The Evolution of the LOF Salvage Contract and the Challenges in the Salvage Industry

IMIF BUFFET LUNCHEON

Date: Thursday 7th March 2013                             

Host: Fred Hardy, Bureau Veritas UK & Ireland

Venue: The Baltic Exchange, London

Speaker: Andreas Tsavliris, President, International Salvage Union

Subject: “The Evolution of the LOF Salvage Contract and the Challenges in the Salvage Industry”

Report by James Brewer

buffet-luncheon-7th-march-2013Chairman Jim Davis opened the proceedings by saying that the “pretty spectacular incidents” at sea of the last 18 months had underlined the vital role of the salvage industry.

Mr Tsavliris began by praising the quality of presentations at IMIF meetings, and the importance of the IMIF annual dinner.  Later members of the audience were to concur that their speaker for the day had lived up to the excellent standard of contributions..

Mr Tsavliris outlined the basic principle of maritime salvage, “no cure, no pay.” If you do not save the ship, you do not get paid. In the 1890s, after some incidents in the Turkish straits and Black Sea, it was decided that referring cases to London and applying English law would secure fairer treatment and a better award, and in 1908 Lloyd’s Open Form was introduced. Since then, that had been the best contract to have, easily understandable, very precise, and very short.  People do not waste time in arguing terms and conditions, as they are fair.

“You have the Turkish form, the Russian, the Chinese, the German, many forms. We find it (the LOF) the best, and it has been tested.” There had been many revisions during the 105 years of history of the form, the last in 2011 which was the 12th edition.  In the Lloyd’s salvage working group. “we argue but basically we get on well, we co-operate.”

Showing slides of polluted seas and wildlife coated in pollutants, Mr Tsavliris referred to the 1989 Salvage Convention: “Everything has changed, but somehow that convention has not changed.  We did try, as salvors, to change the convention so that we would be more recognised for what we do to save the environment and combat pollution around the world.  We still feel that we should be recognised for what we do. We had discussions in China with the Comité Maritime International, but we were not successful. We are not going to let this go, we shall go on and on. We feel we should be more highly rewarded and recognised.”

He reminded delegates that a shipping casualty might cause $1bn, $2bn, $3bn of damage to any country. “Is it so unfair that the salvor should be recognised and get more for helping prevent that catastrophe?”

On the proposal by P&I clubs to add a bunker removal clause to the Lloyd’s Open Form, Mr Tsavliris said: “We are still in discussions with the industry.  It is only fair to let the discussions take their course.”

Of the commercial pressures: “Salvage is a highly capital intensive industry. To buy a salvage tug and equipment is very expensive. A lot of salvage companies are public companies (not private, as we are). They have to convince shareholders that what they are doing is good business.  They look at it in cold economics. How can any company go out and buy and invest?  We really want to reinvest.”

Leading salvage companies were now all retracting. Thirty to 40 years ago there were 150,000 salvage stations worldwide; today we could count a couple of hundred. A big calamity would be coming up and people would be asking, where are the big salvors and where is the equipment?

Of the Scopic (special compensation P&I) clause, it was just that, a compensation – here is your money back – and it did not help the salvage companies to expand, because wreck removal was so expensive. There should be a separation between wreck removal and work under Lloyd’s Open Form. Removing the wreck was aimed at saving casualties from becoming wrecks, which was very important for the P&I clubs.

Of emergency towing vessels, Mr Tsavliris said that some countries pay money to certain companies to station for salvage tugs.  That way, the government feels that the coast is better protected.  The UK government has now stopped doing this, saying that there are always companies that could fill the gap if there were a casualty. London had thus ended what was unfair competition, under which one company received a subsidy “while you are getting nothing. I am hoping that other countries will do the same as the UK.” He called on  France and Spain to stop wasting money and creating unfair competition.

On the controversies over places of refuge for stricken ships such as the MSC Napoli and the Flaminia, Mr Tsavliris praised the UK system of having the Sosrep, the Secretary of State’s Representative, in charge of emergency operations. “Again Europe is not following – I think that they should follow the UK.” People acting for political reasons thought they were doing the right thing, but ended up causing even worse pollution than would otherwise have been the case.

Criminalisation was another concern: “We feel that if we respond, we should be absolved from criminal action. You save the ship, and suddenly they want to arrest you because they want to blackmail you into paying for a fictitious crime.” The next time, “when they have a casualty, who is going to save their ship? It won’t be us.”

Mr Tsavliris took as one of his main themes the challenges to the salvor of the advent of mega-ships. “The world has changed, and now you do not have small ships all over the world, you have huge ships. You can have 5,000 people on board. There is a fire, there is a force 12 gale, perhaps in some godforsaken place. There are huge logistics in this. Where are you going to put 5,000 people?  If it is an island, do you put them on the rocks? How much can one helicopter do? Containerships can be 16,000 to 18,000 teu, with 30 m high freeboard and 400 m length. How do you get next to that one?” It would be difficult to access the containers if there were a fire on board, yet there were multi-billion dollar cargoes inside these boxes.

Statistically, big ship disasters were going to happen.  Had the shipping industry thought this through at the construction stage? When the question was put about how an emergency would be handled, “they say we will think of something. You cannot just ‘think of something’ when you are dealing with colossal damage.  People are not thinking about this: you are building a ship that is not salvable. They say I am making money out of this, leave me alone.” It will happen when ships are of massive size. You have very large ore carriers, bulk carriers recently ordered and some have structural problems already.

Mr Tsavliris concluded: “The industry should be more kind to us, more considerate, more understanding and show more respect for what salvors do.” Rewards had long been inadequate. “When did you see for many years anybody ordering a very big powerful salvage tug – it is very expensive to build.”

Mr Davis agreed that the mega-ships were a big worry.

From the audience, a questioner asked what the cost of an operation would be if the salvors were just left to get on with it, without the additional costs incurred by requests from the authorities. Why should the industry pay for these costs, if the costs were not really necessary? Mr Tsavliris agreed; how would the industry know what is going to be imposed by coastal states.

Mr Davis said it was very difficult when the subject of safe havens was raised to get over the ‘nimby’ (not in my backyard) attitude. Everyone was concerned about ecology yet the refrain was “don’t come near us.” Mr Tsavliris said that it was short-sighted for authorities to rely on local tugs rather than pay major salvors which would be there and one day ready to attend a mega-ship casualty.

Referring to the use of anchor handling tugs for operations, Mr Tsavliris insisted: “We want people who know about salvage,” and he said that emergency towing vessels were only there in regard to pollution. They were not there to do salvage work. P&I clubs had to see what is going on and not ask the owners not to sign Lloyd’s Open Forms because there was something cheap round the corner, That approach was narrow minded because if you do not pay the major salvors, they will not be there tomorrow.

A leading underwriter questioned whether vessels should be classed if they do not have the equipment for salvage.

Another questioner asked how the industry would feel about a provision that if there were an environmental salvage award, it must be used to buy new equipment. Mr Tsavliris said that was a good point, we will consider it. “If there is money coming our way, we will reinvest,” he promised. The subject of mega-ships was still on the minds of those present, and Mr Tsavliris added: “This Costa Concordia was nothing” compared with what could happen ahead, reiterating that a big casualty in a remote area would raise huge physical challenges. “These are not ships, they are small islands.”

Mr Davis commented that loss of life in such a situation would concentrate the mind.

Closing the meeting, Mr Davis thanked Mr Tsavliris for his “brilliant presentation which has given us a lot to think about,” and Mr Hardy of Bureau Veritas for his kind hospitality.