Charterparty Details are Key in an Era of Constrained Chokepoints

Since the February 2026 commencement of the military operations in Iran, the issue of maritime shipping chokepoints has dominated headlines, with the focus on the Strait of Hormuz and the Bab el-Mandeb Strait, linking the Persian Gulf and the Red Sea (respectively) to the Indian Ocean and global shipping lanes more broadly. Even before this, the Federal Maritime Commission (FMC) initiated a broad-based fact-finding proceeding titled “Investigation Into Transit Constraints at International Maritime Chokepoints” focusing on seven key passages that have an outsized effect on global oceangoing trade: the Northern Sea Passage, the English Channel, the Malacca Strait, the Singapore Strait, the Strait of Gibraltar, the Panama Canal, and the Suez Canal. The FMC’s inquiry noted the 2021 grounding of the EVER GIVEN in the Suez Canal, which blocked that crucial maritime artery for six days, resulting in cascading backups for the following traffic.

War and accidents are not the only causes of maritime chokepoints. Many of the bottlenecks identified in the FMC investigation, including the Suez and Panama canals, are susceptible to weather-related restrictions (and in fact, the EVER GIVEN incident was caused in part by an uncommonly strong sandstorm with high-velocity winds). With the advent of an unprecedented and historic El Nino phenomenon in 2026, the issue of maritime bottlenecks is becoming a problem well beyond the Middle Eastern war theater due to effects on the water levels in Gatun Lake, the manmade body of water that controls the passage draft for vessels transiting the Panama Canal. Due to the extreme drought conditions brought on by this year’s “Super El Nino” event, the water level in Gatun Lake has been trending well below historic levels, leading to increasing levels of passage restrictions by the Panama Canal Authority (PCA).

These conditions led to both draft restrictions and per-day transit restrictions in September 2026, the latter of which included a cap for daily vessel transits at 34 as of September 4, with a further reduction to 32 transits starting September 15. There had been anticipation of even further reductions to 29.5 in October, but the PCA recently indicated these additional cuts would not be necessary — at least through December — due to meagerly higher rain levels in August/September. However, the previous restrictions led to PCA auctions for transit slots, resulting in a record-breaking $5.3 million bid (for a liquefied natural gas tanker) for transit on September 1, which “exceeded the previous record of $4.6 million set earlier in August and was nearly 100 times the median auction price of about $55,000 recorded before February.”

The unanticipated delays, and potentially unanticipated costs, of navigating maritime chokepoints affected by human-generated or naturally occurring restrictions can have serious implications for charter party (C/P) terms, particularly with regard to laycan, redelivery, and termination terms.

As an obvious example, delays due to chokepoint restrictions may affect a chartered vessel’s ability to deliver within the designated C/P laycan period.

The situation may be even more complicated at the end of a C/P when the vessel is being redelivered. Generally, a C/P redelivery deadline will be deemed to be approximate absent specific, express wording stating otherwise: “Where a time charter is for a stated period, the date for re-delivery should be regarded as an approximate date only, unless there is a clear agreement to the contrary.” (See THE “DIONE,” SMA No. 860A (1974)).

In either case (i.e., whether redelivery date is approximate or a date certain under sufficiently express C/P language), the final voyage of the vessel to the redelivery port generally must adhere to the so-called legitimate final voyage doctrine. This rule requires that a time charterer’s “final” voyage instruction on the redelivery voyage must be issued in circumstances that would reasonably allow — based on all known or reasonably knowable facts at the time the order is issued and/or when the final voyage is ready to commence — for the vessel to be timely redelivered to the redelivery port. “As a general rule, a shipowner is not obliged to obey a charterer’s order to perform an illegitimate last voyage, defined as a voyage that cannot be completed in time for the vessel to be redelivered within the contract period.” (In Re Addison Shipping & Trading SA v. Bayoil U.S.A. Ltd., SMA No. 3791 (2003)).

Further, a charterer’s tender of an illegitimate final voyage order may amount to a repudiatory breach of the C/P, which could potentially allow the owner to assert a claim for direct or consequential damages due to the breach. Whether and how the doctrine applies — and in particular the point (or points) in time at which the reasonableness of timely redelivery should be assessed — are highly fact and circumstance dependent and will also depend on the relevant C/P wording.

Due to the Panama Canal transit and draft restrictions currently in place and anticipated through the fall, as well as the dynamic circumstances resulting from hostilities emanating from the Iran conflict, the legitimate final voyage doctrine should be a front-and-center consideration for both vessel owners and time charterers for vessels whose trade patterns require chokepoint transits as part of any redelivery voyage. If a vessel’s redelivery voyage commences on the Pacific side of the Panama Canal bound for a Caribbean/Atlantic-side redelivery port (or vice versa), careful consideration must be given by both the charterer and the owner as to whether there is a reasonable basis for that voyage to be completed within the redelivery period.

The same is true for vessels transiting other chokepoints facing war-related restrictions. In this regard, “[t]he relevant time for considering the question of reasonableness of an estimate as to the length of the last voyage is [generally] immediately prior to the last voyage” (Wilford, Coghlin and Kimball, TIME CHARTERS, p. 90 (3rd ed. 1989)); although some authorities indicate that what might be an initially legitimate final order may be rendered illegitimate by a change in circumstances after issuance and before commencement of that voyage. This inquiry is necessarily fact-intensive and fact-specific, and will also depend largely on the terms of the C/P itself.

Given the highly circumstantial factors informing the doctrine, numerous questions may arise if a vessel finds itself held up and waiting in line until the next round of capped canal transits or caught in wartime transit restrictions. Likewise, force majeure principles generally will not apply if there is an alternative rerouting that can avoid a chokepoint — even if that alternative is more costly and time-consuming. (See Ocean Tramp Tankers Corporation v. V/O Sovfracht (The Eugenia) [1963] 2 Lloyd’s Rep 381 (CA)).

Does the legitimate final voyage doctrine require that a charterer or owner participate in a Panama Canal Authority auction to ensure timely redelivery in a trans-canal redelivery voyage? If so, who will bear responsibility for the auction price under the C/P terms? If not, who is responsible, and at what rate, for any alternative routing around the Panama Canal, including potentially via the much longer (and sometimes more perilous) routes through the Strait of Magellan or the Drake Passage around South America?

Similarly, if a vessel must reroute around the Strait of Hormuz or Bab el-Mandeb Strait, does hire remain due for any extended period of the voyage? If so, at what rate? And what party is responsible for any increased war risk insurance premium? How do “utmost despatch” and “deviation” clauses (and potentially other similarly directed clauses) affect the situation? Likewise, how do any delays (whether waiting for canal passage or rerouting) affect cost allocations under the C/P terms for things such as bunkers, pilotage, and other operating expenses? With respect to PCA draft restrictions, who will bear responsibility for any cargo carriage restrictions/limitations resulting from reduced capacities to comply with those restrictions?

These are all potential questions that should be front of mind for vessel owners and charterers as maritime chokepoints continue to be affected by the Iran hostilities and ancillary conflicts, and as the Panama Canal continues to experience the historic environmental impacts of the Super El Nino.

The opinions expressed herein are the author's and not necessarily those of The Maritime Executive.