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Wreck Removal Convention: more law, more risk ?

June 2, 2014
 
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Issue 10 - June 2014

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

Dear reader ,

This month’s SEA Watch’s starts off with a quick look at the 2007 Wreck Removal Convention which will come into force on 14 April 2015. Will it change the world? Unlikely. However, along with improving certainty and uniformity in maritime law, it will almost certainly increase the risk exposure of ship owners and their P&I insurers and our first article tells you why. We’ve also asked an interesting question that hinges on the working interrelationship between the Wreck Removal Convention and the 1976 Liability Convention. Esoteric legal stuff? Not at all and actually a practical and fundamental issue. We wonder if anyone has the answer?

Our next article provides a follow up to our Captain Kunal’s safety alert last month in relation to the carriage of wet sand by sea. It includes a worrying account (no names mentioned) of what actually happened during a recent loading exercise in Cambodia, as well as during the voyage and the final discharge process. We also contacted leading sand and Group A “cargo which may liquefy” specialists Roxburgh Environmental in the UK. Their views on wet sand carriage indicate that a lot more needs to be known about the potential dangers and risk mitigation measures which may be applicable to the shipment of this commodity. The problem is that in order to be pro-active, so as to prevent a potential wet sand carriage casualty, who is going to pay for the necessary research? Or, being cynical, should we just wait and see and then wring our hands later as we count the crew bodies?

Oliver, our Transport Claims specialist, has this month focused on providing a summary of INCOTERMS and their role and use in international trade. This is important stuff, not only for the sellers and buyers of goods but also for transport intermediaries (including Freight Forwarders and NVOC’s) who are engaged in the transport of these goods as part of the sale chain. Why? Because INCOTERMS help to define the role of all of the parties, the time at which the risk passes from one to another and the cost allocation for each part of the exercise. So if you’re a transport intermediary and you don't really understand INCOTERMS and what they do, this is your chance to learn more and also check your liability insurance policy to make sure you’re covered.

Our last article provides a return to our intended monthly review of one of the SEAsia network member offices. The spotlight this month on SEAsia China/ East China Surveyors and Adjustors headed up by Captain Alex Chen. Much has changed in China during the past decade but it’s a big country that is still far from being an open society. So fulfilling the role of a P&I Correspondent continues to be a sometimes tricky business with cultural awareness, a high level of technical skills and a packed suitcase kept under your desk being essential prerequisites to success.

Finally, our sincere thanks to SEA Watch readers who were kind enough to send us notes of appreciation in respect of the content of our newsletter. They included Jeroen Ebbeling of RaetsMarine Insurance BV who had this to say: “The professional contribution from your company was clearly noted. Not only the quality of the newsletter content but also the fact that your company actually takes the time and effort to share industry news. This is a sign of high commitment to stimulate loss prevention in the maritime industry.”

Read on and don’t forget we would like to hear from you as well. Is there a marine industry issue out there that’s puzzling or annoying you? Would you like to contribute an article for our over 7,000 readers or just make a comment? Tell us about it by sending a note to robert@seasia-group.com

Ancient Mariner

The Wreck Removal Convention: entry into force on 14 April 2015. More law and more risk exposure?

 

There have been numerous articles posted about the impact of the Wreck removal Convention. There seems little doubt that it will change the rules of the current wreck removal ‘game’ to the distinct advantage of ratifying states. Additionally, the salvage operator members of the ISU (International Salvage Union) are already announcing the potential for increased work and profits. However, the price for all of this will be paid by the P&I Clubs, insurers and re-insurers throughout the world with the cost then being passed back to ship owner insured’s and their customers.

There is also bound to be some interesting and expensive confusion – which the lawyers will love - as the national law of ratifying states (which now number 10 nations including the UK and Norway) based on the Convention terms, is enacted and becomes operational.

The Wreck Removal Convention seeks to clear up a number of issues which have generated problems for flag and coastal states in the past in pursuing ship owners for removal costs while at the same time creating a uniform (i.e. no nasty surprises) and enforceable legal regime to be followed around the world. A number of important issues have been addressed and effectively codified in the Convention text.

