Lawyers say that legal disputes between shipowners, their customers and other parties have reached a record high in the last seven years due to the Ukraine conflict and the decline in profits.
According to data shared by the law firm HFW, shipping companies in London and Singapore were involved in about 2,000 arbitration cases outside of court last year. This was the preferred method for shipowners to resolve commercial disputes.
This combined number represents an increase of 12 percent over 2021, and is the most recorded in these two cities – the top destinations for such cases – since the law firm started compiling statistics in 2016. The number also exceeds that of 2020, when the Covid-19 pandemic caused severe congestion in ports, leading to numerous shipping delays.
Shipping lawyers claim that tensions were caused by sanctions on certain goods traded with Russia, the increased risk to vessels in the Black Sea Region and pressures to reduce a drop in earnings amid a general economic slowdown.
Mike Ritter, an attorney at HFW who specializes in shipping law, said that there was “probably more friction” than before. He said that the Ukraine war had “a momentous effect” and was causing “more emotional” disputes. Shipowners were trying to stop dangerous requests for ships to sail close to Ukraine.
He said, “I don’t think there will be any drop in the number of legal cases” this year. Commercial spats are the latest indication of the rapid turnaround in fortunes for many shipping companies following recent global trade hits. Since the Russian invasion of Ukraine in February last year, trade sanctions have impacted an industry that supplies 90 percent of world goods and relies on good relations between countries.
The decline in global consumer spending has also affected the outlook of container shipping companies. These companies only recently achieved record profits when they were locked down during Covid-19, amid an online shopping boom as well as bottlenecks and congestion at ports which drove up shipping costs.
Kirsty McHardy, shipping lawyer at Stephenson Harwood said that the industry was so profitable in 2021, that companies were reluctant interrupting business to contest legal challenges by customers, such disputes over speed and performance of vessels. With profits falling, companies are more willing to contest claims for money.
MacHardy confirmed that Stephenson Harwood also received inquiries about refusing requests to sail into Russia. She added that many clients could not tear up contracts, and only a small fraction of cases reached arbitration because there is no blanket ban against trading with Russia.
Arbitration hearings are preferred by shipping companies to settle disputes, as they remain confidential.
HFW stated that it obtained its data from five of the leading arbitration centres, and organizations that represent arbitrators – professional adjudicators who are appointed to settle disputes.
The law firm stated that its analysis provided a “broad brush picture” of maritime arbitration cases as each organisation defined them differently. Some organisations only provided data on the whole transportation sector or commodities rather than just shipping, but these figures only made up about 5 percent of HFW’s total numbers for 2022.
Patrick Murphy, a shipping attorney at Clyde & Co., said that sanctions are likely to lead to more “frictional disputes” over contracts.
He added that the level of cases today did not compare with the period after the 2008 financial crash, when the industry “went into a freefall”. In 2008, the London Maritime Arbitrators Association received 2,058 cases, compared to 1,807 by 2022.