Shipping likely to face restrictions, disruption from Chinese coronavirus outbreak

An advisory from London law firm Hill Dickinson’s shipping law team said the outbreak and subsequent rapid spread of coronavirus 2019-nCoV, also known as Wuhan coronavirus, means the maritime industry may face similar restrictions to those that came about during previous viral contagion threats.

“While this outbreak is not currently anticipated to cause the global complications experienced by the Ebola and Sars outbreaks, it is wise for ship operators and charterers to be prepared for any greater spread of this virus,” Hill Dickinson partner Beth Bradley said in the advisory.

Issues may extend from infection of crew members to quarantine measures, closure of ports, and possible repercussions on charterparty obligations, Ms Bradley said. Delays caused by quarantines and deviations could leave charterparties facing a variety of claims under employment contracts between crew and employers.

Under time charters, when a vessel is delayed by a quarantine or is forced to deviate due to an infected crew member, the vessel may be placed off-hire. This is subject to the wording of the charter, the law firm’s advisory noted.

In the case of voyage charters, deviations for the safety of the crew will be at the shipowner’s expense as no additional freight may be payable unless shipowners can show the deviation was a “reasonable deviation” under the Hague or Hague-Visby Rules. The rules are a mandatory framework of rights and obligations that apply to the carriage of goods by sea.

Charterparties need to consider when and where they would potentially tender a valid Notice of Readiness (NOR), according to Hill Dickinson. And charterers are under an obligation to nominate a safe port, an order with which shipowners must comply unless there is an unacceptable risk or the port is known to be unsafe.

Risks can cover both damage to the vessel and danger to crew welfare. A contagious disease may legally make a port unsafe, the law firm said, and the safety of a port depends greatly on whether precautions and protective measures are in place to ensure that a vessel can call at the port without risking infection of its crew. Such measures have been in place in prior outbreaks, with affected ports being able to continue operations.

Impact on tanker markets

According to a briefing from consultancy Poten & Partners, the Wuhan coronavirus’ effect on the tanker market will depend on the speed with which it spreads, how contagious and lethal the virus is, as well as the speed and effectiveness of the response of the Chinese Government and the WHO.

Analysts used the 2003 Severe Acute Respiratory Syndrome (SARS) epidemic, another coronavirus that originated in China and spread to more than two dozen countries, as a guideline for the potential impact of the Wuhan coronavirus’ outbreak on the global economy and oil markets.

According to the report, the main differences between the impact of the 2003 and 2020 coronavirus outbreaks rests with the scale of Asian economies and the increase in energy demand that has occurred over the course of nearly two decades. In 2003, China’s oil demand was about 5.8 Mb/d, compared to 13.6 Mb/d in 2019. China’s net oil imports in 2003 were less than 2 Mb/d. Today, China is the world’s largest importer of oil by some distance.

Any impact from the virus on oil demand from Asia and the ripple effects through the tanker market are likely to be far more significant than in previous outbreaks, the report said. During the 2003 SARS outbreak, oil prices were pushed down nearly 20%. Goldman Sachs used the SARS outbreak as a reference case to predict a fall in oil prices by US$3 per barrel in the near-term.

As reports of the the virus’ spread outside China have picked up, the oil market has begun trading down. While the tanker market remains strong, rates have started to weaken in recent days, the report said.
"The SARS epidemic in 2003 pushed oil prices down nearly 20% and created significant fear and uncertainty. More than 8,000 people were infected, resulting in 774 deaths in 37 countries. However, the fear ultimately subsided as the pace of new reported cases slowed. The recovery of economic activity and oil demand was swift and strong. If the current crisis follows a similar pattern, we may see short-term headwinds followed by a strong rebound later this year."