The four most important conditions that will undoubtedly generate an increased risk and liability exposure to ship owners and P&I insurers appear to be as follows:

1. The Wreck Removal Convention provides that the “convention area” will extend from the ratifying state’s existing outward boundary of their territorial sea (usually the 12 n mi zone) to the outward boundary of their exclusive EEZ/exclusive economic zone (usually out to 200 n mi). The state will also have the option of ‘opting in’ their territorial sea as well so that law of the convention will operate uniformly throughout the waters under their control. It seems likely that most ratifying states will do so to enhance their existing powers.

2. The Wreck Removal Convention, which is much like the Bunker Convention 2001 in terms of style and content, also dictates the compulsory requirement for all ships trading internationally and over 300 GT to be insured against wreck removal risks up to an amount which does not exceed the owner’s liability (based on a GT formula) under the 1976 Liability Convention (as amended). In simple terms, a vessel will not be allowed to enter the waters of a ratifying state unless she is properly insured and has a certificate to prove it. If a vessel’s Flag State has not yet ratified the Convention, then another Flag State may provide the certificate.

3. The well known “pay to be paid” rule, embodied in all forms of P&I insurance and which has allowed P&I insurers the entitlement to walk away from a wreck in the past if the owner/member has become impecunious (unable to pay first), has been abolished (as it also has under the CLC and Bunker Convention) such that a claimant may bring any associated action directly against the P&I insurer.

4. The usual coastal state law that normally applied required any harbour authority issuing a removal order to first prove that a wreck would in fact be a genuine navigational hazard if it was not removed and this was often used as an escape hatch to legitimately ignore such an order. However, this hatch will be closed as the Convention provides an alternative entitlement to demand removal if the wreck creates the potential for substantial damage to the environment. There seems little doubt this new window of wreck removal demand opportunity will be fully exploited.

As a final question related to potential confusion (see point 2. above), it seems possible that the application of the 1976 Limitation Convention and its GT based formula for calculating the upper limit of liability to which a ship owner and their P&I insurers may be exposed to liability under the Wreck removal Convention may become unglued due to a conflict. The reason for this is that it would seem that many of the countries which have ratified the 1976 Convention (including the UK, HK, Singapore and most recently Malaysia), have amended their ratification so as to exclude any entitlement to limit liability for wreck removal costs. It would therefore seem likely that they and other countries will do the same with respect to the Wreck Removal Convention due to its associated reliance upon the 1976 Convention. If so, will a ship owner and his P&I insurer be able to actually limit their liability with respect to wreck removal? If not, then how will this exclusion impact on the Wreck Removal Convention’s obligation for a shipowner to ensure his vessel is insured up to an amount which does not exceed the amount dictated by the 1976 Limitation Convention?

In conclusion, the world of wreck removal seems about to change by way of the provision of stronger and more explicit powers to coastal states in their evident battle against wreck abandonment by uninsured or impecunious owners. Salvage operators and the ISU will no doubt be happy. However, it seems likely that the Clubs will not; although Club circulars on the Wreck Removal Convention have not commented negatively other than to alert their members of the Convention’s existence and advise that amendments to terms of P&I cover are envisaged. In a scenario where the exposure to wreck removal risk will now increase significantly and the cost of wreck removal operations continues to rise to giddying heights (e.g. the “Costa Concordia”) it seems predictable that there will also be some upward impact on premiums as well.

As to our potential conflict question above, if any of our readers may have the answer, we would be pleased to hear from you.

Loading (Quick?) Sand in Cambodia: Part 2

Last month’s SEA Watch highlighted some important concerns relating to loading wet sand cargos on board a bulk carrier in Cambodia or, in fact, anywhere in the world. This month’s SEA Watch takes the same discussion forward by way of a sumnary of the experience of the Master during loading and discharging the cargo. We have also been in contact with leading experts on sand and cargo shifting risk mitigation including Group A cargoes which may liquefy, Roxburgh Environmental Ltd, who are based in the UK.

In the IMSBC Code’s ‘perfect world’, the Master of a vessel calling at a port to load a bulk cargo, must be provided with a signed shipper’s declaration before loading. This document sets out in detail the properties of the cargo including its proper name, its IMSBC Code Group as A, B or C and the data required by the Code for each Group so that the Master can assess whether the cargo is safe to load. If there are any concerns, they can be resolved by the “designated national competent authority” as listed at the back of the Code text.

