COVID-19 Restrictions (From Zero Policy to Opening Up) in China and Demurrage Uncertainty

The COVID-19 pandemic has had far-reaching effects on shipping markets and upended global supply chains. The resultant delays and increased costs have been well-publicized, yet the full impact and allocation of those costs can be uncertain. Vessels calling ports on the Yangtze River have faced unprecedented delays as a result of COVID-19 restrictions and the resultant demurrage liability can be imprecise and murky. 

In August 2021, Chinese authorities instituted a “closed loop” policy for pilots on the Yangtze River in an effort to curb the spread of COVID-19. Pilots were restricted to work for 14 days followed by a 7 day “insulation” period followed by 7 days of rest. This policy remained in effect until July 2022 wherein the restrictions were eased to 7 days working followed by 7 days insulation. In effect, these restrictions reduced the availability of pilots to 50% of pre-COVID capacity. Retired pilots have been re-introduced to the workforce in an effort to mitigate the resultant shortage, but that has done little to curb the distressing effects of delays on ships calling Yangtze River ports.

As expected, demurrage claims for voyages on the Yangtze have hit historic highs as compared the pre-COVID era. For Owners and Charterers with COAs that include Yangtze River Ports, overall claims have seen multi-million dollar increases on individual trade lanes. When vessels arrive at CJK for calls to upriver ports, they are often met with a long queue of ships waiting to call the same berth. As such, waiting time for ports like Jiangyin have seen 400%+ increases over the pre-COVID era. The below chart shows the increase in waiting time for a single COA from 2019 compared to 2022: 

Owners and Charterers have attempted to mitigate the losses for COVID - related delays by inserting new pandemic clauses in COAs and CPs. Typically these clauses will split any delays due to COVID related measures “ordered by relevant authorities” at 50/50 between the parties. However, in instances like the pilot shortage on the Yangtze, the delays can can be difficult to quantify or even identify. 

With laytime being a series of stops and starts it is easy to quantify a deduction when there is a set period of delay that falls under an exception in the CP (i.e. weather delays, customs, night restrictions, etc.). However with the situation in China, it often manifests as a series of vagaries that do not result in clear quantifiable delays. For example, when a vessel arrives at a Yangtze port, there are often several ships ahead in queue that can occupy the berth for several days or even weeks before the vessel can berth. As the operational details for these ships ahead are typically not available, it becomes difficult to distinguish any of the traditional “stop/start” delays that may be related to COVID measures. Without a detailed accounting of what may be causing delays to all vessels, the resultant picture is often of general congestion versus the effects of government imposed COVID restrictions.

Due to these uncertainties, there appears to be a distinction between what is likely happening and what is supported by contract law. Have the Yangtze River pilot restrictions caused excessive delays in berthing? Most likely yes. Is there a definitive way to quantify these deductions in a laytime calculation? Most likely no. As indicated, demurrage claims for COA partners have increased exponentially wherein Owners seek to recover weeks lost on a voyage and Charterers struggle with identifying delays deductible under COVID clauses. These diverging interests have resulted in a backlog of demurrage claims and a threat of escalation to legal collections.

The potential demurrage-causing events extend beyond pilots. Agents, surveyors, truck drivers, rail personnel and other frontline works are also impacted by COVID restrictions that can results in delays alongside the berth. Without having these issues encapsulated in a  statement of facts, the ability to decipher what is a “normal” delay and what is related to COVID measures can be indistinguishable. Ideally Charterers want to include cargo delays due to road and rail transportation impacts under the umbrella of “delays due to COVID related measures ordered by relevant authorities”. However the problem of how to identify these delays under the traditional “stop/start” demurrage calculation  method remains the same; i.e. the delays are likely caused by COVID measures but how can it be quantified?

The solution likely exists within commercial |agreements that extend beyond the traditional tete-a-tete between demurrage departments and an escalation to discussions at the management level. It will take a recognition by Owners that these delays do exist and an acknowledgement by Charterers that every delay is not necessarily a COVID delay. As with most issues, the solution rests within compromise and the first step towards resolution is acknowledgement of the problem and a willingness to understand the opposing viewpoint.