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Lawyers say legal disputes in the shipping industry have reached their highest level in at least seven years as falling profits and trade disruptions caused by the war in Ukraine lead to conflicts between shipowners and their customers.
Shipping companies were involved in about 2,000 out-of-court arbitration cases in London and Singapore last year, according to data compiled by law firm HFW and shared with the Financial Times, which is the preferred way for shipowners to resolve commercial disputes.
The figure represents a 12% increase from 2021 and is the highest number of cases recorded in the two cities – the main destinations for such cases – since the law firm began compiling data in 2016. It also exceeds the number of cases in 2020, when severe port congestion following the outbreak of the Covid-19 pandemic led to many disputes over shipping delays, lawyers said.
Shipping lawyers say sanctions on trading certain goods with Russia, increased dangers to ships in the Black Sea and pressure to ease falling revenue amid a broad economic slowdown are contributing to the tensions.
“There may be more friction[than before],” said Mike Ritter, a shipping lawyer at HFW. He added that the war in Ukraine was having a “significant impact” and triggering a “more emotional” dispute, with shipowners trying to push back against potentially dangerous requirements to sail near Ukraine.
“I certainly don’t think there will be any less legal cases this year,” he said.
The rise in commercial disputes is the latest sign that the recent hit to global trade is rapidly reversing the fortunes of many shipping lines. Since Moscow invaded Ukraine last February, sanctions on trade in Russian products have upended an industry that delivers 90% of the world’s goods and relies on smooth trade relations between countries.
A drop in global consumer spending has also hit prospects for container lines, which have only recently posted record profits during Covid-19 lockdowns as an online shopping boom and bottlenecks at ports pushed up shipping costs.
Kirsty MacHardy, a shipping lawyer at Stephenson Harwood, said the industry had made so much money in 2021 that companies were unwilling to disrupt operations and deal with legal challenges from clients, such as disputes over ship speed and performance. But as profits dwindle, they have more incentive to fight monetary claims.
McHardy said Stephenson Harwood had also received inquiries from shipping groups to refuse requests to sail to Russia. But she added that customers often cannot break existing contracts and only a small proportion of cases make it to arbitration hearings because there is no blanket ban on trade with Russia.
Shipping lines often prefer to resolve disputes through arbitration hearings, which are private.
HFW said its data came from five leading arbitration centers and organizations representing arbitrators, who are professional adjudicators appointed to resolve disputes.
The law firm said its analysis provided a “rough picture” of trends in maritime arbitration cases, as organizations define such cases differently. Some only provide data for the entire transportation or commodities sector rather than individual shipping data, although these figures represent only about 5% of HFW’s 2022 total.
Patrick Murphy, a shipping lawyer at Clyde & Co, also said the sanctions could trigger more contract disputes.
But he added that the current number of cases was not comparable to the period after the 2008 financial crisis, when the shipping industry was “in free fall”. The London Institute of Maritime Arbitrators estimates that 2,058 cases were referred to it that year, compared with 1,807 in 2022.
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