Maritime Contract Management: Reduce Risk Exposure

Take a deep dive into your maritime contract

The management of contracts is handled by the procurement, legal and sales department. Even the terms & conditions are well analysed, but the load of obligations is often overlooked or underestimated. 

Although maritime experts have reviewed the contract multiple times, the challenge lies in fully realizing how many requirements must be met. For example, in a maritime contract of 100 pages, the words ‘shall’ or ‘must’ are used between 500 and 1000 times concerning the contractor. To avoid any discrepancy, this can be handled by a digital solution.

These are essential requirements you need to fulfil throughout the contract execution. Failure to comply may result in disputes or even maritime arbitration.

Challenges in the Shipping and Trade Transactions:

Shipping and trade transactions involve significant value and occur rapidly, often with multiple parties operating across various jurisdictions. Hence, transactions have to be well-documented through formal contracts to ensure clarity, legal compliance, and a mutual understanding of obligations among involved parties.

Failure of ineffective contract management can impact the business which can lead to disputes which can result in disagreement years after the agreement has been signed. 

Why Proper Contract Management Is Important? 

Apart from careful drafting, timely and thorough contract management is essential in the shipping and trade industry. This involves timely negotiation and drafting of contracts, proper storage (whether digital or physical), sharing fully executed contracts with relevant parties, monitoring contract expiration dates, creating standardized agreement templates, and developing company-specific contract guidelines. Effective contract management guarantees compliance, reduces breaches, and facilitates seizing opportunities.

1. Consider a situation where a Crew Management Agreement expires and an extension is signed three months later. During this gap, the absence of an active contract could lead to serious compliance issues. Effective contract management systems with clear reminders of expiry dates can prevent such complications.
2. While general contract law principles apply to shipping contracts, the industry’s unique nature requires a specialized understanding of its terms, transactions, and agreements. Collaboration between the shipping and legal sectors becomes crucial. Hence, we offer support to the shipping industry in contract management, recognizing the importance of an industry-specific approach.

Embracing Technology for Enhanced Control:

Incorporating technology-driven solutions not only simplifies contract management but also enhances control and transparency. From digitizing contract repositories to deploying AI-powered analytics for risk assessment, technological advancements revolutionize traditional practices, empowering organizations to navigate complex maritime contracts with confidence.

Here are some key trends that have shaped the growth of the industry over the past decade:

1. Increased automation and digitization:

Over the past decade, the maritime sector has witnessed a notable rise in automation and digitization. Some processes that have been introduced to enhance the overall efficiency of port operations: 

• Digital documentation
• Automated cargo tracking
• Predictive maintenance
• Port automation

Additionally, new technologies such as autonomous ships, blockchain, and artificial intelligence are transforming the way goods are shipped, tracked, and delivered.

2. Emerging markets: Emerging markets such as Africa and Southeast Asia have become increasingly important to the maritime industry over the past decade, with new trade routes and infrastructure being developed to support growth in these regions. 

The growth and transformation over the past decade, driven by technological advancements, globalization, and changing consumer behaviours. The industry is expected to continue to evolve and adapt to new challenges and opportunities in the years to come.

3. Expansion of global trade:

Emerging markets such as China, India, and Brazil have experienced rapid economic growth, driving demand for raw materials, consumer goods, and other products that are shipped by sea. As emerging markets in countries such as Southeast Asia and Africa continue to grow, consumption via global trade is expected to continue to grow at a healthy rate. With the maritime industry being at the heart of global trade, the maritime industry will likely continue to grow in both size and relevance.

4. Environmental regulations:

The maritime industry has faced increased scrutiny over its impact on the environment over the past decade, leading to the implementation of new regulations aimed at reducing emissions and improving sustainability. The International Maritime Organization (IMO) has introduced new regulations on ballast water management, greenhouse gas emissions, and ship recycling. 

5. Increase in containerization:

Over the last decade, there has been a notable rise in the utilization of shipping containers, facilitating faster and more efficient transportation of goods. The standardization of container sizes has led to the development of larger and more efficient container ships, with some vessels now able to carry more than 20,000 containers.

6. Growth of e-commerce:

Over the past decade, the maritime industry has been greatly influenced by the expansion of e-commerce, resulting in a surge in goods shipped directly to consumers. This trend has spurred the development of new logistics models like last-mile delivery and fulfilment centres, along with heightened demand for smaller vessels capable of accessing a wider range of ports.

In Conclusion:

In today’s dynamic maritime environment, effective contract management plays a crucial role in managing risk exposure. By adopting proactive strategies, utilizing technological advancements, and emphasizing careful oversight, organizations can confidently navigate maritime contracts. This approach safeguards their interests and promotes sustainable growth.