Sal­vaging ship­wrecks in the 21st century

The ar­du­ous process of sal­vaging a ship­wreck is not with­out in­creas­ing costs and evolv­ing com­plex­i­ties that con­tinue to af­fect the frame­work of mar­itime in­sur­ance. Last year Lloyd’s of Lon­don pub­lished a re­port de­tail­ing the rise of costs as­so­ci­ated with

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In Au­gust 2013, a cape­size bulk car­rier lost all en­gine power dur­ing nine me­ter swells shortly af­ter leav­ing the Richards Bay Coal Ter­mi­nal for China. Left to the ad­verse weather con­di­tions, the MV Smart ran aground on a shal­low sand­bar. Thirty min­utes later she split into two and took on wa­ter un­til she was par­tially sunk. The SA Mar­itime Safety Author­ity ( SAMSA) has de­scribed the in­ci­dent as the largest and most chal­leng­ing wreck re­moval op­er­a­tions in South African his­tory. The sal­vage oper­a­tion be­gan im­me­di­ately. South African com­pany Subtech an­nounced that, in a joint ven­ture with Smit In­ter­na­tional, they suc­cess­fully re­moved 2 000 tons of fuel in ad­verse con­di­tions. On 7 Oc­to­ber, the sal­vage team suc­cess­fully raised the stern be­fore tow­ing it to sea, where it was de­lib­er­ately sunk in deep wa­ter ( scut­tled). Commercial ship­ping is usu­ally cov­ered against most of the loss which might be­fall the ven­ture. Cargo that is car­ried and dam­age to hull and ma­chin­ery are cov­ered by in­sur­ance com­pa­nies, while third party li­a­bil­ity is usu­ally cov­ered by a mem­ber­ship to a Pro­tec­tion and In­dem­nity Club ( P& I Club). Lloyd’s in­di­cates that wreck re­moval is one of the li­a­bil­i­ties cov­ered by P& I Clubs, and this in­cludes sal­vage as well as the re­moval of fuel and oil pol­lu­tion. Fur­ther­more, the 13 prin­ci­pal P& I Clubs make up the In­ter­na­tional Group ( IG), and they cover 90 per cent of the oceans’ ships. For the ben­e­fit of the shipowners, all the IG clubs pool their larger risks, and losses are shared be­tween the par­tic­i­pat­ing clubs. Should a sin­gle claim ex­ceed $ 70 mil­lion, rein­sur­ance can be ob­tained from the in­sur­ance mar­ket, and this in­cludes col­lec­tive over­spill up to $ 3.07 bil­lion. Lloyd’s es­tab­lished the fol­low­ing as the rea­sons for the in­creas­ing costs faced by in­sur­ers in the case of ship­wrecks: lo­ca­tion; con­trac­tual ar­range­ments; cargo re­cov­ery from container ships that are con­sis­tently in­creas­ing in size; and the na­ture of bunker fuel re­moval op­er­a­tions. Most im­por­tantly, the pres­sure and de­mands faced from lo­cal govern­ment au­thor­i­ties and pub­lic is leading to costlier op­er­a­tions as it may de­ter­mine or re­quest cer­tain op­er­a­tional method­olo­gies or re­sults – which are not al­ways the eas­ier or most af­ford­able op­tions.