In the Code’s ‘perfect world’, the cargo loaded on board matches the shipper’s declaration description precisely. On completion of loading there will be a final draft survey (or cargo weight measurement will have been accomplished by weigh scale) to determine the loaded quantity for insertion into the carrier’s B/L along with the name of the shipper, the consignee (or “to order” and the notify party) and the carrier.

By way of real life comparison, SEAsia’s experience of loading sand in Cambodia shows it to be one of the most ‘imperfect world’ loading operations which can be experienced by a ship’s Master with respect to both IMSBC Code procedures, on site operations and documentation. As to a “designated national competent authority” in Cambodia, as with many other 3rd world countries, there is no one yet listed in the Code.

What happened during the loading process and the voyage?

On the voyage in question, which appeared to be consistent with the usual sand loading process in Cambodia, the loading was accomplished at an outer anchorage from barges by using the carrying vessel’s cranes and grabs. The sand appeared to be river or quartz sand that had been freshly dredged from the river bottom into barges and was to be loaded wet. The process required about 5 days in total.

Prior to loading, the shipper (name stamped on the IMSBC Code declaration form) declared the cargo as Group C with a moisture content about 5%. However, as advised in SEA Watch’s last edition, a visual/can testing inspection of the cargo showed that the moisture content could have been as high as 20%.

Nor could it be accurately determined as to whether the cargo was in fact Group C or possibly Group A as the critically important difference is based on particle size and this cannot be readily determined in the field. The underlying problem was therefore that no cargo analysis certificate was available and no analysis facilities currently exist in Cambodia to provide such a document.

On our advice, the Master protested the moisture content of the cargo and the shipper’s then agreed to amend the cargo declaration to show a moisture content of 8%. However, this was done without benefit of any analysis so it could not have been anything more than a guess, no doubt intended to placate the Master’s concerns.

By way of practical risk mitigation measures, the Master worked together with our own attending surveyor to direct the shipper and stevedores to reduce the water content in the cargo on board the barges by allowing adequate time for drainage and pumping prior to loading to the vessel. Co-operation was eventually obtained but very firm and constant pressure was required to accomplish this result. Our Master and surveyor also ensured that the cargo hold bilges were covered with hessian to allow water to drain through to the bilge sumps and filter out sediment (which is standard bulk cargo procedure) and the hold bilges were pumped regularly during the loading process to remove as much water as possible during the loading process.

The cargo weight, inclusive of residual moisture, was measured by draft survey on completion of loading and this figure was entered on to the B/L. The actual on board weight of the cargo, less the high moisture content, must of course been significantly less and this is where the Master was faced with a difficult decision. Should he continue to pump the hold bilges throughout the two day voyage to Singapore so as to reduce the potential for cargo shifting and enhance the safety of the vessel and her crew? The answer seems obvious but, if he elected to do so, both he and his owners might then be faced with a possible cargo weight shortage claim on the basis of an arrival deadweight survey.

It would not be appropriate for us to reveal what the Master’s decision in regard to on-going bilge pumping actually was. However, in the final event, our follow up attendance in Singapore showed that the outturn of the cargo (and presumably payment for it under the terms of the original sales contract) was based on volumetric measurement of the sand cargo inside the cargo holds as determined by specialist surveyors. Accordingly, the final outturn weight of the cargo and any shortage by deadweight survey proved to be a non-issue. It should therefore not have been a barrier or concern in relation to pumping bilges throughout the voyage. This is of course a critical safety and commercial concern because there have been reports of apparent outturn cargo weight shortages of up to 3,000 M Tons in this trade

The other difficult issue which our Master faced was than when the Bill of Lading was presented to him for his signature, he immediately noted that the name of the shipper was not the same name as shown in the IMSBC Code cargo declaration form. Quite correctly, he was reluctant to sign the B/L until this discrepancy was properly explained. Departure delays were experienced until this important matter was resolved but the Master stood his ground and SEAsia believes he was right to do so.

