As ships get bigger, so will the scale of incidents- but Lloyd’s Open Form will still cope
In recent years, the salvage industry has tackled incidents involving some of the largest merchant vessels which had spilled oil and containers into the sea, particularly after groundings. Despite using the best available equipment and skills to retrieve cargoes and manage oil slicks, work often took several months, sometimes in weather conditions similar to those which had contributed to the incident.
The salvage and wreck removal industry is now faced with the daunting prospect of dealing with incidents on a far greater scale. As merchant ships get larger, their cargoes expand in size and their values escalate, the challenges can only increase.
Captain Nicholas Sloane, of Resolve Marine Group, who led the salvaging of the Costa Concordia, has no doubts that it is only a matter of time before an accident of unparalleled scale occurs. How would salvors cope with a distressed vessel carrying 20, 000 TEUs in heavy seas in mid-ocean? The simplest of questions would require the most complex of answers.
He was addressing an audience of over 150 marine professionals—-insurers, average adjusters, brokers and law firms from Britain, Europe and other parts of the world—-at a London Shipping Law Centre seminar on February 2nd. The theme was ‘Demystifying salvage—-changing perceptions in a changing world.’
The seminar was held at the London offices of Holman Fenwick Willan and chaired by Simon Kverndal QC of Quadrant Chambers.
Captain Sloane’s fellow panel members were Andrew Chamberlain of Holman Fenwick Willan, Chris Adams of Steamship Insurance Management Services and Richard Gunn of Reed Smith.
Chris Adams presented a vivid picture of some of the large tankers and containerships which had run aground in recent years. Claims of $250, 000 plus on P&I Clubs represented around one per cent by volume and about 40 per cent by value. Last year there were over 60 such claims. Reported incidents in January indicated that a similar number could be expected this year.
Over the past five years, 59 per cent of larger claims costs emanated from groundings and variously involved wreck removal. Mr. Adams reminded his audience that wreck removal costs were not ultimately subject to limited liability provisions.
The speakers were generally in favour of the continuing primacy of the Lloyd’s Open Form as the speediest and most efficient mechanism to enable salvage to begin quickly, continue without contractual interruption and provide the most acceptable framework for assessing costs. It was “not perfect” and not necessarily the most suitable contract in all instances. However, it facilitated the early engagement of all parties: owners, charterers, cargo interests, bunker suppliers and insurers. Further, the LOF was widely accepted by most coastal states.
Andrew Chamberlain did not agree that it was “expensive and confrontational.” It had become “fashionable to knock the LOF but its decline is overblown and overhyped.” He had no doubt that the Form remained the most suitable option in most incidents and could be developed to meet future situations. He took a fairly cautious approach to other forms of salvage contract and warned: “Don’t throw the baby out with the bathwater!”
The panel discussed the folly of salvors continually undercutting each other and the adverse effect this had on capacity; and insufficient understanding by shipowners and insurers about what salvage involved. As a new way of sourcing escalating costs, Richard Gunn suggested the formation of a salvage fund to be financed by the property owners and administered separately from market insurance. He advocated owners paying one per cent of hull premia into such a fund; and cargo interests paying one percent of insurance premia.
He appreciated that not everyone in “a conservative industry” would go for this but contended it would provide a further source for meeting unprecedented claims awards.
All panel members were concerned about the industry’s capacity to handle massive incidents “in a 21st century of megaships.” They recognised the growing prospect of firms working together in the interests of immediacy and the co-ordinated supply of all the necessary equipment and skills.
Local authorities and governments were increasingly insistent on how they wanted close-to-shore incidents handled. Chris Adams maintained that intervention by state authorities sometimes extended operations, imposing requirements “disproportionate to the ensuing benefits.” Shore authorities were not slow to stimulate further media interest in highly visual incidents beamed initially through social media to the public around the world. Owners and charterers had to take this into account in issuing their instructions.
George Tsavliris, Principal, Tsavliris Salvage Group, and a member of the London Shipping Law Centre’s Council, explained: “In recent years, the salvage industry has achieved exceptional results with some of the world’s largest distressed vessels. However, salvors have their own technical and financial viability problems. We must ask ourselves: do we have the equipment, skills and project management expertise to cope with the incidents which will inevitably arise when megaships get into serious trouble?
“It was a first rate seminar, extremely well chaired. I came to learn and I certainly learned.”
Dr. Aleka Sheppard, Founder and Chairman of the London Shipping Law Centre, said afterwards: “With their unrivalled expertise, our panel has administered a dose of cold reality about the challenges facing the whole salvage process in the years ahead.”
*A DVD entitled Groundings; Shallow Waters, Deep Trouble, produced by Steamship Mutual, was made available to attendees.