In­creas­ing ex­penses

Ship­wrecks are cleared un­der con­tracts by sal­vage com­pa­nies usu­ally that are con­tracted af­ter bid­ding for an of­fered ten­der. How­ever, this process could have detri­men­tal ef­fect on the con­trac­tor should they not be awarded bid, as the prepa­ra­tion and sur­vey for the bid it­self is ex­tremely ex­pen­sive. The cost to in­sur­ers rises when the con­tract is given un­der a daily rate for the per­son­nel, ves­sels, and equip­ment needed – as op­posed to a lump sum. The lo­ca­tion of the sal­vage oper­a­tion can im­pact the op­er­a­tional cost in a num­ber of ways. Firstly, ju­ris­dic­tion of the shore- based author­ity with re­spon­si­bil­ity over the wreck site can in­flu­ence the method­ol­ogy used for the sal­vage oper­a­tion. And while based on the global po­si­tion of the wreck, all of the ideal or nec­es­sary equip­ment might not be avail­able. Ac­cord­ing to Lloyd’s, most heavy- lift­ing equip­ment tends to be con­cen­trated in Europe, Sin­ga­pore, North East Chine, Ja­pan and the Gulf of Mex­ico. Fur­ther­more, lo­cal weather con­di­tions, reefs and the na­ture of the ground a wreck lies on all con­trib­ute to the com­plex­ity of the oper­a­tion. En­vi­ron­men­tal fac­tors have sig­nif­i­cant in­flu­ence on the sal­vage oper­a­tors to en­sure that no toxic pol­lu­tants are re­leased and the sur­round­ing en­vi­ron­ment is not dam­aged. Lloyd’s re­ported that be­tween 1994 and 2011 In­ter­na­tional Sal­vage Union mem­bers had salved just over 17 mil­lion tons of po­ten­tial pol­lu­tants from the sea. Crude oil and bunker fuel make up the ma­jor­ity of the po­ten­tial pol­lu­tants, and these are the most dam­ag­ing in the event of a spill. How­ever, coal, ore, re­fined chem­i­cals and phys­i­cal dam­age to lo­cal habi­tats at the place of the wreck also com­pli­cate sal­vage and re­moval. Bunker fuel ( the ship’s own fuel) is the most com­mon pol­lu­tion haz­ard dur­ing a sal­vage oper­a­tion, and its re­moval is a sig­nif­i­cant un­der­tak­ing. This is cov­ered by in­sur­ance and usu­ally the first ma­jor cost to be ac­crued when sal­vaging a wreck. To clearly il­lus­trate the ris­ing costs as­so­ci­ated with the clear­ing of a wreck, Lloyd’s fur­ther re­ports that the typ­i­cal bunker re­moval oper­a­tion in the early 2000s cost be­tween $ 1 mil­lion and $ 4 mil­lion, whereas that cost presently could be up to $ 20 mil­lion, par­tic­u­larly if the sal­vage is un­der a daily rate con­tract. Re­mov­ing the bunkers from the Costa Con­cor­dia cost around $ 25 mil­lion. In­creas­ing ship size af­fects the abil­ity of the sal­vage con­trac­tors to han­dle wrecks of the largest ves­sels, as they pro­duce more wreck­age and carry more cargo. The re­moval of cargo is usu­ally slow and, con­se­quently, ex­pen­sive. How­ever, this is un­likely to change as the size of container ships will con­tinue to grow. Container ships are the fastest grow­ing ships. In fact, Lloyd’s re­ports that the aver­age size of a container ship has tripled. In 2013, the largest container ship had a ca­pac­ity to carry 16 000 twenty- foot equiv­a­lent units ( TEU). This is up from 5 000 TEU in the 1990s. Matthias Galle from the Ger­man­is­cher Lloyd clas­si­fi­ca­tion so­ci­ety has in­di­cated that there is no rea­son why ships of more than 20 000 TEU should not be con­structed. Lloyd’s re­port em­pha­sises this fact by in­di­cat­ing that MSC Napoli and the Rena, some of the costli­est wreck re­moval op­er­a­tions in re­cent years, were not even fully laden, with 2 300 TEU and 1 300 TEU re­spec­tively. Still, the ex­trac­tion of con­tain­ers from both wrecks took months to clear. While sal­vaging a wreck might take months, or even years in par­tic­u­larly dif­fi­cult cir­cum­stances, pres­sure from the me­dia, pub­lic opin­ion, non­govern­men­tal or­gan­i­sa­tions, and the lo­cal govern­ment in­flu­ences the oper­a­tion. In their re­port Lloyds makes use of the Costa Con­cor­dia ex­am­ple. While it may have been cheaper and quicker to cut up the Costa Con­cor­dia as it laid where

