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Cargo Barge Capsize: 5 easy safeguards – SEA Watch September 2014

September 9, 2014

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Issue 13 - September 2014

Welcome to the September 2014 edition of SEA Watch with more updates and commentary on what’s happening in the world of shipping and marine insurance.

Dear reader ,

Our headline loss prevention article for this month, on barge capsizes and 5 easy safeguards to stop it happening, has been written by our Captain Kunal. SEAsia P&I Services have attended several such incidents in the past and the findings are always much the same. Read on to find out how it happens, the basics of vessel stability by way of some neat diagrams and the simple steps required to stop capsizes from occurring. It could save you and your insurers a pile of money and a lot of business loss headaches.

Next on offer is short piece from your editor to highlight the upcoming 9th run of the BI/SeaProf "Key Elements of Shipping" course on 27-29 October. Seats are always sold out and one third of them are booked already, before we’ve even sent our marketing flyer e-mailed to SEA Watch readers and SSA members.  So we must be getting it right. There’s also a new special course focus on the offshore market this time round, so don’t miss it.

Our third knowledge offering is from Tony Wong, SEAsia’s Master Mariner and lawyer in Hong Kong, who takes a close look at one of P&I’s oddities, the ‘pay to be paid’ rule. What is it anyway and how does it work? You may be a bit surprised so take a look at an erudite explanation that will hopefully shed some light on an often forgotten but practical issue.

Fourth in line for this month is an article from Oliver Rentzow, our transport claims specialist in Singapore. Oliver provides a review of transport claims investigation and control procedure. It shows this is a process which must be carefully and methodically conducted by people who know the business complexities of multi party and contract transport. Get it wrong and both the insured NVOC and their insurer’s claim defence can be seriously prejudiced.

Have good month ahead as we rush towards Xmas and the early sounds of “Jingle Bells”, or something like that, ringing from Singapore’s Orchard Road shopping mecca cash registers.

 

Ancient Mariner

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Cargo Barge Capsize Casualties: 5 easy safeguards to loss prevention

SEAsia has been involved in investigating and controlling a number of barge casualties that occurred due to overloading, with resulting instability and capsize. This article’s intention is to highlight the underlying causes so as to help prevent such incidents occurring in the future.

Tug and cargo barge ‘sets’ (purpose built tug/tow units) are big business in South East Asian waters. They offer their owners a low cost entry to the business of shipping, relatively simple and low cost operation and proportionately low cost cargo transport to shippers and charterers. The barge units, commonly known as ‘flat top’ barges, are simple construction with the cargo is placed on top of their steel deck which is surrounded by steel framed and wood planked bulwarks. This article focuses on ‘flat top’ barges that can, if heavily loaded with low/medium density bulk cargo (e.g. coal), be susceptible to capsize.

For those not familiar with ship/barge stability, it is first important to understand the upward buoyancy forces acting on a barge or any vessel that keep it afloat. Archimedes Principle defines the laws of floatation and state that for an object to float in water, the buoyant forces (exerted upwards) on the object must be equal to the weight of the water displaced (and acting downwards) by the object’s underwater volume. OK, so far so good and most of us will still remember Archimedes and his bathtub, “Eureka, I’ve found it !”, moment from school physics classes.

That said, a floating object is not always stable in its upright position. This is because it is affected by any internal movement of existing weights, the adding (loading) or reduction (discharge) of weights or by external forces such as wind, wave, swell etc. Thus, for a vessel to stay afloat in its upright position, it is imperative that the internal as well as external forces acting on the vessel do not exceed the inertia that holds the ship in its upright position. The greater the inertia, the more stable the vessel remains.

The amount of the inertia force (or righting moment) that keeps the vessel upright is determined by the metacentric height which, as shown in the diagram to the left, is the vertical distance (GM) between the vessel’s transverse centre of gravity (G)  (i.e. an imaginary point in the exact middle of a weight where the entire weight may be considered to act and always acts vertically downwards) and its metacentre (M) (i.e. a point in space where a vertical line upwards through the centre of buoyancy (B) of the ‘inclined’ vessel cuts through the vertical line upwards through the centre of buoyancy (B) of the ‘upright’ vessel).

The next diagram, as below, has been extracted from the Maritime NZ publication “Barge Stability Guidelines”. Every tug and barge owner/operator should download and read it. A copy should also be placed on board every tug and barge unit. More importantly, the owner should ensure that his Master and Chief Officer understand the Guideline and are capable of calculating and controlling the barge’s stability throughout any voyage, with special attention given to the loading period when barge instability and capsize are likely to occur.

