GENERAL ASPECTS
Since the day WHO officially announced the spread of the Coronavirus (Covid-19) in China, the world public opinion has focused almost exclusively on this issue.
Although the humanitarian and health aspect of the epidemic was the most urgent issue to deal with, economic and financial analysts expressed serious concerns, initially due to a possible slowdown in Chinese production and the effects it could have on the growth prospects of the world economy, but a few weeks later the initial concerns turned into genuine fear following the transmission of the virus almost everywhere!
China locked down, immediately after Italy, one of the largest producers of SY in the world, and now, most of Europe!
In the current global context:
– with stock markets in turmoil;
– with the drop in demand declining into a drastic reduction in consumption;
– with the postponement or cancellation of orders and supplies for virtually all sectors of the economy;
– with the situation of uncertainty exacerbated by the impossibility of estimating
the extent of certain future damage and not only economic damage,
what’s going on in the SY charter market?
One of the sectors most affected by the Covid-19 phenomenon is undoubtedly tourism, but it would seem, the conditional is a must, that a large number of stubborn travellers are considering facing some health risks in order to enjoy their next holiday on board a Superyacht.
Obviously we are not referring to mass holidays, but those designed for families lucky enough to consider a holiday on board a SY.
Some of the most representative operators in the industry say that, in reality, chartering is seeing an increase in demand as High-Net-Worth Individuals (HNWI) appreciate and opt for the privacy, security and safety of a SY, now more than ever.
Confirming this, in the midst of the myriad of cancellations received from tour operators, a holiday on board a SY seems to stand the test of time as it offers more than a few advantages, in addition to the very high and rigorous quality standards that equate it to a “7-star holiday”.
The measures for the control and sanitization of the boat’s environments are carried out through a strict process of sanitization divided into several stages:
- a) inspection on board, where dirt and dust deposits, including pollen in the ventilation ducts, are detected thanks to sophisticated equipment;
- b) removal and suction of all impurities from the aeration system with special systems and professional vacuum cleaners;
- c) sanitation with ozone, carried out with generators that disinfect the air of the boat by eliminating bacteria.
Some yachts use special air filters that control the spread of pathogens and use the ozone generator in specific environments.
The maintenance of the boat has always been one of the crew’s priorities, thus ensuring a controlled and constantly monitored environment.
ITINERARIES
Another aspect on which to focus is the itinerary and the destination of the holiday.
The freedom and mobility of a SY has always been one of its strengths and in today’s climate, this freedom of choice has never been such an important priority.
The customers request, but the operators themselves suggest itineraries starting from countries with a low incidence of Covid-19, while avoiding other territories in the middle of the emergency: there are increasing requests for exploratory yachting to destinations so far with few cases like Norway, Greenland and Iceland and most likely, there will be a general shift to the north of the usual charter routes.
Many charter agencies are working, on one hand to create “armored” itineraries by
leveraging the circumstance that a SY is self-sufficient and that, by reaching the boat with a private jet or helicopter, the risk of coming into contact with anyone who has contracted the Covid 19 should be eliminated and on the other hand, to create new protocols and measures to safeguard the intimacy of the guests.
There is no doubt that on board a SY you will get privacy, limited personal contact, clean and hygienic impeccable environments, strict protocols regarding the crew and the possibility to choose your itinerary away from high risk areas and therefore more security than a hotel on land or a cruise ship, even if nobody can guarantee to reach the “zero contagion” goal!
CHARTER AGENCY : BETWEEN ADDENDUM TO THE MYBA CHARTER AGREEMENT AND INSURANCE POLICY OPERATIONS
In this context of deep uncertainty, how are charter companies organizing themselves today to guarantee clients a way out in case of cancellation of their booking due to the Covid-19?
Some agencies have already implemented the MYBA Charter Agreement with an addendum which provides, on one hand, the possibility of changing the geographical area where the holiday will take place and on the other hand, a temporal rescheduling of the charter itself or in the absence of an agreement on these two circumstances, the cancellation without penalty of the charter.
It will be necessary to verify the acceptance by the SY shipowners of this addendum.
At present, however, more and more insurance companies are vetoing the insurance reimbursement for the cancellation of the charter due to Covid 19, while some of them
provide reimbursement in % with costs varying between 8 and 10% of the charter value, depending on the number and age of the guests.
