U.S.-Iran Ceasefire Remains Fragile; Carriers Plan July Bunker and Surcharge Adjustments

The Analysis

The ceasefire is in force. That sentence is doing more work than most of the people reading it have agreed to. Strictly speaking, a ceasefire is an arrangement that suspends hostilities between the parties to it. It is not a peace, it does not dispose of the underlying dispute, and it does not bind anyone who is not a party. The reported attack on a commercial vessel, and the retaliatory strikes that followed it, illustrate the point without resolving it: an event can occur, and it can remain genuinely unclear whether anything has been breached.

The second distinction is the one that costs money. What a carrier does on 1 July is a price act, not a legal consequence of the security situation. A bunker fuel adjustment and an additional peak season surcharge, both dated, both issued under a tariff and a pricing clause. A date in a tariff is a contractual trigger. A ceasefire is a factual condition. They are read under different instruments, by different people, for different purposes, and they do not move together no matter how much the headlines imply that they should.

I am not going to say whether anyone should move cargo forward, hold it, or wait. That is a commercial judgment, it depends on facts I do not have, and it is not the kind of question that a reading of the instruments can settle. What I can set out is which instrument governs which question, where the conditions actually bite, and which of the questions now being argued in public have a determinate answer. Several of them do. Several do not, and knowing which is which is most of the work.

Begin with the arrangement itself, because almost every downstream argument inherits its ambiguity. A ceasefire typically specifies the parties, a duration, a geographic scope, a set of prohibited acts, and a mechanism for reporting violations. Whether a given incident is a breach turns on those terms, and not on how serious the incident felt. It is entirely possible for an incident to be, at the same time, not a breach by any party to the arrangement and a material deterioration in the risk that commercial instruments were written to allocate. Those are different questions asked by different instruments, and the fact that they can be answered differently in the same week is not a contradiction. It is what happens when a factual condition is mistaken for a legal instrument.

The timing has two clocks and they are not synchronised. The pricing clock is calendrical: a carrier's tariff resets on dates, and 1 July is one of those dates. The security clock is event-driven: it moves when something happens, in either direction, without notice and without regard to anyone's contract cycle. A bunker adjustment is payable because it was published and because the pricing clause admits it, not because the strait is dangerous. That has a consequence people resist. In the best case, where incidents stop and the arrangement holds, the adjustment is still payable. It was never contingent on the risk. The only way it becomes contingent is if the contract makes it so, and that is a drafting question rather than a geopolitical one.

The documents in front of most shippers contain more than one clause that could be pressed into service here, and the clauses do different things. There is a force majeure clause, which excuses non-performance. There is, sometimes, a hardship clause, which reopens price. There is a war risk clause, which allocates a defined set of perils. There is a liberty to deviate, or a route clause, which determines whether a longer voyage is performance or breach. There is a sanctions and export control clause. There is a pricing and surcharge clause. There is a unilateral variation clause, which is usually the one that decides the argument. And there is a notice and claims clause, which decides whether any of the others can be relied on at all. Reading these as a single war risk provision is the most common error I encounter, and it is an expensive one, because the consequences diverge sharply.

Take force majeure first, since it is the clause everyone reaches for. Its trigger is whatever the clause says it is, which is often wider than people assume and narrower than they hope. Even on a wide trigger, the party invoking it normally has to establish the event, the impediment to performance, the causal link between the two, and that the impediment could not reasonably have been overcome. That last element is where most claims on a shipping corridor fail. Performance by a longer route at higher cost is generally not prevented, it is made more expensive, and a clause that excuses prevention does not excuse expense.

The extra cost then lands wherever the contract puts it. The exception worth checking is a contract that names a route, or names a passage, as a condition of performance. Where the route is a term rather than a preference, the analysis changes, and it changes because of a drafting choice made years earlier by someone who was not thinking about any of this.

Frustration and hardship are not substitutes for force majeure, and neither is a general power to rebalance a contract that has become uncomfortable. Frustration is narrow, it terminates rather than adjusts, and it is granted sparingly. Hardship exists only if it was written in, and even then it usually obliges the parties to renegotiate rather than entitles either of them to a new price. The three outcomes are different in kind: excuse, adjustment, termination. A party that pleads the wrong one has not made a weaker argument. It has made an argument the instrument does not contain.

