6 minute read
Salvage contracts
Future of salvage contracts under question
Captain Henk Smith, Marine Masters, who has worked in the maritime industry since 1987, notes that the world fleet, regardless of the economy and the fluctuations in global trade, has continued to grow during his time in the industry and believes that will remain the case. The size of vessels is also growing because of consumer demand leading to challenging claims for insurers and the salvage sector
The number of LOF salvage contracts reported by Lloyd’s Salvage Arbitration Branch (LSAB) continues to decrease year on year. At the time of writing, there were less than 30 LOFs (Lloyd’s Open Form - a regime for determining the amount of remuneration to be awarded to salvors for their services in saving property at sea and minimising or preventing damage to the environment) reported by Lloyds in 2022.
That trend doesn’t look set to change any time soon although the International Salvage Union, and maritime community more generally, is seeking to promote LOFs wherever possible which has included the recent publication of the “Delay Report” by the International Group of P&I Clubs.
It is interesting to explore the divergence between the smaller number of LOFs and the increasing costs of those that are entered into.
One must also consider alternative contracts to the LOF which may be appropriate for certain cases, thereby reducing expense and allowing underwriters to understand the costs
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of the project from the outset, in a way that LOF doesn’t.
When I was sailing as a cadet in 1987 on the Nedlloyd Dejima this was considered a large container vessel at close to 3000 TEU. This is around the same size as the Rena and Kea Trader, two container vessels which have been involved in complex and expensive wreck removal operations in recent years.
SEVEN TIMES THE SIZE
The latest container vessels carry more than 22,000 TEU, more than seven times the size. It is not only container carrier but also LNG carriers, car carriers and cruise vessels which are getting bigger.
When considering salvage and wreck removal in this context: • The size of the salvage assets, for example the bollard pull of tugs involved or the size of heavy lift cranes, will also have to increase; • The media, and local authorities, are now paying close attention to every incident (even more so since the high profile Ever Given grounding); • Environmental stakeholders, often in close coordination with local authorities, will want to ensure that there is no trace of the vessel or any cargo following an incident, regardless of how laborious and costly a clean-up operation may be; and, • Increasingly unpredictable weather conditions can hamper emergency response, often exacerbated by remote locations where there is no “shelter zone”.
SMALLER CREWS
Against this background we are seeing the crews onboard these mega ships getting smaller and smaller, so less able to play an active role in “self-help” when an incident does occur.
More importantly, though, is that we are seeing a year on year decrease in the size of the salvage industry and particularly those salvors that maintain warehouses of equipment and have assets available for prompt mobilization.
The Salvage Convention 1989 states that a salvage award shall be made with a “view to encouraging salvage operations”.
So, one can see how a perception may have arisen that awards have been increasing in relative size if the industry is smaller and awards are less frequent.
It is not for me to say whether that is correct or not and I appreciate that many in the industry consider that, if anything, salvage awards are actually decreasing in relative terms.
Although it is hard to find reliable statistics on vessel casualties, a brief snapshot of some “broad-brush” data follows: • Worldwide in 2021 there were more than 53,000 vessel trading over 1,000 GT; • According to Lloyds there were only 54 total losses; • The average age of the vessels lost was 28 years; • Extreme weather was named as a factor in at least 13 of these 54 losses; and, • Other causes include machinery failures, collisions, fires and explosions.
As I state at the outset, there will always be a place for the LOF contract in the maritime industry and everything should be done to protect it.
There are numerous recent examples of LOF contracts not being entered into, or being concluded too late, meaning that some losses (or major incidents) could be avoided.
Nonetheless, the BIMCO WRECK contracts should not be overlooked and often provide an alternative option for owners and underwriters. This is a form of contract that my company, Marine Masters, negotiates regularly.
The advantages of the WRECK contracts include that: • The contract is straightforward and can be negotiated quickly (often within a day); • There is visibility and transparency on costs from the outset; • The contract has built-in flexibility if the contractor needs to change the method of work, personnel, craft and/or equipment; • The contract personnel can replicate the LOF salvage team to include salvage masters, salvage officers, naval architects and divers (to name but a few); and, • There is a swift and effective dispute resolution procedure where any determination is made by one of the LSAB salvage arbitrators.
In my experience, the WRECK suite of contracts have been very effective for all parties in circumstances such as: • The refloating of a bulk carrier loaded with 40,000 MT of cargo at a port entrance in the Baltic Sea, where a salvage master oversaw the project which included local tugs and lightering tonnage; • The refloating of a grounded bulk carrier, in ballast, using a salvage team and hired-in assets following a heavy storm; • Towage of an abandoned drifting vessel after a collision; and, • Towage of a vessel after an engine room fire.
In many cases the equipment needed for these kinds of emergency services, such as compressors, generators and pumps, can be sourced locally and the salvage contractor can
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be remunerated at cost plus an agreed uplift.
This is to be compared with LOF contracts where the purchase, maintenance, upkeep and mobilization of salvage assets has to be taken into account by the salvage arbitrator when determining the salvage award.
For some jobs, though, the only sensible contract is an LOF and particularly where there is an immediate risk to life, the vessel, cargo or environment.
The “best endeavours” obligation in the LOF means that the underwriters will know that no stone is being left unturned in the efforts to save the assets.
The LOF contract also binds all other interests (such as charterers and cargo interests) so the costs are not exclusively for the “company” as named in the WRECK contracts. The flexibility of the LOF contract is also second to none.
Nonetheless, there is clearly a role for the WRECK suite of contracts when working with knowledgeable and sophisticated salvage contractor that can hire in the assets needed, while also providing the professional salvage response needed.
