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
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.
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.
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.
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.