You will see that the left side of the diagram (Stable Vessel) shows the cross section of a loaded barge that is heeled to starboard, with high density bulk cargo loaded on deck. Now, take some time to look at the lettered points marked on the diagram and refer to the glossary below.  Those of you who are mariners should understand why the vessel is stable and will rapidly return to the upright position. For those of you who are not mariners, the key issue is that as long as (G) remains below (M), the vessel will have a positive righting lever/force couple (GZ) pushing the vessel back to port, towards the upright position. Thus, the vessel will not capsize unless she heels over to starboard to an extreme point (say beyond 60 degrees) when the GZ will approach Zero.

Now look at the right side of the diagram (Unstable Vessel). Here you will see that a large, heavy and very high cargo unit has been loaded on deck. Please imagine that this large object is the very high pile of coal that is shown loaded on deck in the barge photo at the top of this article. The effect of the high centre of gravity of the cargo has been to drive the combined barge and cargo (G) upwards, such that it is now above (M). The result is that the vessel is unstable because the righting moment couple (GZ) is now a negative force, pushing the vessel over to starboard such that she will capsize.

So how do we ensure that the combined barge and cargo(G) always remains well below (M), so that a barge’s stability remains safely intact? The primary safeguard is that every flag state registered barge, whether entered with a class society or not, is obligated by law to be provided with a full set of stability data (e.g. see Chapter VI of the Indonesian Non Conventional Vessels regulations).

In order to ensure the safety of the barge, her cargo and any tug crew who may need to go on board, the data must be utilised by the personnel who are responsible for the barge’s operation. The serious problem is then that the stability data has gone missing or, worse, the tug master and chief officer – because of inadequate or insufficient training - don’t know how to use it. Not possible? Well SEAsia has seen barge stability data kept on board its dedicated tug that was unopened and still in its shipyard sealed wrapping.

5 easy safeguards to barge capsize loss prevention

• The barge must be provided with a comprehensive set of stability (hydrostatic) data in accordance with SOLAS and the Load Line Convention, as incorporated into registered flag state law. The stability data should be endorsed by the flag state and, if the barge is Classed, then it is likely this will have been done by Class on behalf of the flag state. The data must also be provided in a language that can be understood by the barge’s operating personnel.

• The barge operating crew, normally the tug/barge crew, must have ready access to the barge stability data.

•  The tug/barge crew must have received adequate training to ensure that they know how to use it to maintain the barge’s stability within acceptable parameters at all stages of the barge’s operation.

• The barge owners/operators must heighten awareness of the potential for barge capsize by ensuring that barge stability safeguards are incorporated into their Safety Management System (SMS).

• The barge owners/operators must ensure their tug/barge crews are familiarised with the barge stability safeguards before joining the tug and barge unit.

In many cases, SEAsia’s experience is that crew training is inadequate. This is because, despite the fact that the tug master and chief officer are qualified by the flag state to operate the tug, the STCW training syllabus for their usually lower/tug grade certificates of competency is often not sufficient to cover barge stability as well. The solution is to upgrade the minimum standard of stability knowledge standard provided during the tug chief officer and master COC training process.

The other associated problem seems to be that the tug master and chief officer do not seem to be aware that they have any direct responsibility for the proper loading of the barge. Instead, this will often be left to the shipper’s shore staff and their surveyors. In simple terms, the tug crew’s attitude is often, “You fill it up and we tow it”. A scenario such as this, in combination with inadequate stability learning, is an obvious recipe for a capsize disaster: inclusive of barge damage or even a CTL, cargo loss and possible tug crew injury and death. So tug crew attitudes must be changed as well.

In conclusion, SEAsia hopes that we have highlighted the serious dangers to life and property which can be negated by implementing common sense safeguards at very low cost. We also hope that we have stimulated interest in vessel stability matters that are still an on-going problem throughout the shipping and barge industries. As always, SEAsia will be pleased to assist your own organisation with your loss prevention plans and implementation.

Capt Kunal Pathak

kunal@seasia-group.com

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Key Elements of Shipping: 9th run of the now iconic BI/SeaProf course

The 9th run of KES, BI/SeaProf’s intensive 3 day introduction to shipping course is scheduled for 27-29 October at the Klapsons Hotel in Singapore. Without any advertising, over a third of the seats have already been booked by colleagues of previous attendees. So it looks like a certainty that the course will be sold out at 40 seats once again.

