Global conflict, geopolitical tension, sustainability, and technological advancements are just some of the challenges that the shipping industry has had to grapple with in 2023, writes Richard Johnson-Brown, marine and shipping partner at Keystone Law.
These challenges and transformative shifts, coupled with the EU Emissions Trading System (EU ETS) and the UK Electronic Trade Documents Act 2023, will continue to gather pace and affect the industry in 2024, pushing stakeholders to address sustainability and cyber-security in a new way.
From 1 January 2024, ship operators will need to purchase carbon credits on the EU ETS where the ship calls in at least one EU port. Operators will be required to buy credits reflecting 40% of the ship’s emissions on the voyage but this percentage will increase year on year until 2027 when operators will in some cases need to buy credits reflecting 100% of the ship’s emissions on the voyage. Ship emissions will also have to be monitored and reported on to the relevant authorities by its operators.
While owners are responsible for purchasing these credits in charterparties they may effectively pass the cost of these on to charterers as they arise from the charterers’ employment of the ship. This may lead to an increase in disputes between owners and charterers under time charterparties where the number and cost of the credits required for a voyage allegedly arise from not only charterers’ employment of the ship, but also from the poor condition of the ship – these may factor in off-hire and underperformance disputes.
Another key piece of legislation is UK Electronic Trade Documents Act 2023 (the Act), which promotes the adoption of electronic bills of lading. The Act seeks to pave the way for a transition from the use of paper bills of lading (in addition to other related shipping documents) to electronic ones. Given the risk of hacking and other related cybercrimes, the Act requires a “reliable system” to be in place to ensure the security of the e-bill. This places greater onus on shipping companies to review and consistently test their technology systems to ensure they can handle the risen threat of cyber-attacks.
E-bill platforms/systems have existed for some time but what constitutes a “reliable system” according to the Act will be clarified by the English courts as and when disputes arise about the reliability of any such systems. Given the interim uncertainty, the adoption of e-bills could be quite slow. Some operators may prefer to wait until the parameters of a “reliable system” have been defined in more detail by the courts and legal frameworks for e-bills are codified in other jurisdictions. However, if systems are not tried and tested by operators, they cannot be tested by the courts.
2023 also saw a resurgence of piracy in the Red Sea. In response to this, many operators are choosing alternative routes, such as sailing around the Cape of Good Hope instead of through the Red Sea and the Suez Canal. This adds significant time and cost to the voyage, and whilst the safety of crews should be of paramount importance when making routing decisions, the added time and cost of re-routing ships may lead to disputes between owners and charterers.
The shipping sector must be prepared to address the challenges in 2024, concludes Richard Johnson-Brown. Strategic frameworks and legal structures will be critical to navigate the additional costs and uncertainty. Operators will need to balance the integration of new technologies with the need for proven and trusted systems.