ISU President, Charo Coll and Secretary General, Roger Evans
Introduction and current environment
Good afternoon. It is a great pleasure to be here at what has become an important and respected conference and my thanks to our hosts LOC for their organisation.
This afternoon you get two ISU speakers for the price of one! First, I am going to describe the ISU’s assessment of the strategic context of the salvage industry and how we believe we should respond to that context. Then I will hand over to the ISU’s Secretary General, Roger Evans, who will discuss some of the current operational issues that are of concern to us.
Many of you will be aware that the ISU has been giving much attention to how it, as a trade association, and the salvage industry which it serves, should be positioned. We have begun to speak publicly about our intentions but it is critical to say at the start that any re-positioning is very much “evolution not revolution”. We must avoid the trap of suggesting the industry is broken and requires fundamental change. It is not broken but it certainly faces significant challenges.
ISU has changed significantly in the past decade. For a start, it has grown and we now have 50 full members who, to remind you, must act as main contractors and demonstrate experience of salvage operations. And we have 78 associate members from the supporting industries and professions and 13 affiliate members who are mainly other trade associations.
As well as growing, ISU has improved its management, engagement and communications and its commitment to transparency has increased – for example by the publication of annual industry statistics and an Annual Review, including ISU’s financial position.
ISU is well regarded and considered by its members to be useful and providing value for money. We believe that the ISU has a reputation as professional, fair and reasonable. We also think that the industry has a good reputation but we do recognise that there have been concerns about some behaviour in recent years.
This puts our association in a positive position from which we can build for the future. Let me first describe the ISU’s assessment of the business context and then how we are responding to the conditions.
The contractors’ perspective
Contractors obviously cannot collectively, or individually, stimulate the overall demand for services. The number of casualties and wrecks that occur is not in the control of the salvage service providers. This is a function of levels of sea trade, ship safety, crew quality and other variables.
There is a clear link between supply and price in our industry and there is oversupply in our market. It comes from both traditional salvors and additional capacity offered by non-salvors, such as marginal capacity from the offshore sector. Increased competition also comes from consultants with no equipment of their own. The salvage industry is faced with the jeopardy of over-supply and weaker demand – certainly for major jobs and generally lower income.
Price should not be everything. Quality and experience are critical and ISU encourages the use of contractors – like its members – who have their own equipment as well their own professionally employed, experienced staff.
A quickly chartered AHTS may be capable of a salvage job but has its crew got the necessary experience? Does it carry the necessary towing equipment? Is it safe to engage in opportunistic salvage simply because the vessel was available and low cost? And on terms without the contactor bearing the financial risk? What if the effort is unsuccessful or makes the situation worse?
Intense competition has led to the increasing use of alternative contracts that were not intended for emergency situations requiring immediate response. It has also led to the well-known – and much discussed – reduction in the use of the Lloyd’s Open Form and erosion of its core strength by the use of side agreements – although, officially, there are very few of them.
The most recent ISU annual statistics are now nearly one year old but they provide evidence of the difficult conditions. Gross revenue for ISU members in 2017 from all activities was US$ 456 million. It compares with US$ 380 million in 2016 and that is a 20 percent increase but still far from the US$ 717 million in 2015.
Revenue from Lloyd’s Open Form (LOF) cases in 2017 was US$ 54 million which is the lowest since 1999 and revenue from operations conducted under contracts other than LOF has risen significantly.
However, it is clear from our members and the industry statistics that, even compared with just a few years ago, the commercial environment has changed to the extent that it is not really possible to sustain a traditional, stand-alone salvage business based on “no-cure, no-pay” jobs with tugs kept on station.
The difficult conditions have led to a number of initiatives for change to the contractual regime such as the so called LOF “light”. You all know already that the ISU does not support this idea.
The owners and insurers’ perspective
We do understand the pressures on those who pay for our services. The hull sector remains a serious concern according to IUMI which has also identified the accumulation of high values at sea as an issue. IUMI points out that in recent years there has been increasing volatility in the impact of claims and, with more large vessels, that trend will not reverse.
This is exactly where the salvor can add value to property insurers. ISU members can work with their clients proactively to help mitigate risk and, if the worst does happen, are best placed to make helpful interventions to reduce loss.
The liability insurers, the P & I Clubs, in contrast, have not experienced the same pressures. The number of claims on the IG “pool” show a clear downward trend for the past 9 years. Further, some clubs have seen no general increase in calls and have even returned cash to members. But we do know that individual cases may be much more expensive for the Clubs and the IG pool and its re-insurers.
Shipowners have also experienced very difficult conditions since the 2008 economic crash. Excess tonnage at a time of reduced bulk, container and tanker trade caused suffering and the recovery has been slow. The container markets have now eased but there are always cost and regulatory pressures – which also apply to ISU members who are shipowners themselves.
The salvage industry response
ISU acknowledges these are difficult times for our partners and we cannot be seen to ignore reality. We must therefore be a forward-looking organisation that recognises the salvage world has changed. There is no appetite or need for revolutionary change to ISU but we must confidently evolve and match our corporate positioning with the reality of the industries we serve.
We must not be a single issue organisation devoting the majority of our energy and resources to historic ways of working that are unlikely to return. To help us focus we have defined our core purpose.
To be the credible, trusted and unified global voice of its members who facilitate world trade by providing marine services which save life, protect the environment, mitigate risk and reduce loss.
To support that, ISU will encourage high standards of operation and conduct by its members and promote the value and benefit of its members’ services. We want to re-engage with shipowners, insurers and other key stakeholders and be a source of information and expertise about marine salvage and promote best practice and cooperation.