The course is run in Singapore twice each year in March and October. Participant employers are entitled to access both the MPA’s MCF 70% training grant with the balance of fees being effectively absorbed by Singapore’s PIC grant of 60%. A great deal for all concerned through the generous support offered by the Singapore government whose goal is to enhance and maintain Singapore’s world class maritime talent  and services hub.

Who are the speakers? As always, the course leader will be Assoc Prof Cathrine Bjune of the BI Norwegian Business School in Oslo who is also a maritime lawyer. Cathrine is a highly quailfied and popular lecturer on the long running BI/NTU MSc in Shipping course in Singapore. The jointly produced BI/NTU MSc course and other BI/NTU collaboration has in fact been so successful that BI and NTU were recognized for their collaborative excellence by the presentation of the prestigious NBAS award (accepted by Cathrine for BI) earlier this year.

The KES course’s producer and co-leader is Capt Robert Gordon, Chairman of SEAsia P&I Services and MD of SeaProf Executive Learning, who worked with Cathrine to create the KES course 5 years ago. Lecturers will feature Asst Prof Dr Jasmine Lam of NTU, a specialist in maritime and port economics, along with a further 10 high profile industry speakers from leading maritime companies who are all well known experts in their field.

What's the goal? The learning goal for the intensive KES course is to provide a comprehensive overview of the shipping industry. This includes examining the roles and interaction of the many players as well delving into the infrastructure and operation of one of the world’s most important industries; one that facilitates the daily global trade and transport of 90% of the world’s goods. Plus, a new focus on the offshore market with three specialist presentations on this subject.

What's the outcome? The course’s intended outcome is to arm and energise its participants with a topical, up to date perspective of shipping. This is combined with the provision of new learning and vision to take back to their companies to put to immediate and positive use. Following interactive assessment, a BI Certificate of Achievement will be awarded to all participants.

Who should attend? Certainly all graduates who are new to the industry who may need base learning to navigate their way through the shipping maze. Also, those who have been in the shipping business for a number of years but have perhaps been focused on only one aspect of shipping and now aspire to move on to another division and/or obtain career advancement and more responsibility. As an example, the KES course has been well attended by senior managers  of ship service companies, such as Roll Royce Marine and numerous banks, who need to know more about the needs and challenges faced by their own shipping clients during a still difficult shipping environment.

How do I sign up? Full details of the course will be transmitted to all SEA Watch readers by way of a separate e-mail invitation and course flyer which contains full details of the course  content, end of course social event and fees as well as links to the BI website containing the course brochure, speakers CV’s as well as the course registration site. Meantime, if you may have any questions or would like to get on board early to beat the rush, please call Yan who is the Singapore KES course coordinator at  +65 6323 7732.

Capt Robert Gordon

robert@seasia-group.com

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P&I Insurance and the ‘Pay to be Paid’ Rule: what is it and how does it work?

To insure themselves against a wide range of liability risks not covered by H&M and other marine insurance policies, shipowners normally enter their ships into a Protection & Indemnity Association (a P&I Club). This arrangement facilitates the owner’s membership of the selected Club, which is in fact a mutual insurance association. As such, the mutual association oddity is that each member/shipowner therefore becomes – in principle - both an insurer and an insured.

The peculiarity of P&I Club insurance goes even further in that it is not, as many people might think, a policy of liability insurance that pays out directly if a liability arises. Instead, it is a conditional policy of indemnity that requires the liability – as a condition precedent - must first be discharged by the insured. In other words, P&I cover provides for re-imbursement to the member, but only after the member has first paid out to settle the liability. Further, this is nearly always (under the Rules of Entry) subject to the Club’s claims control and prior agreement. Accordingly, a P&I Club member does not make a claim for a liability loss. Instead, he effectively makes a claim for re-imbursement after a Club controlled settlement on negotiated terms or as entitled to the claimant by way of a court or arbitral ruling.

In support of the aforementioned mutual association insurance ‘oddities’ and ‘peculiarities’, Club Rules incorporate what is commonly known as the 'pay to be paid' rule. Under this rule, in order to enable a payment of indemnity for the liabilities or expenses incurred by a member, he must first have discharged the liabilities or expenses in full. An example text, from the Rules of Entry of a well known IG Club, is as follows: “… it shall be a condition precedent of a Member’s right to recover from the funds of the Association in respect of any loss, damage, liabilities, costs or expenses that he shall first have discharged or paid the same...”