Burden follows assertion. Whoever says the clause applies carries the evidential load, and the evidence is unglamorous: the notice as given, the date it was given, the timeline, and the record of what was done to mitigate. Notice periods in these clauses are short, and they are frequently conditions precedent rather than formalities, which means a good claim served late is not a good claim. I have watched a defensible position become an indefensible one over four days of internal routing, and no amount of subsequent explanation repairs it.

Insurance and contract are separate systems and they answer different questions. A war risk policy responds under its own terms, its own zones, its own exclusions and its own notice requirements. The contract responds under the clause set the parties agreed. A paid claim does not discharge a contractual obligation, and a declined claim does not create one. Treating an insurance recovery as evidence about liability is a category error that appears in more files than it should. The two systems can reach opposite conclusions about the same voyage and both can be right, because they were never answering the same question.

Deviation deserves its own paragraph, because it is where the label misleads. Where the contract confers a liberty to deviate, a longer routing is performance of the contract and the cost consequence is allocated by the pricing clause. Where it does not, a deviation may be a breach, but the ordinary remedy is damages measured by the difference between the contracted and the performed voyage, not release from the contract. The distinction between a breach that sounds in damages and an event that excuses performance is the whole of the argument, and it is routinely collapsed in the correspondence I see, usually by the party that would prefer the second answer.

Now the clause that actually decides the July question. Two drafting patterns exist and they behave differently. Under an all-in rate the carrier absorbs its own cost movements and the surcharge argument is short. Under a base rate plus applicable surcharges as published from time to time, the adjustment is contractually automatic, and the arguments that remain are narrow: that the item was not validly published, that notice was not given in the form the clause requires, that the item exceeds a cap the contract imposes, or that a variation clause imposes a standard the adjustment failed to meet. Where a variation clause applies, the review is usually deferential. The question is not whether the carrier made a wise decision, it is whether the decision fell within the power the clause conferred. That is a much lower bar than most shippers expect on first reading, and it is the reason the drafting pattern matters more than the number on the tariff.

Tariff changes are a separate track and I want to be careful here. A change in duty is a matter of customs law and executive action; whether it passes through to a buyer depends on the trade term and on the wording of the price clause, which is a contract question. Whether such a change is a change in law within the meaning of a change in law clause is also a contract question, and it is answerable by reading the clause. What I am not going to do is read anyone's classification or say how anything should be declared. That is a different discipline, it turns on facts specific to each consignment, and a general article is the worst possible place to get it wrong.

Front-loading is not a legal act and I will not treat it as one. It does have a legal face, though, and it is easy to miss. Moving performance earlier changes dates, and dates are conditions in more obligations than people count: delivery windows, price validity periods, notice periods, and the periods attached to documentary obligations. A decision taken to manage a risk on one axis moves several dates on another axis, and those dates are contractual and are usually enforceable against the party that let them pass. I am describing a mechanism, not endorsing a decision. Whether the trade is worth making is not a question the instruments can answer.

Who can invoke any of this is a question about privity, and it is answered before anyone reaches the merits. Under a CIF or similar term the cargo interest is often not the party holding the contract of carriage, so the person carrying the commercial exposure may not be the person with standing to invoke the clause. Under FOB the allocation moves again. Within the same trade, a large shipper with a negotiated service contract and a smaller shipper on the carrier's standard bill of lading terms are not in the same legal position at all, because the standard terms are adhesive: the clause set is not negotiable, the variation power is broad, and the notice provisions were drafted by the other side. That asymmetry is structural, and it does not soften when the news gets worse.

Lane analysis is where I would push back hardest on the way this is being discussed. Asia-Europe and transpacific services do not transit the strait. Their exposure to it is indirect, through fuel cost and through insurance capacity, and possibly through network effects if tonnage is repositioned. That matters legally. An indirect cost exposure is a weak foundation for an argument that performance was prevented, and a strong foundation for an argument that the pricing clause applies. The same event therefore produces a weak force majeure case and a strong surcharge case on the same lane in the same week, and the two arguments are advanced by opposite parties. Anyone who has read only one of them will conclude that the other is being unreasonable.

The timescales do not match either, and this is the structural point I would put above all the others. Price acts run on a quarterly or contractual rhythm. The clause architecture runs on the renewal cycle, which for most shippers is annual. Which means the legal position available on 1 July was fixed at the last renewal, in a negotiation conducted under different conditions, by people who were not thinking about a fragile ceasefire. Nothing done in July amends it. The clause set can be read in July; it can only be changed at the next renewal, and whether that is worth doing is a commercial question I am not answering.

