Cargo Insurance

WORLD MARITIME UNIVERSITY Malmö, Sweden

Cargo-insurance (observations) by Captain Jan Horck *

_________________ * Lecturer at WMU

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Course outline SUBJECT:

SM301 Maritime law and insurance

MODULE:

LAW 311 Marine and cargo insurance,

AIM:

To understand the problems of damages and costs related to improper handling and care of cargo onboard ships

TEACHING OBJECTIVES:

The student will be able to: 1) 2) 3) 4) 5)

MODULE HRS:

explain the consequences of improper handling of cargo during loading and discharge and recognise the negative impact bad cargo care has on company reputation be aware of the dangers to crew, cargo and ship due to improper cargo handling realise that a happy consignee, after a voyage with no cargo damage, is the sum and substance of being a successful shipowner realise risks to the cargo during transport under different transport modes appreciate shippers responsibilities to achieve a transport without damages (In this section 2 lectures a 90 minutes)

PREREQUISITE SUBJECTS:

Cargo handling lectures during 1st semester

ASSESSMENT:

Assignment

SYLLABUS CONTENT:

SUGGESTED READING:

IMO and other organisation’s instrument regarding cargo care and securing Words and terminology used in cargo handling and securing of cargo Stowage precautions during loading and discharge Hazards and risks Lashing and securing of cargo

Instruments and literature published by various organisations. IMO: Code for Safe Practice for Cargo Stowage and Securing During lecture recommended literature. P&I Club’s house papers Given handout.

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Cargo insurance Cargo claims are one of the most important categories of disputes involving P&I. P&I insurance covers only the carrier’s liability. This is the reason why it is so important to have the necessary knowledge to ascertain the carriers’ legal liability through identification of the relevant contract of carriage and its terms. The majority of cargo claims are based on the carrier’s contractual liability. Normally the evidence of the contract of carriage is a charterparty. It is essential that the Master (carrier) is familiar with the terms of the contracts applied to the voyage. He should be aware that both the Haag Rules and the Haag-Visby Rules is subject for local interpretations. The Master must also ensure that all cargo handling operations are accurately recorded and documented. He can not defend a claim for damage by saying that the cargo was carried in accordance with usual practice. In fact he must ensure that all handling operations, including the loading, stowing, carrying and discharging are done properly. The following is a listening of problems encountered onboard different ship types and related to the handling of the cargo and having serious impacts on the efforts by the insuring companies. Around 1/3 of all ship owners’ liability claims are for damaged or lost cargo, amounting to about USD 700m a year. The examples below are mainly found in annual reports and newsletters from major P&I Clubs. Hatch covers Statistics indicate that hatch covers, their seals and securing arrangements account for a very high proportion of reported cargo defects. Wet damages mainly affect steal, dry bulk and bagged cargoes but also general cargo shipments. Ships where the hatch covers are a problem are usually very old say 10-20 years. This indicates that poor maintenance is a major factor. The price paid for labor saving and timesaving in port are far below the amounts the insurers have to pay. Hatch covers must be strong to withstand sloshing of ballast, seawater and cargo loaded direct on top of them. Covers must also be able to take forces from cargo sliding. Deformation of the hull and hatch coamings, when the ship is out at sea, is a contributing factor to accidents. Weather tightness is strictly defined in the 1966 Load Line Convention. Note: not water tightness that would mean tight from both sides. Seals are the most important component in the hatch cover system. It is common for seals to be over tightened. This will be followed by wear and tear and cleat fractures. A panmax bulk carrier has about 200 cleats and about 500 m of rubber seals to be looked after. Blockage of hatch cover drainage functions (drains), by the use of sealing tape and high expansion foam and also cargo residues, can cause cargo damage.

