On January 30, the World Health Organisation declared Novel Coronavirus (Covid-19) to be a public health emergency of international concern. From news coming to us from all directions we now know that this virus is from the same family as Sars, having originally been transmitted from animals to humans and that it originated from a seafood market in Wuhan, in China. It is a new strain not previously known to have extended to humans. It has now affected thousands of people.

The effect of this public health emergency on the maritime industry is significant and is having multiple repercussions, ranging from passengers on board luxurious cruise liners being quarantined on board ships held at anchorages prohibited from getting into port or prohibited from disembarking, to ship owners of merchant vessels refusing to go to ports as ordered by their charterers on the grounds that the port is ‘unsafe’.

The effect of coronavirus on the cruise line industry is probably the most widely known because there are hundreds of human stories covered by the media. Footage of Carnival’s Diamond Princess quarantined and anchored off shore Yokohama in Japan with 3,701 passengers on board as a result of 10 passengers having first tested positive to the virus and of Genting’s World Dream quarantined in Hong Kong with 1,800 passengers on board has been doing the rounds and one can appreciate what a logistical and provisioning nightmare this is for the shipping line and for the crew on board.

Effects range from disruption in schedules and port calls to the physical management of passengers and crew, cancellations from passengers, disruption of contracts of crew members unable to embark or disembark and huge financial losses for the shipping lines.

A port notice issued by the Ports and Yachting Directorate, Transport Malta.

The costs of the actual management of these scenarios, including the management of the thousands of passengers and crew members, the additional logistics and all the ancillary expenses as a direct result of the outbreak of the virus, will be astronomical.

The challenges presented to the chain of international trade and, more particularly, the carriage of goods by sea are very serious and perhaps less known to those outside the industry. Few are aware that several depots in Shanghai, the world’s number-one container port which according to data published in Lloyds List moved 42 million TEU’s in 2018, have been locked down.

The situation has given rise to several questions, ranging from whether deviation clauses in contracts of carriage for the purposes of embarking or disembarking affected crew and passengers would apply, to the application of force majeure clauses and how and under what circumstances can ship owners refuse a charterer’s orders to go to specific ports as ordered which are known to be infected with the virus, either under time or voyage charters and whether or not shipowners can refuse to follow such orders and, if they do, whether they would be in breach of their charter party obligations.

Most charters will provide for nominations by charterers to be to ‘safe ports’ and most landmark judgements on ‘safe ports’ have focused on either geographical unsafety or political unsafety.

There can be no doubt that disease can also make a port ‘unsafe’ and the question then boils down to the extent of the disease at that particular port. Questions that must asked include whether the disease at the port is manageable, is it widespread, how are the authorities in that country are dealing with the outbreak, is it under control?

The costs... will be astronomical

If the answers to these and other similar questions can objectively be taken as giving comfort to those asking, then it is unlikely that such a port can objectively be described as being ‘unsafe’ leading to the owner’s obligation to proceed to port as ordered. If that is not the case and the port is objectively unsafe, then the charterer will have the duty to nominate an alternative safe port.

Additional challenges are being faced in the discharge of reefer containers at ports which, as a result of their inability to shift the containers, are full and cannot take any more with the result that shipping lines scheduled to discharge these reefer containers at such ports are invoking clauses in their bills of lading allowing them to discharge at alternative ports.

In addition, the drastic reduction in Chinese production on the factory floor because so many thousands of Chinese workers have been instructed not to report to work following the Lunar New Year holiday in an effort to control the spread of the virus, has meant that production in China is grinding to a halt. This means there is less need for the volume of raw materials normally imported into China and less finished goods being exported out of China.

This has had a direct effect on the demand for containers, both for the carriage of the raw materials inbound as well as the carriage of finished products outbound, resulting in a glut of containers on the market, thus effecting the price for containers, in turn, the freight rate that can be demanded by shipping lines for the carriage of such containers. This may, in the long term, have a negative effect on the balance sheet of shipowners who still have running expenses such as crews’ wages and mortgages to pay.

On top of that there is the effect on the oil market. The controlling actions being taken by the world’s largest economy in keeping workers at home and away from the factories and production floors means that factories remain shut, resulting in a reduced demand for power leading reduced demands for crude. BBC reported last week: “That means that the world’s biggest importer of crude oil which usually consumes about 14 million barrels a day needs a lot less oil to power machinery, power vehicles and keep the lights on.” This leads to less production, leading to less oil being carried by sea, leading to more ships being idle.

With a number of travel restrictions both for the local Chinese workforce as well as on international travel, shipbuilding and ship repair yards are severely affected, leading to delays in the completion and delivery of new builds and on repair work. This is leading numerous yards to rely on force majeure clauses in their contracts to exempt them from liability for delay or non-delivery.

Chinese yards were full with work in progress and the absence of manpower at the yards has been reported in Tradewinds, resulting in “chaos to dry-docking schedules, as yards cut off from their workers, face a queue of vessels in urgent need of repairs and retrofits… masters have confined ship’s crews on board and many technical superintendents have been sent home… yards are unable to advice shipowners when jobs can be finished and when ships can sail, and owners with scheduled dockings.”

This also happened to be an exceptionally busy period with so many yards dealing with scrubber retrofits as a result of the IMO sulphur emission regulation that came into force on January 1.

At the forefront of the potential exposure to damages and liabilities are P&I (Protection and Indemnity) Clubs. It is no surprise, therefore, that the world’s leading P&I Clubs including Gard, West of England, Steamship Mutual, North of England, Standard Club, the Swedish Club, Skuld, the UK Club, Britannia, the American Club, the Japan Shipowners, London Steamship and Shipowners Mutual, have all been issuing several instructions, guidance notes and specific procedures on developing contingency plans. These range from personal hygiene, to boarding procedures, vessel disinfection, limitation on crew shore leave, passenger handling, sourcing of provisions, on the treatment of waste water and sewage to how to control access to ships when at ports as well as devising electronic tools to assist members.

The North of England has devised a digital tool “that will help shipowners and operators track the spread of the coronavirus outbreak. The MyGlobeView platform – an interactive map which members use to identify commercial risks and physical threats to shipping around the world – can provide live updates as to the number of confirmed cases of the virus, countries at risk and what to look out for… the software can assist ships with chartering operations.”

As a maritime hub in the centre of the Mediterranean with an average of 340 passenger ships carrying 700,000 passengers and around 2,000 container ships calling per annum, Malta cannot ignore all of this.

Port notices have been issued by Transport Malta as well as by the Malta Freeport Corporation and several service providers interfacing with this sector have put their own protocols into place. Clearly ships which have called at infected ports or who have crew or passengers who have had contact with infected areas raise serious concerns and need to be dealt with appropriately.

Only time will tell the extent of the disruption this outbreak will cause to the maritime industry.

Ann Fenech is managing partner at Fenech & Fenech Advocates and board member of the Malta Maritime Forum.