In terms of the discharge process at Singapore, this required about four days using the ship’s cranes and grabs. After about 48 hours, as the cargo level started to approach the bottom of the holds, the cargo became excessively wet as shown in the attached photo. The stevedores, as evidently appointed by the charterers and consignees, were equipped with high volume submersible pumps to remove the water. However, from the amount of residual water depicted, it is evident that these pumps struggled to keep up.

Summary:

The lessons we learned from the above sand loading voyage from Cambodia (as well as others that SEAsia have assisted with) and which we would like to share are as follows:

1. The IMSBC Code 13th Edition, which is mandatory under the provisions of SOLAS, is still a work in progress and the provisions relating to the carriage of sand currently appear to be ambiguous in relation to the carriage of wet sand. Accordingly, it is SEAsia’s view that the Code cannot be construed as being a definitive safety guide in respect of this commodity.

2. In the circumstances, risk awareness, common sense and other information and experience should therefore be applied rigorously and pro-actively by both shippers/charterers and shipowners before fixing charter terms and by masters well before loading. In short, the temptation to generate quick revenue must be tempered by forward thinking and due diligence in making and ensuring the vessel’s seaworthiness in a loaded condition both at the beginning and throughout the voyage.

3. SEAsia’s experience is that, at best, the shippers/charterers involved often do not really understand their obligations under the Code and the risks involved in getting it wrong. At worst, the shippers/charterers know but purposely choose to “turn a blind eye” and ignore their obligations and the associated analysis costs by misrepresenting the cargo as Group C when it should be Group A.

4. As to whether river sand cargoes from Cambodia are Group C or Group A, SEAsia are aware of only one related casualty which involved a small barge used for ferrying sand to loading vessels which sank while loaded in very heavy seas. Group A cargo liquefaction may have been a factor but could not be proved due to insufficient evidence. Accordingly, the only way that Cambodian wet river sand can be reliably assessed for safe carriage by sea is by way of pre-shipment analysis and there does not appear to be any advice available that this has ever been accomplished and published.

5. In the meantime, ship owners and Masters should be alert to the fact that the carriage of wet sand appears to require a high level of caution including pre-loading bilge suction preparation and bilge system testing, awareness of the potential unreliability of shipper cargo declarations and their original signature and the need to provide clear and firm direction to shipper’s stevedores. It is also a critical importance to establish the manner in which the cargo outturn will be measured by consignees (preferably by volume and not weight) so as to avoid any concerns as to the Master as to whether the cargo hold bilges can be pumped regularly throughout the voyage.

Conclusion:

SEAsia has been in contact on an informal basis with sand and Group A cargo experts, Roxburgh Environmental (well known for their research and reports to the IMO and the IG Clubs on the problem of Group A nickel ore and iron ore fines), in order to discuss the current Cambodian river sand risk issue. Roxburgh’s basic risk mitigation advice in relation to sand cargoes was:

“Insist that accurate, representative material properties are established. Check whether the declared moisture content is representative and manage the water in the cargo.”

As to the conduct of a comprehensive and reliable assessment of the carriage of wet sand by sea and associated risk mitigation recommendations, Roxburgh’s further advice as to how they would accomplish this was as follows:

“We would need to establish the [on site] material properties to confirm likely behavior and vessel stability in a specified seaway. We would then establish a model for the drainage of the material whilst managing the changing conditions within the cargo and its resulting impact upon stability.”

It therefore seems that a definitive answer in relation to the prospective dangers or otherwise of the carriage by sea of wet sand cargoes from Cambodia and other countries appears to be available from a highly credible and well respected group of specialists. The simple and perhaps harsh question left to consider is whether anyone would like to pay for Roxburgh’s wet sand carriage risk mitigation advice now, before a related loss incident and associated deaths possibly occur, or after?

Incoterms and International Trade – Part 1

This month’s article is intended to briefly explain the trading industry’s common language with respect to transport and delivery, otherwise known as Incoterms. The second part of the article, which will be contained in the July 2014 edition of SEA Watch, will deal with the associated concepts of risk and title to goods and the transfer of the same in light of Incoterms. These are of course all issues which impact directly on transport intermediaries such as freight forwarders and logistics operators and their liability insurers.

