Indian exporters revisit pacts amid disruption at high sea

Indian exporters, particularly those exporting to Europe and northern or eastern African countries are reaching out to lawyers to revisit their contracts and agreements in the wake of recent attacks on merchant ships by Houthi rebels in the Red Sea and Somali pirates in the Indian Ocean.

Exporters and shipping companies are revisiting clauses that deal with grounds of termination, indemnifications, limitations of liabilities and damages, carve-outs about any losses, delays, claims, defaults etc. arising due to such unforeseen events introduced to safeguard the interest of the exporters and shipping companies. Exporters have also sought lawyers' help to strengthen the 'force majeure' clauses.

The developments have hurt India's exports, especially of low-value products such as agriculture products and textiles with European countries, feel lawyers. Rerouting the shipments through the Cape of Good Hope (South Africa) is likely to increase the prices of Indian exports and this unprecedented crisis has forced companies to approach lawyers to revisit the shipping and charter-party contracts.

"We have noticed that many of the Indian buyers and sellers are looking to minimise their risks by contracting on DAP (delivered at place) and FOB (free on board) terms, respectively," said Zarir Bharucha, managing partner of law firm ZBA. "These terms are being insisted on by Indian traders obviously to mitigate marine risks, which have seen a sharp rise due to the recent crisis in the Red Sea and sudden re-emergence of pirate attacks in the Indian Ocean," added Bharucha.

Under a DAP contract, the seller bears the risk/liability of loss of cargo until the same is delivered at the port of discharge thereby insulating the buyer from any risks during transportation. Similarly, under an FOB contract, the buyer bears the risk/liability of loss of cargo as soon as the cargo is loaded on a vessel by the seller, thereby entitling the seller to payment as soon as the cargo is loaded on a ship for transportation.

The Red Sea route is crucial for India's trade with Europe, as about 80% of trade with Europe passes through the Red Sea. According to data provided by the Federation of Indian Export Organisations, India's exports to Europe constituted 16.6% of its total exports, in value terms, at $74.84 billion in 2022-23.

Sameer Tapia, founder of law firm ALMT Legal, said clients in the maritime industry are concerned not only about their contractual obligations but also about the safety and security of their employees on the vessel.

"They are engaging in discussions with banks and insurance companies to renegotiate the terms of financing/credit facilities (which includes letter of credit facilities), and insurance as the same are also likely to be impacted due to the rerouting of the shipping vessels through Cape of Good Hope," said Tapia, a veteran shipping and maritime lawer.

"Due to the present geopolitical crisis in the Red Sea, the insurance premium has escalated by as much as 1%. Insurance companies are also increasingly seeking help from governments across the world to intervene and help the situation," he said.

The Red Sea crisis has significantly impacted the operations of container shipping lines, which have had to discontinue their services over the Suez Canal and reroute their sailings over the Cape of Good Hope. This has not only led to extended transit times but also the rescheduling of their services with the inclusion of different ports of call and transshipment ports.

"Every year, during April/May, fresh contracts are signed between the exporters/importers and the shipping lines," said Sunil Vaswani, executive director of Container Shipping Lines Association (India), which represents foreign container shipping lines operating in India.