Since late 2023, the Yemen-based, Iran-backed Houthi rebel group has attacked dozens of commercial ships in the Red Sea, with no signs of slowing down. The unrest in the region threatens to impact supply chains and increase consumer prices. As activities in the Red Sea develop, appropriate precautions should be made to anticipate the instability in the region.

Ship Owner and Charterparty Considerations

Charterparty issues can arise for both Owners and Charterers. Resolution of such issues can be avoided by a careful inspection of charterparty terms. Questions as to whether Owners can refuse Charterers’ instructions to transit the Red Sea and whether Charterers can place the vessel off-hire or claim damages if Owners deviate the vessel via alternative routes requires individual analysis.

Since standard clauses are often amended, it is impossible to provide a “one-size-fits- all” answer to the main issues that arise from charterparties requiring transit through the Red Sea. Clearly, the specific wording of any force majeure clause will have a significant impact on the analysis in any given case. Generally, however, the test for determining whether Owners should or can refuse to proceed, is based on whether an area is dangerous. Owners must provide evidence that an area may be dangerous, or can become dangerous to the vessel, cargo, or crew. Owners, in order to establish that a decision has been made in the “reasonable judgment” of the Master or Owner, must carry out individual and contemporaneous risk assessments ahead of making a decision to invoke charterparty provisions, refuse to follow Charterers’ orders, cancel a charter, or deviate. Every charterparty must also be assessed for Charterers’ and Owners’ rights and responsibilities when “war risks” occur. As potential disputes arise, an assessment of outcome should also consider vessel ownership, trading patterns, security risks at the relevant time, and commercial considerations.

Flag State Perspectives

Flag states enforce international obligations everywhere and exclusively on the high seas over their vessels. International law contemplates the use of force by U.S. forces in peacetime to protect U.S.-flagged and foreign-flagged vessels at sea from unlawful acts of violence. See The Commander’s Handbook on the Law of Naval Operations, COMDTPUB P5800.7A (2022), § 3.10. The doctrine of self-defense provides U.S. forces authority to use proportionate force needed to protect U.S.-flagged vessels, U.S. nationals, and their property against unlawful acts of violence beyond foreign territorial seas. Id. at § 3.10.1. Similarly, collective self-defense authorizes U.S. forces to use proportional force necessary to protect foreign-flagged vessels, foreign nationals, and their property from unlawful violence (including terrorism and piracy) at sea when requested by the flag state, as well as in cases where the necessity to act immediately to save human life does not allow time to obtain flag state consent. Id.

With the evolving activities in the Red Sea, shipowners should reflect on obligations of the flag state but make individual assessments in evaluating the risks to their ships and not rely solely on flag state protections.

P&I Coverage

Protection and indemnity (“P&I”) coverage is not prejudiced solely by a decision to continue a voyage through the Red Sea. The additional risks created by the hostilities and attacks will likely fall to war risk insurance. If the primary layer of this cover is not placed, it is important that P&I club members speak to their war risks underwriters. A decision to re-route a vessel to avoid the Red Sea may, however, have serious P&I implications as this may be considered an unjustified deviation which potentially engages an exclusion to cover. Any decision to deviate should first be discussed with the Club. The impact on cover, and whether special insurance needs to be arranged, is assessed on a case-by-case basis. Those planning a new voyage through the Red Sea should consider including an appropriate liberty provision in their contract of carriage entitling them to re-route to avoid the area.

Other Considerations

After the Houthi forces hijacked a car carrier on November 19, 2023, further attacks by armed skiffs, drones, and anti-ship missiles have occurred. Information related to vessels involved in more recent attacks did not indicate any immediate affiliation with Israel, Israeli nationals, or links to the conflict. Ships should maintain a heightened awareness for potential collateral damage when transiting the region.

Ships with automatic identification system (“AIS”) switched on and off have been attacked. Switching off AIS makes it slightly more difficult to track a ship but can also hinder the ability for others to provide support or direct contact. International Maritime Organization (“IMO”) guidance outlines “[i]f the master believes that the continual operation of AIS might compromise the safety and security of his/her ship or where security incidents are imminent, the AIS may be switched off.” See IMO Resolution A. 1106 (29). Limiting the information in AIS data fields or switching off AIS could make a ship harder to locate but it is unlikely to ultimately prevent an attack. Limiting AIS data to the mandatory fields and omitting the next port of call could also be considered.

Conclusion

The situation in the Red Sea is fast evolving and unpredictable. Ship owners, operators, managers, and staff should regularly evaluate the risks to their ships, including navigation and collision avoidance, and plan routes accordingly. Further, experienced counsel can assist in the evaluation of Charterers’ and Owners’ rights and responsibilities, P&I coverage, and evaluation of flag state responsibilities, and provide legal assistance in navigating published guidance on the unrest in the Red Sea.