We want to make sure our contribution to environmental protection is recognised – in 2018, ISU members’ operations involved vessels carrying 3.2 million tonnes of potential pollutants. We operate in a world where care for scarce resources and protection of the environment is now, for many people, the most important consideration.
Another key message is that our members facilitate global trade through their salvage operations. They keep ports open and keep goods moving in a commercial world where containerships are giant, floating, moving warehouses. This was demonstrated by the successful refloating by ISU members of the CSCL Indian Ocean in the Elbe and the CSCL Jupiter in the Scheldt and the response to the fire on the Maersk Honam last year.
We want salvors to be seen as partners with property owners who mitigate risk and minimise loss. Also to be recognised as creative, innovative, safe contactors who have great experience of project management, successfully delivering complex projects particularly the removal of wrecks.
New initiatives and operational issues
ISU is now building the ideas described into its plans for the next five years. We have already conducted a survey of our key stakeholders – some of you will have participated – to properly understand current perceptions of the ISU and the salvage industry against which progress can be measured. The preliminary results are promising, suggesting respondents’ satisfaction with ISU is running at a score of 7.33 out of 10 and that 43 percent of respondents think their relationship with ISU is improving. We will be doing fuller analysis of the results in the coming weeks.
We also want to increase our engagement with key stakeholders particularly among ship owners and managers and to continue to engage and perhaps re-connect with the IG, IUMI, ICS and others. We must work as partners solving issues together to ensure the continued availability of a professional salvage industry.
We also want to establish better contact with stakeholders representing wider civil society, particularly the marine-focussed environmental groups which we think will be interested in our pollution prevention work. And we hope that they will support us and be advocates for the continued provision of a commercial salvage sector. We have already committed ISU to a programme of briefings for Non-Governmental Organisations like Greenpeace and Friends of the Earth.
We intend to create, and facilitate, a group for “under 35s” in the industry with the aim of increasing knowledge exchange and a “sense of belonging” to the industry. However we think that it may be difficult to establish such a group as there may not be enough younger staff. We may have to raise the age level!
And we want to explore the possibility of creating an educational/training aspect to ISU’s work – we are already in discussion with the prestigious Nautical Institute about educational cooperation.
We are also considering how we communicate digitally making better use of the website and thinking about the value of social media. We have also updated the visual identity of ISU and have selected a new look – seen here in the slide – which will be rolled over the coming weeks. It is not meant to be a full re-branding exercise but a “re-fresh”.
I would now like to turn to some of the current operational issues that the ISU is concerned with.
In wreck removal, we are in detailed discussions with the International Group about the use of Quantitative Risk Assessment in the tendering of wreck contracts. This is proving to be protracted because there is not a consensus on the best approach to QRA or whether it should be formally incorporated into the contracting framework. There are different proprietary systems available, data entry is onerous and ownership of the data is uncertain. QRA certainly has a place and can produce savings in the execution phase of major projects and we will continue the discussions.
Also of concern is the fair treatment of risk in wreck removals. We are seeing cases where the Clubs are seeking to transfer most, if not all, of the risk to the contractor which we do not think is fair. To be competitive, the wreck removal market needs to have a number of competent contractors willing to bid for projects and this unfair practice may discourage participation.
Fire on containerships is an important matter. ISU members are usually the only agency available to deal with these incidents – often with fatalities – and there have been many examples going back to MSC Flaminia, CCNI Arauco, MSC Daniela and more recently, the Maersk Honam. It is an area of specialty for traditional salvors and ISU supports IUMI in its work to see changes in containership design and operation to improve fire prevention and fire safety. But the risk will remain and ISU members will be available to intervene.
A closely connected issue is mis-declaration of container contents and weights with significant safety implications.
Increasing vessel size across many classes – passenger, container, bulkers and LNG – is an issue but ISU is confident that, whatever the challenges of scale, an ISU member will be prepared to solve the problem.
Safe operations concerning LNG cargoes as well as LNG-fuelled vessels are also on our list of issues and no marine conference is complete without noting autonomous and remotely operated vessels and cyber security. The ISU position is that we want to support ship owners and their technical innovations.
The fundamental principle must be that autonomous ships should be at least as safe as existing shipping – and addressing the cyber threat is critical to successful introduction. But autonomous ships will not remove the potential for marine casualty. ISU anticipates considerable technical challenges in salving autonomous ships: communications, boarding, making connections and taking local control of the vessel, for example.
Salvors need to be involved in design, training and operational planning in order to ensure that autonomous ships, and their operators, are “salvage ready”.
Arctic operations are of increasing interest as the possibility of routine maritime trade between Europe and Asia via shipping routes in the “high north” becomes ever more likely. This is not a matter on which ISU has yet had to focus but we maintain a “watching brief.”
Recruitment and retention of quality staff is an increasing challenge and so is ensuring that our people gain real experience when there are less jobs.
The final operational matter to report is the continuing requirement for better international performance on places of refuge. We have recently worked with the European Union at the International Maritime Organisation to press coastal states to meet their obligations when a place of refuge is requested.
Addressing many of these issues requires innovation, and therefore investment, at a time, as we have seen earlier in this session, when revenues are still depressed.
To conclude, ISU is very busy with operation matters and it also has recognised that it must position itself for the realities of the current hard business environment in which competition and fewer jobs has led to weaker revenues. We must work cooperatively with the owners and insurers to position salvors as valued experts who can help to prevent and reduce loss, mitigate risk and facilitate world trade.
We want the wider community of influencers to understand the important environmental protection work of ISU members and we want the ISU to be an engaged and trusted trade association.
We want the increasingly diverse work of the traditional salvor to be recognised and valued and rewarded sufficiently to encourage investment in vessels, equipment, training and the development of highly qualified staff in order to continue to provide an essential global emergency response capability.