War risk rises in the maritime sector as world powers square off in conflicts that do not yield to diplomacy
 Given the sabre-rattling over the Ukraine, which threatens to explode into the clang of battle, there has been much concern in the underwriting community about war risk and who pays for what in the maritime world.
Not surprisingly, that was a focus of leading marine insurer Gard, of Arendal, Norway, at its 16th annual Charterers and Traders Geneva seminar where delegates wrestled with the theme "Risky Business: Managing geopolitical security threats in Marine Insurance P&I Club News, Piracy and Security."
Guest speaker Henrik Ehlers Kragh, chief operations officer at Copenhagen's Risk Intelligence, discussed cyber threats, war risks and current emerging issues in global shipping and trade.
Areas of elevated risk include southeast for robbery, theft and corruption. Eastern Black Sea incidents are primarily due to war between Russia and Ukraine and finally in Central America – incidents were largely theft, armed robbery and drug smuggling. So different regions present different security threats, Mr Kragh said.
Risk Intelligence recorded 273 incidents between January 1 and November 18, 2021 - that's one a day. The most challenging areas include the Persian Gulf, western Indian Ocean, Red Sea, eastern Mediterranean and the Gulf of Guinea – primarily off Nigeria due to kidnap and ransom of crew.
Less deadly, but still costly is the ever growing cyber threat. "We are talking about three types of possible attack,"Mr Kragh said, "malicious attacks, jamming and spoofing. A malicious attack is aimed at a companies’ IT systems with criminal intent. An example would be the NotPetya malware attack of Maersk Line in 2017. Jamming is the disruption of electronic devises with “white noise”. Jamming is used offensively and defensively by military forces and can also be used by criminals to jam GPS devices on valuable assets. Jamming is usually easy to detect and does not affect navigation."
Spoofing, he said, interferes with electronic signals and places electronic plots in a different geographical place.
"If your vessel suddenly appears on land – you are being spoofed. To be affected, the vessel must be within range of weaponry, so spoofing is more likely to happen when close to land. Spoofing technology is not as easy to obtain as jamming technology and generally requires advanced technology used by military forces to disrupt, command and control systems," said Mr Kragh.
"As for the situation in the Black Sea, Russia may have several strategic objectives that could be met by a successful invasion. However, an invasion is not without risk. If Russia anticipates that the international community, primarily Europe and the US, have limited options left as regards sanctions and if they have the sense that any new sanctions will only have limited effect on Russia, then it really is only the risk of military failure that points towards Russia wanting to maintain the status quo.
"From a commercial maritime perspective, I think the shipping community should prepare for how any changes in sanctions may affect trade patterns. In any event, it is my belief that sanctions, current and potentially future, will remain the norm for quite some time," Mr Kragh said.
While cyber risks of nature described above are excluded from some plans, they are included if a computer or an electronic system is used in the launch or guidance systems or firing mechanism of a weapon of war.
Instances where damage is directly caused by a weapon of war would be covered, even if electronics are used in the launching, guidance or firing mechanisms. But the exclusion would kick in where the damage is caused directly by a malicious code, or software used as a means of inflicting harm.
In terms of paramilitary risks, typically piracy, Mr Kragh said use of armed guards in the Gulf of Guinea off the coast of West Africa is a complex issue as different coastal states have different laws governing their use.
"Of course, all vessels trading in the Gulf of Guinea should recognize and apply the recommendations given in the Best Management Practices West Africa," he said.
Mr Kragh warned that employing armed teams and escort vessels is not without risk and any decision to use such should be based on the result of a specific voyage risk assessment, that factors in the threats, the vulnerabilities of the vessel in question, the route, and any potential external support – such as naval assets and the concentration of such assets.
London lawyer and veteran claims advisor Balvinder Ahluwalia considerd coverage in a previous limpet mine attack and whether this would render a port "unsafe" under English Law?
This is really a question of whether owners are entitled to refuse a voyage order on the basis of contractual unsafety of a port as a result of a single prior incident, Ms Ahluwalia said.
There is legal authority that the particular ‘unsafety’ must be in the port to where the vessel is ordered and not simply the general vicinity of that port.
The UK Supreme Court in The Ocean Victor provided clarification on what constituted abnormality and in essence the matter comes down to the knowledge of the charterers at the time that orders were given to the owners, she said.
"A single prior attack may be considered to be abnormal where a charterer can demonstrate that at the time orders were given there had been no recent attacks and adequate precautions were now in place/being taken against any such attack, and thereby rendering any subsequent attack to be viewed as an abnormal occurrence," she said.
In the case of a prior limpet mine attack the question of port safety is likely complicated by the fact that currently the situation is still evolving in terms of what adequate precautions would be required and therefore charterers would be advised to seek specialist advice, without which it may be the case that one prior limpet mine attack may well render a port unsafe, Ms Ahluwalia said.
Gard lawyer Helena Biggs said that the owners’ ability to discharge cargo at a port other than the port identified in the bill of lading will depend on the terms of the bills of lading.
"If those terms contain a liberty clause permitting the shipowner to discharge the cargo as close to the discharge port as they can safely reach, then owners may be entitled to discharge at an alternative port or place," she said.
"If additional costs are incurred in transshipping the cargo to its end destination, which party ultimately pays those costs would depend on whether or not the port was indeed unsafe as a matter of fact," Ms Biggs said.
"If the port were to be considered unsafe, Charterers would have to meet the transshipment costs and this approach has more recently been codified in some of the industry war risk clauses, such as the BIMCO clauses," she said.
Nothing very precise can be said of what transpires in the fog of war or who is responsible for what. It seems that much depends of the definitions of conditions that have been previously defined, but undoubtedly will be subject to change in the light of new circumstances as they unfold. |