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Poor maintenance can reduce the life of hatch cover details to be as short as 10 years. According to expectations by Classification Society rules the life of a hatch cover should be the same as the ship itself. Testing is part of the loss prevention process. Damage can be avoided by proper working practices - closing, securing and sealing. The most common testing, of hatch covers, is one or several of below procedures: 1) Batten down hatch and from inside see if sunlight can be seen through eventual gaps 2) Hose the hatch with water from outside and note from inside if any leakage 3) Apply chalk to the compression bars and then batten down the cover, open and note if any irregular chalk marks 4) Use ultrasonic equipment inside and detector outside and observe eventual change in the sound record An example of costs to avoid penalty: Value of cargo claim - USD 900.000 (not an unresonable amount). Cost to ensure tight hatch cover - USD 128. An extra 10 minutes work by ship’s crew would have avoided the claim that, like in this example, far exceeds the cost for avoiding it. A well planned programme of maintenance should effectively ensure that any risk of leakage is kept to a minimum There is no substitute for regular maintenance of hatches and seals. It is an important element of a maintenance programme. But where is the crew to do the maintenance work !!!!!!! Bilge soundings Bilge soundings should be a formal, regular procedure conducted every day (weather permitting). The soundings should be entered in the deck record book. A small amount of water in the hole can cause a huge amount of damage to sensitive cargoes. Soundings will detect any presence of water in the hole. Over loads Damage can easy be caused to hatch covers by careless positioning of dunnage. Deflections on hatch covers are possible if battens are placed transverse under the cargo between the transverse framing of the cover. The weight of the cargo will bore down on the cover and the weight of the cargo thereby will exceed the maximum permitted loading for the covers. This in itself is of course not a cargo damage but if tweendeck or cover breaks then this over load certainly will be subject to cargo claim. Consider the picture below.

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Picture: unknown source

It is a common believe that ships officers do not fully understand the strength limits of tank-tops, tween decks, hatch covers and even weather decks. To ensure that the limits are not exceeded the cargo must also be spread evenly over the area of eg the tank-top. A general cargo ship is normally constructed to carry materials of about 1,39 to 1,67 m3/T when loaded to full bale weight and deadweight capacity. The very densest iron ore has a stowage factor of 0,29m3/T. In purpose built container ships the tank tops and double bottom structures are specially strengthened where container corner castings are to be positioned. Where containers are carried in holds of non-purpose built vessels, such as general cargo ships and bulk carriers, great care must be taken to use adequate dunnage to spread the weight generated by the stack load. An example: How high can you stow iron ore in a bulk carrier with length of hold L=27m 2 and breath B=21 m. Tank top permissible load=12T/m . Iron ore stowage factor =3T/M3. 27x21x12 Height of stow =

=4 3x27x21

Iron ore can, in this example, be stowed 4 m high. Then no consideration taken to hopper tanks above tank top level. Realise that there are structural limitations !!!!! It still (1999) happens that deck stowed containers are washed overboard. It is a wishful thinking that the carrier will be immune from liability for containers lost over the side. The most common causes of problems are: 1. Lashing plans have not been followed or not even made 2. Stack and tier weights are exceeded ∗ 3. Inadequate securing with suitable twistlocks etc. 4. Securing equipment have not been kept in first class condition

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Pre-shipment surveys A pre-shipment survey is most advisable for many cargoes sensitive to sea transports. Steel cargo is one of them. A claim of USD 300.000 was presented after a voyage between Brazil and Australia because the consignment at discharge was found rusty. Master at loading had failed to give notice of the problem. Therefore the owner had no evidence to answer the allegations. Another pre-shipment problem, ripened bananas from Ecuador, did cost the owner USD 400.000. Burden of proof lies with the owner. If the Master had reported the problem as soon as it presented itself the burden of proof would be a lot easier. In the tramp trade it is very common that loading operations commence immediately upon the ships arrival. There is therefore little time for the ships’ officers to inspect the cargo. In these situations the employment of a competent local cargo surveyor can be most useful and cost effective. Break bulk A general decline of standards in the stowage of break bulk cargo, resulting in damage and claims, has been noted. The main reason for this could be the use of bulk carriers for the carriage of break bulk cargo. And a second reason could be the following: 1. Improper dunnaging 2. Inadequate packing 3. Inadequate stowage skills by ships´ officers The best ship to use for stowage of break bulk is a ship fitted with tween decks. To have many compartments makes it easier to handle different commodities, make port rotation easier and helps to avoid over stows. The disadvantage with the bulk carrier is the high holds (about 12m) compared with the LH in a ship with tween decks (height of about 6m). Adequate dunnage has to be provided in both quality and quantity. Timber and timber products have proven to be the best. Timber has become expensive. Charterers etc. therefore try to use cheaper substitutes not to any good. The ships’ officers should reject poor quality timber. Green or wet timber contains up to 35% of water. Shrinking of green timber could easily result in loosening pierced nails. Timber should also not be infested and should not have any splits. It should be remembered that timber is used as dunnage for the following reasons: 1. 2. 3. 4. 5.

