Houthi rebel attacks on cargo ships in the Red Sea have caused major supply chain disruptions since the attacks began in November 2023. To date, there have been at least 80 incidents in the area, many of which involve private container ships carrying goods to Europe, the United States and other destinations around the world. These incidents have caused not only disruptions in the global supply chain, but also a host of legal issues.
The Red Sea Is One of the World’s Most Important Shipping Channels
The Red Sea provides access to the southern entrance to the Suez Canal and is one of the main trade routes between Asia, the Middle East and Europe. About 12% of global trade passes through the Red Sea, including up to 30% of the world’s container traffic, amounting to approximately $1 trillion worth of goods annually.
The Houthi attacks have caused a precipitous drop in container traffic through the region, as shipping giants A.P. Moller-Maersk, Hapag-Lloyd and others began rerouting container ships south around the Cape of Good Hope. By some estimates, the number of containers traveling through the Red Sea has already dropped by two-thirds. These diversions have also extended voyages by some 3,500 nautical miles and increased shipping times by at least 14 days.
Not surprisingly, the rise in costs associated with these changes has been profound. A ship bound for northern Europe traveling around the Cape of Good Hope will likely incur an additional $1 million in fuel costs compared to traveling through the Red Sea. The longer voyages — up to 25 days longer in some cases — also mean sharply increased personnel costs to staff the vessels. Other costs, including marine war risk premiums, as just one example, have skyrocketed. As a result, carriers have increased per-container rates to their highest levels since the record prices seen in 2021 at the height of the pandemic.
Legal Issues Arising from the Red Sea Crisis
According to some experts, these disruptions to the supply chain could last well into the summer and possibly through fall. As the issues in the Red Sea continue, they will trigger legal disputes between various players in the supply chain, primarily ocean carriers, shippers, and shippers’ customers. Here are just a few:
- The invocation of force majeure clauses: Force majeure clauses serve to relieve a party from its non-performance of a contract based for reasons beyond the party’s control. The most common events contained in force majeure clauses include civil unrest, strikes, “Acts of God,” war and the like. The Houthi attacks in the Red Sea have already caused some ocean carriers — most notably, Hapag-Lloyd — to invoke the force majeure clauses of their contracts as a way of warding off potential breach-of-contract claims by its customers. Legal disputes over the interpretation and enforcement of these provisions are likely to result as the disruption in the Red Sea continues.
- Disputes over detention and demurrage charges: Congestion at ports is expected to significantly increase fees associated with delays and storage, known as detention and demurrage charges. Ports have only a finite number of berths, each designed to accommodate specific vessel sizes. Berths are reserved weeks or months in advance to ensure port-side support for unloading, reloading and refueling. Further, the schedules for transporting containers and other cargo from the port are tightly coordinated with these port assignments. When vessels are forced to deviate from their planned courses or choose alternate paths, the resulting holdups lead to a cascading impact on port operations — containers begin to accumulate at the port as they await further transport. This, in turn, causes detention and demurrage charges to accrue, which can total tens of thousands of dollars, depending on the length of the delay. We expect to see disputes over these charges escalate as the Red Sea crisis continues.
- Contract disputes caused by delays in getting goods to market: The delays caused by rerouting vessels around the Cape of Good Hope is expected to affect a slew of industries. Furniture, household goods, apparel and oil are just some of the goods that typically travel through the Red Sea on their way to Europe, the U.S. and beyond. As these delays take place, disputes will necessarily arise between shippers — manufacturers, for example — and their customers, who will struggle to meet the demands of their own customers for these goods.
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Julie Maurer is a Phoenix-based partner with the law firm Husch Blackwell LLP. She practices in the Supply Chain Logistics group of the firm’s Transportation industry team. |
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Aaron Schepler is an attorney in Husch Blackwell’s Phoenix office. He is a member of the firm’s Supply Chain Logistics group. |