Introduction

Language and word usage is one of the most complex but important tools of international trade. Small changes in wording can have a major impact on many aspects of a business agreement. The problem is that word definitions often differ from industry to industry. This is especially true of global trade where a fundamental word such as "delivery" can have many meanings in different industries and different parts of the world. Thus, for business terminology to be effective, words and phrases must mean the same thing globally and throughout the relevant industry. This is why the International Chamber of Commerce (the ICC) first created "Incoterms" in 1936 as a uniform language for the different players in the trade and transport industries, wherever they might be located.

What are Incoterms?

The Incoterms, last updated in 2010, provide three-letter abbreviations for standard terms and conditions to assist traders and avoid ambiguity when goods are bought and sold. They are primarily intended to clearly communicate the tasks, costs, and risks associated with the transportation and delivery of goods.

Each Incoterm specifies:

  • the obligations of each party (e.g. who is responsible for services such as transport, import and export clearance etc.);

  • the point in the journey where risk transfers from the seller to the buyer;

  • who is at risk for anything that might happen to the goods at each step during transportation.

Thus, by agreeing on an Incoterms and incorporating it into the sale of goods contract, the buyer and seller can achieve a precise understanding of what each party is obliged to do and where responsibility lies in event of loss, damage or other mishap during the transport and delivery process.

The current Incoterms provide 11 terms, which are subdivided into two categories, based on the transport method, and which also accommodate common multimodal options.

1. General Transport terms:

EXW - EX WORKS (... named place of delivery) FCA - FREE CARRIER (... named place of delivery) CPT - CARRIAGE PAID TO (... named place of destination) CIP - CARRIAGE AND INSURANCE PAID TO (... named place of destination) DAT - DELIVERED AT TERMINAL (... named terminal at port or place of destination) DAP - DELIVERED AT PLACE (... named place of destination) DDP - DELIVERED DUTY PAID (... named place)

2. Sea and Inland Waterway terms:

FAS - FREE ALONGSIDE SHIP (... named port of shipment) FOB - FREE ON BOARD (... named port of shipment) CFR - COST AND FREIGHT (... named port of destination) CIF - COST INSURANCE AND FREIGHT (... named port of destination)

Incorporation of the relevant term into a contract of sale must always be linked to a physical location at which point the described responsibilities and obligations will be transferred. However, the terms do not by themselves legal transfer of ownership or title. It is also important to remember that previous versions of Incoterms remain valid. You must therefore stipulate the Incoterms edition year as well to confirm which set of terms you wish to use so as to avoid a potentially serious misunderstanding and dispute.

Be aware…

Although the Incoterms have been around for a long time, there are still a number of misconceptions and potential issues for parties to international trade that you should to be aware of. For example, under DAT, DAP or DDP terms when a seller is obligated to pay the freight, the risk of loss usually remains with the seller until the goods are delivered to the place or port specified in the contract of carriage. However, when the parties are using the terms CPT, CIP, CFR or CIF, the risk transfers much earlier; namely as soon as the seller hands the goods to the carrier at the place of origin and not later at the named place or port of destination.

Perhaps more importantly, where the traders agree that the seller should purchase insurance (under CIP and CIF terms), the seller’s obligation is merely to obtain the minimum cover (e.g. ICC Class C terms). It may however be more appropriate for the buyer of high value goods to arrange for an all risks cargo cover (e.g. ICC Class A terms). Should you require help in determining the correct level of insurance cover for your cargo, SEAsia is always happy to provide advice.

Apart from the sellers and buyers of goods, the Incoterms are also crucial to freight forwarders and logistics operators because they indicate which party - seller or buyer - is entitled to give instructions in regards to the goods in transit and who is responsible to pay for transport costs. However, the Incoterms may not always be clear on who is responsible to pay for each and every element of the charges involved. To avoid penalties and delays, it is therefore advisable to check and review in advance all elements of every charge that may be incurred under the relevant terms and confirm who has to pay for it.

Conclusion

Detailed information on Incoterms is available from the ICC on their website along with details of their training materials. Other useful internet sources are Wikipedia https://en.wikipedia.org/wiki/Incoterms which provides an excellent “Allocation of costs to buyer/seller” chart and Incotermsexplained.com https://www.incotermsexplained.com which provides free tuition. In conclusion, whether you are a trader or a transport intermediary, it is important that you understand how the Incoterms work and how they can impact on your own operations and risk exposure. SEAsia is always happy to assist you in providing general advice and in incorporating the appropriate terms into your contractual framework.

