Some insights here from Shaan Burton, Partner at Kennedys, on the impact of the conflict and Hormuz blockades on global supply chains:
Introduction
Recent escalation in the conflict continues to place pressure on global supply chains. Commercial container shipping has been targeted and, in response, several shipping lines are adjusting operations by terminating transits early, diverting cargo to alternative “safe” ports and applying additional charges for onward transit. These operational responses are contributing to congestion, delay, increased insurance costs, and growing pressure on contractual performance across supply chains.
Shipping lines and cargo movement
Many shipping lines will be relying on Bill of Lading terms which will more often than not contain contractual liberties permitting route changes or early termination in defined circumstances. Where transits are terminated, shipping lines are charging additional fees for discharge operations or to move cargo to alternative ports.
Many shipping lines will be relying on Bill of Lading terms which will more often than not contain contractual liberties permitting route changes or early termination in defined circumstances. Where transits are terminated, shipping lines are charging additional fees for discharge operations or to move cargo to alternative ports.
Market reporting has referenced possible transit toll demands (with figures cited as much as USD 2 million per vessel), adding a further cost and compliance dimension. Coupled with maritime enforcement measures, this creates additional operational uncertainty for shipowners and cargo interests deciding whether, how and on what terms cargo can move through the region.
Congestion at alternative ports remains a key issue, exacerbating delay and giving rise to practical challenges around cargo handling and care, particularly for refrigerated cargo where terminal capacity and monitoring are critical. There is significant disruption with cargo in the wrong place at the wrong time with no easy, or cost effective, solution to get cargo back on track.
Insurance implications for cargo and transit
Where a carrier terminates a transit, this will have far reaching effects as to whether cover terminates under insurance policies. Clause 5 of the Institute Cargo Clauses (War) contains complex provisions governing when an insured transit terminates and when cover may reattach (which is subject to notice requirements and often a payment of an additional premium).
While ICC(A) can include cover for on‑forwarding costs, this is typically available only where there has been an insured peril. If cargo arrives intact but late or rerouted, there may be no insured peril on the basis that delay remains excluded. This will inevitably leave many insureds exposed to uninsured losses.
Wider supply chain impacts
Operational disruption is feeding into broader supply chain pressure. Increased freight rates, surcharges and energy costs are making cargo movement more expensive. The real question is who bears those additional costs. The supply chain is already considerably strained and it is questionable as to whether the supply chain has the resilience to withstand any further disruption.
Journey times have increased significantly, particularly where routes are diverted to avoid high‑risk areas. Routing around the Cape of Good Hope can add at least two weeks to transit times.
Logistics costs are reported to be up by around 30%, with potential gaps in the supply of energy and raw materials, placing pressure on fuel‑dependent sectors such as motor and manufacturing.
Commercial and contractual considerations
There may be renewed focus on stockpiling goods which increases warehousing risks where companies are warehousing greater stock levels than what they ordinarily would. Stock levels may start to exceed policy location limits and could give rise to significant uninsured losses.
Suppliers may also need to consider the impact of disruption on customer contracts where there are contractual delay penalties (which are often uninsured). Where delays or the inability to perform become more likely, businesses should consider renegotiating contractual terms. Force majeure and frustration provisions may also come into focus, noting that force majeure is a contractual right under English law and increased costs alone does not necessarily constitute a force majeure event.
Comment
Developments around tolls, blockades, and political negotiations highlight how quickly geopolitical risk can translate into operational and commercial disruption. For insureds, this means managing rising costs, delays, and breach of contractual terms. For insurers, it means anticipating claims patterns, dispute frequency and scrutiny of policy terms.
The supply chain has had its fair share of disruption in recent years yet it has managed to adapt and deliver through the toughest of environments. The supply chain has endured and survived Brexit, COVID, the cost of living crisis and the Ukraine war. The Iran conflict is yet another challenge and one that the industry will need to put in measures to ensure the movement of cargo continues for another day. The market has indicated towards a move of ‘just in case’ rather than ‘just in time’ in an attempt to have a sustainable buffer to supply chain disruption.
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