Poor risk allocation: how a maritime contract turns into a dispute

In maritime service contracts, terminal operating contracts, port concessions and contracts for strategic equipment, drafters sometimes believe that “transferring as much risk as possible to the contractor” best serves the employer. Yet according to the widely accepted Abrahamson principle and the governance standards of bodies such as the World Bank and BIMCO, managing legal risk is not the same as managing operational risk: each contractual risk should be allocated to the party best able to control, monitor or price it.

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1. Anatomy of the risks that cause crises at sea

An imbalance in the allocation of contractual risk leads directly to disputes in several core areas:

• Delay and performance standards: imposing heavy delay penalties on the contractor for bad weather, port congestion or slow action by public authorities, without provision for an allowable extension of time, creates financial fragility.
• Change in law: rapid changes in environmental standards (such as decarbonisation rules and new MARPOL and port authority requirements) are a systemic risk whose compliance costs should be shared fairly between the parties, rather than placed entirely on the operator.
• Force majeure and suspension: narrow and unrealistic definitions of emergencies, geopolitical events and blocked waterways prevent obligations from being performed and expose guarantees to unfair forfeiture.

2. The consequences of imposing uncontrollable risk: from falling quality to termination

When a risk beyond a party’s control and foresight is imposed on it, three consequences are unavoidable:

1. To contain the risk, the contractor builds a “heavy contingency margin” into its initial rates and the cost of the service rises.
2. When an unforeseen event occurs and the loss cannot be absorbed, service quality falls sharply or operations stop.
3. Once guarantees are called, amicable dispute resolution gives way to costly arbitration and court proceedings.

Three operational precautions for managers and senior decision-makers

Before finalising and signing any major maritime contract, the board and senior managers should check three principles:

1. Can the risk be controlled? Does the party that has accepted liability for the loss really have the operational tools, public powers or access to insurance needed to prevent and contain that risk?
2. Rebalancing mechanisms: if fundamental changes in law or economic conditions occur beyond the parties’ control, is there a transparent mechanism for renegotiation and rate adjustment?
3. Insurance and limitation of liability: do the contract’s insurance requirements and the caps set for losses from breach match the realities of the marine insurance market (P&I and H&M) and BIMCO practice?

Strategic conclusion

A sustainable maritime contract is not a text for trapping the other party in a crisis; it is a management tool for creating transparency, maintaining economic balance and keeping the transport chain running safely. Fair and considered risk allocation is the strongest legal protection against damaging commercial claims.