she was grounded, lo­cal au­thor­i­ties and en­vi­ron­men­tal con­cerns or­dered that the ship be re­moved in one piece. In the case of the MV Smart, the en­tire oper­a­tion is be­ing su­per­vised by the South African Mar­itime Safety Author­ity, the Depart­ment of En­vi­ron­men­tal Af­fairs, and the Richards Bay Port Author­ity. The de­ci­sion to have the wreck re­floated and scut­tled in deep wa­ters at sea is some­what old fash­ioned. More com­monly, govern­ment au­thor­i­ties can re­quest that the wreck­age must be safely trans­ported to re­cy­cling fa­cil­i­ties.

Ne­go­ti­at­ing ca­pac­ity

The ris­ing costs of ship­wreck sal­vage and/ or re­moval af­fects the in­sur­ance in­dus­try as it in­creases the like­li­hood that the $ 70 mil­lion IG pool will be ex­ceeded and rein­sur­ance cover will be needed. Since in­sur­ance com­pa­nies are also re­spon­si­ble for the hull and ma­chin­ery of the ship­wreck, the cost of rein­sur­ance will rise. This means that the pre­mi­ums will rise and shipowners will in­crease their op­er­at­ing costs. The Lloyd’s re­port in­di­cates that the gen­eral rise of rein­sur­ance has been 8.5 per cent across the clubs. Ship­ping is a de­mand­ing in­dus­try, vi­tal to the global econ­omy. While shipowners are en­joy­ing record lev­els of ca­pac­ity by the in­sur­ance sphere, should the costs of ship­wreck sal­vage or re­moval con­tinue to rise due to an in­crease of se­vere in­ci­dence, such as the on­go­ing sal­vage of the Costa Con­cor­dia ( which has cost $ 760 mil­lion to date), in­sur­ance and rein­sur­ance ca­pac­ity will di­min­ish. If the in­sur­ance com­pa­nies have to lift their pre­mi­ums ac­cord­ingly, shipowners will face crit­i­cal chal­lenges, es­pe­cially since they al­ready have to ne­go­ti­ate low­ered rates, ris­ing fuel costs, ves­sel de­pre­ci­a­tion, in­creased reg­u­la­tory pres­sure, and re­duced ac­cess to fund­ing.

Com­mon in­ter­ests

Ear­lier this year the third phase of the MV Smart sal­vage at Richards Bay be­gan af­ter a ten­der was put out for the re­moval of 147 650 tons of coal from the re­main­ing mid­dle and bow sec­tions of the ship. SAMSA an­nounced that Amer­i­can com­pany Ti­tan Sal­vage won the ten­der and sub­con­tracted Subtech to re­move the coal. Once the coal is re­moved, the bow will be re­floated and towed out to sea where it will be scut­tled. The mid­dle sec­tion which is com­pletely sub­merged will be cut into pieces and re­moved. The sal­vage is ex­pected to be com­pleted in Novem­ber 2015. In or­der to cut costs, Lloyd’s em­pha­sises col­lab­o­ra­tion be­tween na­tional govern­ment, rel­e­vant au­thor­i­ties, shipowners, in­sur­ers and rel­e­vant con­trac­tors to en­sure fair and con­sis­tent wreck re­moval across all ter­ri­to­ries, with min­i­mal po­lit­i­cal pres­sure; re­duc­ing the gap be­tween the in­creas­ing size of ships and the equip­ment re­quired to han­dle them; en­cour­ag­ing con­trac­tors and P& I Clubs to work to­gether to en­sure the re­duced costs of bid­ding, and that the con­trac­tor that re­ceives the ten­der can af­ford par­tic­i­pat­ing in the oper­a­tion.

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