However, a Club member may sometimes be unable to pay and discharge the liability or expenses because of lack of funds or even insolvency. What is the claimants and Club’s position then? Can the 3rd party claimant then pursue the Club directly for his loss?

This was the question on appeal to the House of Lords in The Fanti and the Padre Island [1990] 2 All ER 705. The point in issue being whether the Third Parties (Rights against Insurers) Act 1930 (designed to deal with the problem of bankrupt insureds) entitled the owners of the lost or damaged cargo to recover an indemnity directly from an entered P & I Club.

It was held unanimously by the House of Lords that, in the earlier decision made by the the court of first instance, in The Padre Island (No.2) [1987] 2 Lloyd's Rep. 529, Saville J's approach was correct. In that trial, Saville J held that the member lacked contractual entitlement to lodge a claim against their Club until it had first made payment to cargo claimants. Accordingly, the cargo owners were deprived of any right to recover from the Club by reason of statutory transfer under s1(1) of the 1930 Act of all of the assured’s right and obligations. This included the assured’s obligation to pay first and confirmed that the Third Party cannot be in a better position than the assured because of the above transfer. Finally, on a separate but associated point, the House of Lords ruled that the principles of equity could not override the 'pay to be paid’ rule because of its clear wording in the P&I contract.

The Third Parties (Rights Against Insurers) Act 2010, which is the replacement for the 1930 Act, partly deals with the potential “Catch 22” problem to third parties of  ‘pay to be paid’ rule clauses. Under s.9(5), such clauses are considered to be unenforceable.  However, s.9(6) limits the application of s.9(5) to death or personal injury liability claims only in a marine insurance contract. Accordingly, P & I Clubs are entitled to retain their stance in insisting on prepayment by their members for cargo and other liability claims, but evidently not for death or injury claims as might be brought by the families and estates of injured or deceased seafarers.

The commercial reality of the ‘pay to be paid’ rule, in relation to the position of P&I Clubs and liability claims, is that the rule is often circumvented with Club agreement.The result being that the Club involved will then, as the claims controller, defend, negotiate and settle the claim on best terms with the member doing no more than providing their written permission to the final sum agreed. However, ship owners and their P&I brokers should always be aware that the ‘pay to be paid’ rule prevails under the terms of the Rules of entry and in law and that any arrangement to the contrary is purely at the discretion of the Club and its directors. A Club would therefore be entitled to walk away from an impecunious/bankrupt member and his liabilities and this has happened but, with respect to the IG Clubs, not often.

In next month’s SEA Watch, the ‘pay to be paid’ rule will be re-visited within the context of the increasing expansion of IMO supported compulsory liability insurance regimes which often include a direct right of action against P&I Clubs and other liability insurers. What is the current impact of these legal regimes and will we see more of the same in the future

Ed. (“Catch 22” - A requirement that cannot be met until a prerequisite requirement is met, however, the prerequisite cannot be obtained until the original requirement is met.)

Capt Tony Wong Chai Yu

tonywong@seasia-group.com

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Transport Liability Claims: SEAsia’s guide to investigation & control

The background story is almost invariably the same: “When the cargo was placed inside the container, everything was fine”. The container was then moved, by a nominated trucking company, from the shipper’s warehouse to the ocean terminal. This normally all takes place under the terms of a B/L contract with an NVOC (Non Vessel Operating Carrier) that promises to ensure the containerised cargo’s safe passage from the time of collection from the shipper through to ultimate delivery to the receiver.  

At the terminal, the ocean carrier accepts the container on-board his container vessel. It then makes its way to a foreign country with the recipient waiting to take delivery, either at the ocean terminal or his warehouse. In most cases, the journey is completed without incident and the receiver happily takes delivery. However, what SEAsia is often faced with is - when the container is opened - the cargo inside is wet stained or crushed or is even missing or not as described in the relevant bill of lading. The big questions are then: what happened and who is responsible?

This is usually the moment when transport operators might wish they had not issued their own through transport house bill of lading and thus put themselves into the position of an NVOC. Why? Because this is also the moment when cargo interests and their insurers will be asserting that it is the NVOC’s fault because the cargo was lost or damaged while in their through B/L contractual care and custody.