In addition to the cover for the cancellation of the trip, the cover for emergency return and medical assistance is increasingly proposed: there is no doubt that the situation, also from this point of view, is still fluid, but it is also certain that today the money invested in an insurance policy for cancellation/modification of the charter is money well spent.
WHO DID YOU BOOK FOR BEFORE THE VIRUS SPREAD?
Now let’s see what happens for those who booked a charter before the virus spread.
An internationally recognized principle is that contracts must be fulfilled by both parties (“pacta sunt servanda”).
The “force majeure” exceptionally allows one party to free itself from the contract performance and the resulting liability. The concept of force majeure, which is found in Civil Law countries, is also not recognised in Common Law Countries and therefore, in dealings subject exclusively to English or American Law, a party may invoke force majeure only if such remedy is contractually regulated.
Therefore, in the event of an abstract event that can be defined as “force majeure“, it is necessary to examine the charter contract and especially the definition contained therein.
The epidemics, as well as natural catastrophic events, are generally indicated in international contracts as causes of force majeure; in any case, in order for force majeure to occur – and therefore for a party not to be considered in
default as long as the cause of force majeure lasts – it is necessary that these events have a significant impact on a party’s ability to fulfill.
In this respect, contractual clauses almost always indicate that the external event must make performance impossible. Therefore, it will be necessary to verify whether, in the concrete case, the Covid-19 and the consequent restrictions adopted by the health authorities of the various Countries are capable of compromising the performance of a party and justifying the exemption from liability for force majeure, as defined in the charter agreement.
What are the effects on the Charter Agreement if, on departure, docking in the destination Territory is allowed, while during the holiday, new provisions of the local health authorities make the holiday less comfortable or even result in a quarantine order?
In this regard, the contractual clauses should envisage that the external event should make it impossible (in whole or in part) for the party to perform and to invoke force majeure even when the service becomes excessively onerous.
This exception is known as hardship and is often addressed differently from force majeure in the various legal systems.
However, it should be noted that in most cases, events which only make performance more difficult do not constitute force majeure.
Also in this case we believe that it will be necessary to examine in concrete terms what kind of restrictions have been adopted by the health authorities and how they affect the entire holiday covered by the charter agreement.
THE ECONOMIC IMPACT OF “NON-CHARTERING
Let’s now try to evaluate the economic impact on the missed charter and take as a benchmark a 10-day holiday in the Bahamas on board a 120 feet SY with six guests of European nationality. These are the hypothetical costs:
European round trip flights – USA $12,000
Miami – Bahamas round-trip flights $3,000
Hotel Miami 2 days $6,000
Car rental Miami $300
Restaurant Miami $3,000
Cambusa Bahamas $10,000
Marina Bahamas $2,000
Restaurant Bahamas $8,000
Fuel Bahamas $15,000
Customs Bahamas $450
Gift shopping Bahamas $3,000
Crew $20,000
Crew tips $4,000
Naturally, these costs will have to be added to the cost for the charter of the SY to be paid to the shipowner, in addition to the charter agency commission: on this last point it is worth noting that charter companies have started to reduce their commissions in order to encourage clients to close the negotiations in this delicate and uncertain period.
Let’s think now what economic impact the Covid-19 and the related restrictions imposed by the various Countries could have, should it
remain even during the next charter season in the Mediterranean where, normally there are dozens and dozens of SY!
It should be noted that the negative effects of this state of affairs would affect not only the charter sector and all the operators connected to it directly and immediately, but also all those who collaborate in various ways in this activity: yachting marinas, suppliers, producers, airlines and in any case, the entire territory that hosts this type of tourism.
The widespread perception is that most operators in the super yacht charter industry have adopted a pragmatic approach to the spread of Covid 19, constantly monitoring its development, without letting themselves be influenced by the media: the charter agencies in particular seem on the whole to have adopted practical, reasonable and flexible solutions to which the market will have to give an answer.
As we write this, the WHO has officially classified the Covid-19 as a pandemic and the Trump administration has imposed a travel ban between Europe and the United States: it is clear that at present it is not possible to make a forecast of how this state of affairs will affect the real economy and what and how many effects it will also have in the world of yachting and the SY charter world.
Given that the pandemic is not at its peak, and it is not yet known for how long this virus will rage, we should realistically project ourselves into the second half of the year to have an idea of how the SY charter segment will deal with this critical issue and to what extent it will be able to overcome it.
Avv. Stefano Notarantonio