Seaports play a critical role in global trade and economic growth as they handle the bulk of the world’s cargo. Further, with ongoing attacks on the Red Sea and rising geopolitical tensions, it is now more important than ever for port operators to have proper documentation in place for the efficient and effective management of their terminals.
We see a lack of standardized documentation and processes in parts of the ports sector and sometimes even within the same port. Some ports still rely on outdated systems and processes, including paper-based documentation. Proper documentation will help reduce uncertainties and improve transparency between port operators, liners, and various other parties involved in the use and operation of ports and terminals.
Identifying the types of documents: What are an STC and TSA and how do they differ?
Standard terms and conditions for operations of a port (STC) is a standardized document that is intended to govern the roles and responsibilities of a port operator and a user of the port. Users of a port include shippers, consignees, agents, and operators of logistics centers in ports and may also for example include contractors and suppliers. On the other hand, a terminal services agreement (TSA) is a tailored agreement typically entered into by the port operator with a shipping line or owner of the cargo.
Whereas a TSA and STC may in substance be similar, one of the main distinctions between the two is that while a TSA will expressly be accepted and formally executed between the parties, an STC (subject to the governing laws of the STC and the location of the port) will typically be deemed accepted upon entry of the port or when the user notifies the port operator of its intention to use its port.
Depending on the structure (which we will discuss in the next section), both these documents may set out among others the services and service obligations of the terminal operator and the associated tariffs and charges, together with usual clauses like term, termination, and suspension rights, liability regime, governing law and a dispute resolution mechanism.
How to structure?
There are a few ways for a port operator to structure these documents. That said, one of the more common structures we see is for port operators to rely on a single set of STCs that contains a comprehensive set of clauses that all users of the port are expected to comply with. Further, a port operator customarily enters into a short-form terminal services agreement with a shipping line or cargo owner which will set out the bespoke terms of their arrangement that will take precedence over the port’s standard terms and conditions which are typically incorporated in the TSA.
The key benefits to this structure are flexibility and having a predefined set of clauses from the STC, it allows for efficiency in the contracting process and consistency and it assists with a clearer risk allocation between the parties.
What are the key clauses to look out for?
Regardless of the form or structure, here are some of the key clauses that we recommend including when drafting the contractual arrangement between a port operator and the user of the port and its facilities.
- Defining “custody”
One of the key definitions to consider is the definition of “custody”. In this context, “custody” refers to the period when cargo (either export, import or transshipment cargo) is deemed to be in the custody of the terminal operator. This is important because it provides parties with clarity on its responsibilities as to the cargo while it is at the port. The term is also often used in conjunction with the liability provisions as typically port operators will specify that any liability of the port operator for the cargo will only be while the cargo is deemed in the custody of the port operator.
- Scope of services and berthing plan
It is important to properly define the scope of services that the port operator will provide to its users. This may include lifting shipping containers, provision of yard space, marine services, cargo handling, and others. Further, we would also recommend that a terminal operator include the specific arrangements for vessel berthing including the berthing schedules and procedure for the allocation of berthing spaces.
- Liability regime
As with any contractual arrangement, mapping and determining the appropriate liability regime is of critical importance. A typical liability regime in an agreement of this nature will include the following: port operator liability, exclusions of liability, and an overall liability cap. Defining each of these liabilities including the exclusion of liability and relevant caps for damages to, for example, a vessel, cargo, container, and the like will require careful consideration and the balancing of commercial needs, risk management, and market practice in a region.
- Insurance
It is also important to specify any insurance requirements on the parties to ensure that appropriate coverage has been obtained. While there are different factors to consider when determining the appropriate type of insurance and required amount of insurance coverage, we recommend for port operators to ensure that carriers will obtain at the minimum, hull and machinery insurance and P&I insurance. Other types of insurance to consider include bodily injury insurance and property damage insurance. Further, in terms of insurance cover, port operators may want to consider requiring a higher insurance cover to guard against for example pollution liability such as oil pollution liability if oil trade is involved.
- Force Majeure
Parties will also need to carefully decide on the circumstances where they can be excused from fulfilling their obligations. This is usually referred to as “Force Majeure” and generally covers unforeseen catastrophic events like hurricanes, earthquakes, armed conflict, and pandemics. In addition, parties may want to also specify circumstances not deemed to be a force majeure event, for example, a failure to make payment on any charges due, general economic conditions, strikes, industrial action, and others.
- Compliance with laws
In addition to ensuring that parties comply with laws that apply to the operations in the port, operators should also ensure that users of the port comply with international treaties such as the SOLAS Convention.
- Governing law and jurisdiction
Specifying the governing law that will apply is also important. While it may seem sensible for port operators to have the governing law be the law of the country where the port is located, it may also be worthwhile considering choosing a neutral governing law and a neutral jurisdiction, especially if it is expected that users of the terminal and its facilities will be foreign shipping lines and owners of cargo that may be more comfortable using a neutral and perhaps more commonly accepted jurisdiction.
In conclusion, it is important to have well-structured and comprehensive documentation in place governing the relationship between the port operator and users of the terminal and its facilities. Proper documentation allows for a smooth and effective functioning of port operations, and we recommend anchoring your business and operations with clear documentation.
Editor’s note: Ton van den Bosch is a partner and Aaron Ong is a senior associate in the Singapore office of global law firm Clyde & Co. The Singapore office of Clyde & Co operates as a hub, supporting clients with diverse business interests, including in key sectors such as transportation, terminals, ports, logistics, commodities, insurance, energy, and infrastructure in emerging and frontier markets in Africa and Asia.
