International upheaval disrupts export trade

THE US retaliation for last month’s terrorist attacks signal costly times ahead for WA exporters and could negate any benefits flowing from the low Australian dollar.

The current uncertainty along various sea-lanes, particularly in the Middle East, a major export destination for WA’s agricultural products, has caused shipping lines to warn of increases to both ship insurance and fuel costs.

Adding to the exporters’ dilemma is the cutback in airfreight cargo space available on passenger air-lines, as declining passenger num-bers have forced airlines to drop the number of flights.

“Because of the downturn in passenger travel the likes of Singapore Airlines have reduced their capacity for space,” said Chamber of Commerce and Industry international trade manager Keith Seed.

On the seas, shipping firms travelling through the Red Sea, the Mediterranean and the Persian Gulf will be most affected by the uncertain international situation.

Deacons Lawyers partner John Hewett advises companies exporting to make sure their contracts are written in a way that will protect them.

The inclusion of a “Force Majeure” clause into the sales contract is now more important than ever, Mr Hewett said.

“Any of your readers who have commercial interests in those areas need to scrutinise their contracts to make sure that they have a Force Majeure in place,” he said.

“People who are selling wheat to the Middle East, for example, need to ensure that they are protected.

“If this (con-flict) does esca-late to parts of the Middle East there is the potential for significant disruptions.”

A Force Majeure clause protects the party who has the responsibility of doing something against occurrences outside human control or acts of God.

It is not uncommon for a Force Majeure clause to come into play when a container falls off a ship’s deck, earthquakes damage wharves or cyclones break up a vessel. But it is less often used to protect against acts of war.

While it is still early days, Mr Hewett expects increased claims by exporters resulting from the Force Majeure clause.

“There will be a lag before we will see any claims but there may be a flurry of people who make claims on … Force Majeure agreements. It’s inevitable that there will be some, but to what degree will be determined by the extent of the conflict to come,” he said.

Mr Seed said shipping lines were starting to introduce things like war zones or possible war zones and insurance and fuel surcharges on top of the base freight charge, which were more difficult to change.

Under Part 10 of the Trade Practices Act, all outward shipping conferences and carriers with significant market influence are required to negotiate freight rates and service arrangements with representative shipper bodies.

This power rests with the Peak Shippers Body, the Australian Peak Shippers’ Association, and can be delegated to secondary shipper bodies, which represent particular groups of shippers, and which then have similar powers and limited exemptions from the provisions of the Act to negotiate and enter into loyalty agreements.

In WA, this power has been conferred on the Western Australian Shippers’ Council.

Shipping companies often work together and maintain similar rates. Every time a shipping company wants to increase revenue, it is obliged to negotiate any rate changes and minimum service levels and conditions.

“Part 10 of the Trade Practices Act allows shippers to act as a consortium where the shipping lines can charge the same rate,” Mr Seed said.

“They (the shipping companies) have to make a strong case for why they want to increase their rates. There has to be a good reason to increase charges. For the past two or three years, shippers (the exporters) have enjoyed fairly good rates.”

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