Spread the load Increase friction Tie cargo together Keep cargo away from tank top or deck Keep cargo away from steel at ship’s side 6

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6. Block void spaces 7. Level surface The use of bamboo mats instead of dunnage, to protect the cargo from adverse contact with the ship, is not to recommend because the bamboo will soak up condensation. It would be the same as loading the cargo next to a wet sponge! General cargo packages have to withstand being handled several times during transit. The sea voyage could be said to be the toughest one. Good stowage may not prevent cargo from sustaining damage if packing is inadequate. The picture shows the result of bad packing of wooden sheets.

Picture: Gard News

Before containerisation ships’ officers had more training and education on proper stowage of break bulk cargo. Gradually these skills have been lost. The result is that a Chief Officer on a bulk carrier may never have seen a general cargo ship being loaded. If then “his” bulk carrier is chartered to load general cargo he has to fully rely on the charterer’s supercargo, if any, and/or the stevedores’ expertise. Bulk cargo care Temperature readings (wet and dry bulbs) and monitoring the ventilation programme and properly carried out recordings are essential observations when carrying bulk cargoes. Newsprint is very sensitive to moisture and therefore the Captain should not ventilate when he thinks the weather is nice. Nice to him/her could be defined as the absence of rain, snow or sea spray. Instead both external and hold air temperatures and moisture contents have to be considered in order to be able to properly apply a ventilation programme. Liquefaction may become apparent at almost any stage of a voyage when carrying concentrates.

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Many minerals may liquefy if they contain an excessive amount of water when loaded or if they become wetted. Cargo will shift and ship could easily have a list as in the picture below.

Picture: Lloyds List

Leaking ballast pipes running through cargo holds and blocked drainage channels also cause damage to cargo and possible list of the ship. Container handling Containerised cargoes often suffer problems because of inadequate carriage instructions. Condensation from container roof on coffee in bags is a frequent problem in ports of North Europe. The reason is that the containers remain too long time on the wharf and then being exposed to temperature differences. Another fact is that containers with coffee that have been stowed on the outside container stack suffer most damage. Condensation inside a container loaded with coffee could also be explained by the fact that ventilators still are sealed from the fumigation pre loading. If the tapes are not removed after fumigation the airflow is blocked and mould starts to grow on the coffee bags. A Cargo Securing Manual must be kept on all types of ships since 1 January 1998. IMO Gudelines No.745 gives the details. Container vessels should have a Container Securing Manual. Shipowners should ensure themselves that no updating is necessary. Bulk carriers carrying non-bulk cargoes must also have a Cargo Securing Manual. Reefer containers, of course, have a slightly less payload than general purpose containers. Often it has been seen that such containers have been overloaded. Other mistakes when handling reefer containers are: 1. It is forgotten to close ventilators when container stuffed with frozen cargo 2. Insufficient cleaning 8

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3. Incorrect temperature settings. The carrier may be involved if the temperature is not checked against the B/L and shipping/booking instructions. 4. Temperature reading graphs (charts) are not replaced Solid bulk cargoes are increasingly being carried in Intermediate Bulk Containers (IBC’s) Shifting of cargo can be just as real as in a big bulk carrier. Solid bulk cargoes prone to sliding easily can force the container sides to move. If there are gaps in stows a general collapse of the stow can occur. Overloading is also still practised. Weight distribution inside the container is usually done at the shippers premises and by the driver who has the knowledge for stuffing/securing container content for road haulage.

