapore and some Australian ports). Berthing and loading/unloading operations are likely to take more time.
Terminal operators and logistics service providers now need to negotiate a solution for added costs and damages because of the coronavirus outbreak and the related quarantine measures. We advise parties to check their contract positions as soon as possible. Contact our partner Jos van der Meché.
International Trade & Logistics Contracts
For OEMs, cargo owners and logistics service providers it is of the utmost importance to make sure that goods are delivered at their destination, on time, and at the agreed rates. The industry will remember the effects of the Hanjin collapse and the air cargo travel disruption following the 2010 Eyjafjallajökull volcano eruption. Now is the time to negotiate a solution for added costs, potential delivery delays and damages because of the coronavirus outbreak and the resulting quarantine measures.
Manufacturers and logistics service providers with facilities in China are currently closing down operations, resulting in unavailability of parts, delays in transport, and increased costs of carriage. International businesses that are dependent on the timely supply of goods manufactured in China will be affected. Contractual obligations are at risk of being violated as a result of supply chain interruptions. Furthermore, the cost price of products may increase because of substantially higher logistics costs. Operational impact and financial exposure resulting from this must be managed carefully and timely. If negotiations start late, it will be much more difficult to reach a satisfactory solution. Contact our partners Sebastiaan Moolenaar and Annemieke Spijker.
The various quarantine measures present severe operational implications for owners and charterers. Quarantine measures in ports and illness of a crew member could result in owners deciding to deviate.
Parties may wish to rely on a force majeure clause included in a contract or available under applicable law. In case force majeure is accepted, a party is relieved of liability for damage or costs caused by non-performance of contractual obligations. The question as to whether exceptional circumstances, such as cyber-attacks and severe storms, constitute force majeure may have been part of the negotiation process. For future contracts, parties should consider to whether or not human viruses fall within the scope of force majeure.
We advise parties to check their contract positions as soon as possible. AKD’s Transport & Trade team has a global reputation for maritime law, and can advise you in this respect. Contact our partner Haco van der Houven van Oordt.
We have mainly touched on the operational implications. However, there are also related implications that need to be taken into account. In particular, the industry should be well aware of insurance cover for operational issues that arise. For tailored advice, contact our partners Haco van der Houven van Oordt and Jos van der Meché.