The unfortunate NVOC’s next move should be to advise his transport liability insurance broker immediately and request SEAsia’s expert transport liability investigation and control services. The reason being that transport claims can be complex as they invariably include multiple service contracts relating to handling, carriage and storage. They therefore require special knowledge to be able to collect the relevant evidence, assess the proximate cause and the party who had physical custody and control of the goods at the time.

If investigation is accomplished promptly and efficiently, this will greatly improve the chance of minimising the NVOC’s exposure to a loss or damage claim i.e. by assessing exemption and limitation of liability terms available to the NVOC under the B/L contract and ensuring that the claimant meets their legal obligation to mitigate their loss. It will also help to maximise the potential for a successful recovery action by the NVOC against the party/sub-contractor who may be ultimately responsible e.g. a terminal operator who has punctured the container with a fork-lift unit.   

Some transport claims are caused by criminal activity such as theft and fraud. However, most are caused by accidents: defined as an unplanned and unwanted event that results in harm to people and or things. Accidents are rarely the result of a single factor but are normally caused by a sequence of multiple interrelated events that come together at a given time. Influencing factors are things such as errors, omissions, negligence, defects, deficiencies (of equipment) and/or unanticipated changes. Any one of these factors can set the background for the occurrence of an accident – more commonly referred to as an incident in the transport trade - with the only remaining uncertainty being the severity of the consequences. 

The unfortunate statistic is that human error accounts for something like 95% of all accidents. Accordingly, it is essential that the factors leading to a particular accident and loss or damage must be properly investigated. This is for several reasons: a) to avoid recurrence b) to establish fault and allocate liability c) to assess any contractual or legal defences which may be available to the NVOC (e.g. the protective terms of the Hague or the HV Rules) d) to facilitate resolution on preferably negotiated best terms

In terms of investigation and control of a transport incident, time is always of the essence, as no matter what the circumstances the passage of time will dilute the available evidence. Potential witnesses will depart, physical evidence will decay, documentation may be lost and memories will fade. Worse, the on site situation may deteriorate quickly if damaged cargo is not segregated and sound cargo protected from further harm or theft.

At Seasia, whenever notification of a transport incident is received, the need for an experienced transport surveyor to conduct a thorough investigation into the cause, nature and extent of the damage or loss is paramount. This necessity will usually be agreed, together with the NVOC insured and their transport liability insurers, within the first 3 hours or less of notification. SEAsia will then immediately appoint and mobilise an experienced surveyor to site to commence investigation for assessment and, ultimately, claims defence and resolution purposes. This survey will of course be co-ordinated with any attendance by surveyors for cargo interests so as to ensure a joint survey is accomplished on a without prejudice basis.

SEAsia’s service standard is that every transport liability survey must be accomplished under our case specific written instruction as to the precise nature of the evidence required and the goal to be accomplished. The planned outcome is a report, in SEAsia’s standard and audited format, which provides details of the extent of the damage or loss suffered, the steps which have been or which can be taken to minimise the loss, the underlying cause of the loss as well as the estimated net exposure after allowance for refurbishment costs or salvage sale. Additionally, emphasis is placed on establishing the precise time and place at which the damage or loss most likely occurred so as to facilitate recovery against the actual sub-contractor or party at fault. Finally, all relevant documents must be carefully copied and a comprehensive set of photos and diagrams prepared.

Insurers armed with the aforementioned investigative information can promptly set their initial reserve for any claim that may arise with confidence. As for the NVOC insured, his commercial burden is lightened by the fact that the circumstances of the case are well documented and that pro-active support will have been taken to encourage his customer’s voluntary mitigation of loss. The final result then being a scenario in which the loss or damage suffered by the customer will be covered by his cargo insurers but with a reduced and perhaps zero exposure to the NVOC and his insurer for any cargo insurance recovery action. Oh yes, and let’s not forget the potential for prevention of NVOC claims recurrence by identifying claims trends as well a final recovery action against the party or sub-contractor actually responsible.

In summary, the investigation and control of transport liability claims can present complex scenarios due to multiple carriers and obligations as well as interrelated contracts, players and recovery actions. It is work best accomplished by service providers who have specialist experience and knowledge as well as a clear understanding of transport insurance terms of cover and the relevant law. SEAsia is such an organisation and we have been closely involved in transport liability work for over 18 years. If we can assist, whether you may be an NVOC, a broker or an insurer, we will be pleased to discuss your particular needs and offer our tailor made solutions. Our service scope extends throughout Asia as well as globally, through our strategic alliance partners, C Solutions.

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