SEAsia’s Network Partner in China: SEAsia China/East China Surveyors & Adjusters

SEAsia China’s parent company is East China Surveyors & Adjusters Co Ltd, a long established marine services company headed by General Manager, Capt Alex Chen, and Vice GM, Wallace Shen. Alex and Wallace still spend a lot of time out in the field along with their very competent team of marine surveyors, claims adjusters and naval architects. SEAsia has been working with Capt Alex and his crew for many years. They have always got the job done for us, despite sometimes difficult conditions in a country which is now greatly liberalised but where government and business interests are often reticent to volunteer information.

SEAsia China’s team Shanghai are shown in the accompanying group photo. From left to right (Front) Miss Yuki Zhang (coordinator), Miss Irene Huang (coordinator), Capt. Alex Chen (GM), Mr. Wallace Shen (Vice GM), Mr. Jacky Wang (Senior Surveyor) and (back) Mr. Jason Ling (Naval Architect), Mr. Mark Zhu (Surveyor and Marine Lawyer), Mr. Peak Ma (Senior Surveyor), Mr. Ray Feng (surveyor), Mr. Frank Zhu (surveyor). Three of Capt Alex’s surveyors are not in the photo as they were out working on site and two support staff were away. CV’s and contact details for Capt Alex and his team can be viewed on the SEAsia website and include both Master Mariner, Naval Architect, Loss Adjusting and Legal qualifications together with details of former survey and claims handling experience.

In terms of history, East China Adjusters & Surveyor’s Co Ltd was established in 2001. It was then approved by the China Insurance Regulatory Committee and is now one of the leading independent marine surveying companies in China. Services include: Pre-loading surveys and loading superintendence, P&I Pre-entry surveys (inclusive of ultra sonic hatch testing), Warranty surveys, Pre-purchase surveys, Vetting surveys, Bunker Quantity Surveys, On/Off hire surveys, and Draft surveys along with casualty investigation and control.

East China’s head office is located in Shanghai, China’s shipping business hub, with a network which extends from China’s north to south including Dalian, Yingkou, Qinghuangdao, Tianjin, Yantai, Qingdao, Lianyungang, Yangtze River, Zhoushan, Ningbo, Guanzghou and many other Chinese ports are also in easy reach. Customers include a wide range of marine insurers such as AIG, AXA, ACE, LIU, RSA as well as the IG and fixed premium P&I clubs and shipping lines which include COSCO, CSCL, CMA CGM, CSAV, HAPAG LLOYD, EVERGREEN, OOCL, MAERSK, YANGMING and ZIM.

As we all know, the business and economic situation in China has changed dramatically during the past decade with trillions of dollars being invested in mega infrastructure development including offshore energy, massive port development along with hotels, manufacturing and education. The global economic impact has been quite unbelievable with China now well on its way to becoming the world’s biggest and most powerful economy and market investor. In terms of both shipping and ship building, this has of course generated many positive opportunities and changes along with on-going concerns about shipping overcapacity in a world economy which has not yet stabilized and is still suffering from low growth.

The only real downside of the China story is the recent and serious worsening of relations between China and its near neighbours including Vietnam, Korea, Japan and the Philippines over ocean and island territorial disputes. This is bad business for all concerned, except of course the builders of warships and weapons. So let’s all hope that China’s leaders will have the wisdom to engage their new wealth and powers in a positive and peaceful way to help get the global economy moving forward once again.

As for the upside, will it all get better as ‘Big John’ Frederickson is betting? Almost certainly, yes, as China’s middle class grows along with its disposable income and ability to make China a leading consumer nation. The market talk is that India, with its new government and prime minster, could also soon re-emerge as an economic powerhouse. SEAsia therefore anticipates that SEAsia China/East China Adjusters & Surveyors will continue to grow as well, along with their range of services and expertise. Meantime, Captain Alex Chen and his capable team are standing by to assist you with your survey and consultancy needs in China.

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