Cargo owners could face salvage bill for latest shipping container fire

SHIPPING NEWS: Cargo owners could face salvage bill for latest shipping container fire
Peter Ziobrowski 9 Jan 2019 https://www.thechronicleherald.ca/business/shipping-news-cargo-owners-co...

The first week of 2019 has proven to be an eventful one with regard to serious marine incidents.

On Dec. 31, the car carrier Serenity Ace caught fire and was abandoned in the Pacific Ocean. On Thursday, the Hapag-Lloyd container ship Yantain Express, bound for Halifax, suffered a container fire, which spread to adjacent containers. Weather hampered firefighting operations, and the crew abandoned ship.

Two tugs were hired by the ship’s owner. The Smit Nicobar happened to be close by the incident and the Maersk Mobiliser, which was dispatched from St. John’s, N.L., arrived on Monday. The situation has likely deteriorated with fire spreading due to poor weather conditions. Once the fire is controlled, the Maersk Mobiliser will tow the ship into Halifax.

Salvage is the term for providing aid to the ship or recovering the vessel and the cargo from a peril.

The actual salvage of the ship can be handled two ways: The shipowner could contract services to save the ship and cargo on a time and materials basis, and the second option is a Lloyd’s Open Form.

The Lloyd’s Open Form works on the “no cure, no pay” principle. If the salvor is successful in saving the ship and cargo they will be paid an amount determined by a salvage arbiter in London. This amount is based on the value of cargo and ship saved. If the salvors fail, they don’t get paid.

The ship itself is protected by hull and machinery insurance. Liability for the ship, including pollution, is covered by protection and indemnity insurance, which is issued by a P&I club. A P&I club is a mutual insurance cooperative, which is made up of shipowners and operators to pool risk.

Based on recent container ship fires, it seems likely that Hapag-Lloyd will invoke general average. The principle behind general average is that losses on a voyage should be held by all parties with an interest in the voyage. General average only applies when extraordinary actions are taken when a ship is in peril.

The principle of general average goes back several hundred years, but the York Antwerp rules of 1890 provided the first uniform set of rules. The York Antwerp rules still exist and are included as a clause in shipping contracts.

When a shipowner declares general average, an adjuster estimates the value of the loss, as well as the value of the ship and cargo. The loss is then expressed as a percentage of the total value, and apportioned to each parties’ interest in the voyage.

In the case of the shipowner, their share of the loss would be the percentage of the value of the ship. Those with cargo aboard will be required to post a security for a percentage of the CIF (cost + insurance + freight) value of the cargo, which must be paid before the cargo is released.

In the case of the fire aboard the container ship Maersk Honam in March 2018, the general average amount was 54 per cent of the CIF value. Eventually 42.5 per cent was the salvage reward, the remaining 11.5 per cent to other losses. If your cargo value was $100,000, your general average security would be $54,000.

Once all actual losses and costs are known, the adjustor will then determine the actual losses, and debit or credit the cargo owners. General average costs would be covered under a cargo owners’ marine insurance.

In the case of the 2012 fire aboard the MSC Flaminia, the liability for the fire was ruled on in late 2018. The courts split liability between the cargo owner and their common carrier, which had booked the slot on the ship. The cargo and hull insurers will now attempt to collect their outlay from the liable parties.

Here are some more happenings in the harbour:

CMA-CGM Libra, due this coming weekend, will set the record for the largest container ship to call in Halifax to date. The ship is rated at 11,388 TEUs and will surpass the record held by APL Salalah, which carries 10,960 TEUs.

Tropical Shipping introduced its new ship Tropic Hope to the Port of Halifax last week. The ship will be joined by Tropic Island later this year, replacing chartered tonnage.