Consider the case where the arrangement holds and incidents stay contained. The security condition improves. The July items do not thereby become unlawful, because their validity never depended on the condition. Unless the contract contains a reconciliation or true-up mechanism, no part of an adjustment already levied comes back, and the argument that the risk abated is not a defence to a validly published charge. The interesting question in that scenario is not the surcharge but the precedent. A clause set that permitted this adjustment once will permit the next one, and the next one will arrive without a ceasefire to argue about.

Consider the other case, where something closes the corridor. A large number of notices will be served, most of them within days of each other, and they will be decided on the same four elements: the event, the impediment, the causation, and the possibility of overcoming it. The parties in a strong position will be the ones with a contemporaneous record and a notice served inside the period. Here is the exception that cuts against the obvious reading. Many clauses exclude events that were foreseeable at the time of contracting. A ceasefire widely described as fragile is, on its face, a foreseeable state of affairs, and that cuts both ways. It weakens the argument that a closure was unforeseeable, and it also weakens the argument that the arrangement was a stable baseline against which the contract was priced.

The point the coverage is not making is that the instrument which determines the money in this episode is not the ceasefire. It is the tariff publication. Every question about the July items reduces, in the end, to whether they were validly published and whether notice was given in the form the contract requires. A validly published adjustment is payable in a calm week and in a dangerous one. An invalidly published one is arguable even when everything else is going badly. The public argument is about whether the arrangement holds. The contractual argument is about a publication date and a notice letter, and only one of those two arguments is capable of being answered with certainty this month.

The second omission is that the same event is being treated as one risk when it is at least two, and they point in opposite directions. As a cost event it triggers a pricing clause and produces a charge that is payable. As an impediment event it may trigger an excuse and produce a release from performance. The first is decided against the party paying freight. The second is decided in that party's favour if it can be established, which is a large qualification. An organisation that responds to a single unified risk will respond with a single instrument, and a single instrument will be wrong on one of the two. That is not a failure of diligence. It is a failure to notice that the documents contain two mechanisms with opposite effects.

There is a third omission and it is quieter. Every clause discussed here allocates a risk between two parties, and the allocation is only as good as the other side's ability to carry it. A war risk allocation that places a large exposure on a counterparty with thin capital is a legal right and a commercial illusion. I am not drawing a legal conclusion from that; it is an observation about what these clauses are for, which is to move a loss onto someone who can bear it. Where the loss is large relative to the counterparty, the clause moves the loss nowhere and the dispute simply takes longer to resolve.

The drafting asymmetry deserves one more turn. The shipper who negotiated a service contract has, in principle, negotiated the clause set, and the record of that negotiation is the best evidence of what the parties intended. The shipper on standard terms has no such record, and the standard terms will typically contain a broad liberty, a broad variation power and a short notice period. When the two kinds of shipper read the same news, they are not reading the same contract. Any general statement about what the industry's contracts provide is therefore either true of the negotiated layer or true of the adhesive layer, and almost never true of both. I would be suspicious of anyone who states it without saying which one they mean.

One layer I am deliberately not developing is the status of the passage itself in the law of the sea. There is a transit passage regime, and there are real questions about what it permits and what it does not, and those questions are genuinely interesting. They are also the layer least likely to decide a commercial dispute between a shipper and a carrier, because the disputes that reach arbitration are about who pays, and that is settled by the contract long before anyone reaches the question of passage rights. I would rather say that plainly than cite an instrument by number and get it wrong, which is a failure mode that reads as authority and is considerably worse than silence.

Two questions now being asked have determinate answers this month, and two do not. Whether the July items were published and notified in accordance with the pricing clause is determinate: it is a documentary question with a yes or a no. Which party bears the cost of a diversion under a given contract is determinate: it is a reading of the clause. Whether a closure would excuse performance is not determinate, because it depends on facts that have not happened. Whether the arrangement will hold is not a legal question at all, and the people answering it most confidently are the ones with the least exposure to being wrong.

The question I would leave open is not whether the ceasefire holds. It is whether the documents signed last year were drafted for a world in which a fragile arrangement is the normal condition rather than the exception. Most of them were not, and that is visible in the number of clause sets that address a closure while saying nothing about a corridor that is open, dangerous, and priced as though it were neither. The instrument that can address it is the next renewal. Whether to use it is not my call, and I would not pretend that reading a contract in July is a substitute for having negotiated it in January.

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— By Dr. Ingrid Voss