Picture: Gard News Sept./Nov. 1998

Seeing the picture above it might be interesting to note that the International Convention for Safe Containers (CSC) was not introduced for the safety of the cargo but for the safety of the persons working around them. Bad maintenance of containers is also a reason for accidents. Port officials, stevedores, trade unions etc. should play a more active role in reporting badly maintained containers. However considering the large amount of containers circulating worldwide (about 10 million) there are only a few accidents caused by bad maintenance. Securing and lifting of containers is also a problem. All securing must be in place and checked for tightness, application and arrangement before sailing. A serious problem here is the joint use of twistlocks having either right or left handed closing levers. It is very difficult to tell if the twistlocks are closed or open if mixed use is practised. One can imagine how dangerous such practice is. The practice to unsecure containers before ship is alongside is a cost saving activity that is more than the huge risk involved. A solution to a problem that never seems to have an end! Not only the ship's crew, normally responsible for stowage and lashing of the cargo, should be blamed when there is an accident at sea. Shippers, truckers etc. must assume some responsibility as well. The shipping industry needs a certificate that can be shown as a guarantee that a road vehicle has been 9

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properly stowed and the cargo secured not only for road or rail transports but also for a sea voyage. In the Code of Safe Practice for Cargo Stowage and Securing IMO has published an example of a Cargo Stowage and Securing Declaration.

The tragic fact is that not many shippers or hauling companies use this declaration. Many countries (developed as well as developing) lack people that have the knowledge to carry out proper lashing in containers, swap bodies, trailers, etc. It becomes even more important with the increased use of the weaker swap bodies. The problem is its lack of stiff sides and thereby not suitable for some types of cargo that should be better stuffed in a container. The CSC is not mandatory for swap-bodies. 95 % of its use is in European trades. Many ship owners realise that claims cannot simply be accepted because the risks are insured. Attention is therefore focused on risk management and reduction of risk to lowest possible level. Despite the reduction of risk, still the P&I Clubs have to pay a lot for cargo damages. Safety at sea and happier consignees would be the result of a stronger involvement by underwriters and cargo-owners in their choise of transport mode. Today it is too easy for cargo-owners to obtain recovery from the ship owners.

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The cargo owner must become more concerned with the safety of their cargo. The cargo-owner should be involved in liability. It is time for the cargo owner to assume his responsibility. The sad thing though is that “all bad ships get cargoes” independent what so far has been done. A good thing is that the bad operator is having a harder time to get any loans on his substandard ships. Within the European Community (EC) ideas have been promulgated to introduce economical sanctions towards cargo owners that purposely choose inferior tonnage. This because it is realised that the cargo owning problem is not taken care of by IMO. What really is a substandard ship? There is no legally bounded definition to a substandard ship The former Rector at WMU Mr E.Nordström gives in a report to the Maritime Administration in Sweden the following suggestions to minimise cargo damages: 1. Cargo must be given more responsibility in maintaining safety onboard 2. The industry together with the ship owners must bear the prime responsibility for the quality in sea transports. 3. The port state control programme should be able to use economical sanctions towards mainly substandard bulk and crude oil carriers. 4. Substandard tonnage should be listed as such in public media and the governments should not hesitate to promulgate this. Who is a cargo owner? There is no hindrance that the cargo owner also is the shipper. The one that decides on carriage could be either of: cargo owner, shipper, liner agent or --------. Another fact that makes this situation a problem is that many shippers, of less magnitude, have to have their cargo consolidated in containers. They therefore have no influence on the choice of carrier for their own shipments. Only a minor part of the merchant fleet in the world do not have any P&I insurance (about 5%). The yearly premium for a crude oil tanker is about USD 400.000. Some very big shipping companies choose to have very big dividends and thereby a low premium. The negative thing with this is that they could say that they can not pay the dividend and thereby the P&I Club is not involved in the claim any more. The cargo owner then has a serious problem. The above remarks mentioned just to make aware that it is not only the ship owner and its crew that makes the problem of cargo damage and cargo damage compensation a difficult one to solve. Remarks Cargo monitoring is many times done by computer which may be subject to the millennium bug. An example could be that the cooling system on a gas carrier could be shut down. Shipowners should therefore keep themselves alert on this matter.

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A recent observation, in some ports, is that the cargo receivers require the Master, to sign a shortlanding certificate that not only verifies the shortage but also confirms admission of liability. Such certificate is unacceptable because it jeopardises the P&I cover. Signing (if forced to) should therefore be done together with protest. Each individual cargo is unique!!!

Literature: The Masters role in collecting evidence (The Nautical Institute) Code of Safe Practice for Bulk Carriers (IMO) P&I Clubs House papers Previous handouts in Cargo Handling Code of Safe Practice for Solid Bulk Cargoes (IMO) Recommendation on the Safe use of Pesticides in Ships (IMO) Bulk Code (IMO)

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