Welcome address and ISU review
Ms Charo Coll, President, International Salvage Union
Good morning and thank you to Andrew for the introduction. It is a great pleasure to be here and to be invited to give the welcome address.
The programme describes my talk as the ISU Annual Review and I will, indeed, be giving some thoughts on the state of our industry, but I also want to use this conference to tell you about a new vision for the salvage industry and for the ISU itself as the trade association representing the industry and its contractors, our members.
Over the last two years the leadership of the ISU has been concerned that its messages and tone have been out of line with the realities of our side of the industry – the supply side – and the realities of the demand side of the industry – the owners and their insurers, both property and liability.
ISU has been through a period of change in the past decade with increasing professionalism and development and expansion of the membership. We have 57 full members who must be operators with experience as the lead contractor in salvage operations We have some 73 associate members from the supporting industries and professions and 13 affiliate members who are mainly other trade associations.
We have our own office with better governance and management systems that have been introduced and the scale and scope of activities and engagement has increased.
Transparency has improved – publication of annual industry statistics was re-started a few years ago – and an Annual Review, including ISU’s financial position, is now published every year and communications are of higher quality.
ISU is fortunate that it is a generally well regarded and meaningful organisation for its members. 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.
We are in a positive position as an association so we are ready to build for the future from solid foundations. Let me first describe the context as the ISU sees it and then move on to our response to the conditions.
The supply side
For our members – the supply side of the industry – there is much pressure, mainly through intense competition; a reduced number of jobs and generally lower income. Competition is between the ISU members and there is also competition from non-members. This can come from powerful, but non-specialist, vessels often from the offshore sector and specifically also from consultants with no equipment of their own.
It has always been the ISU position that it supports fair competition – it is in everyone’s interests that there should be a range of contractors capable of, and willing to, undertake salvage – both emergency response and wreck removals.
The intense competition has led to the increasing use of alternative contracts that were not necessarily intended for emergency situations requiring immediate response. It has also led to the erosion of the core strength of the Lloyd’s Open Form by the use of side agreements – albeit, as far as Lloyd’s is aware, there are very few of them.
Let us consider the most recent ISU annual statistics. The total number of emergency response services in 2017 was 251. 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.
So, we see an industry that has recovered a little from the low point of 2016 but which is still nowhere near the levels of 2013, 2014 and 2015 when total revenues were consistently more than US$ 700 million.
Revenue from Lloyd’s Open Form (LOF) cases in 2017 was US$ 54 million which is the lowest since 1999 and continues the downward trend of LOF. At the same time, revenue from operations conducted under contracts other than LOF has risen significantly.
Revenue from LOF cases represented 31 percent of the total of all emergency response revenue. Only ten years ago, LOF revenue represented more than 70 percent of emergency response income – it demonstrates clearly the declining financial significance of LOF.
We are well-aware of the suggestion to consider a new, additional version of LOF, the so called LOF “light”, and it is on the agenda at this conference. But the ISU Executive and members do not support the initiative and cannot support the use of LOF to adopt a tariff-based form of Article 13 remuneration. We do not believe that will provide adequate incentive to undertake salvage operations.
It is worth reminding ourselves that a fundamental objective of the 1989 Salvage Convention is to ensure that adequate incentives are available to undertake marine salvage operations. This is the law in the 73 countries that have adopted the Convention. This objective is to ensure there is always a properly funded and innovative salvage industry available to reduce marine risk as much as possible.
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.
Most ISU members have diversified their services and most have for a long time provided other valuable services alongside traditional salvage, such as pollution control and marine project management.
This reality has been at the heart of our analysis of how best to “position” our industry: ISU will still continue to support and promote LOF in its unamended form but we have to recognise that is only a part of our work.
The shipping and insurance industries must – in their own interests – recognise the need to provide sufficient compensation 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.
The demand side
Turning now to the demand side of the industry – the owners; property insurers and Clubs. The latest 2017 IUMI statistics show that premium income from hull and cargo combined was $23 billion. It means that total salvage industry income is just 2% of total marine property insurance premium income.
But we do understand the pressures on those who pay for our services. IUMI has said publicly that the “hull sector remains a serious concern” and it has identified the accumulation of values at sea as an issue. IUMI points out that in the past ten years there has been an increasing volatility in the impact of claims and as vessel sizes continue to increase, this 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. International Group statistics show, as one key indicator, that the number of claims on the IG pool demonstrate a clear downward trend for the past 9 years. Further, individual clubs have seen no general increase in calls and have even returned cash to members. At the same time, we know that individual cases may be much more expensive for the Clubs and the IG pool and re-insurers these days.
Shipowners have also experienced very difficult conditions since the 2008 economic crash. Over supply of tonnage coincided with reductions in trade for bulk, container and tanker operators all suffered and the recovery has been painfully slow. Particularly bad conditions in the container markets of two years ago have eased but there are always cost and regulatory pressures. However, the overall picture now seems to be improving. It is often forgotten that ISU members are also shipowners, insurance premium payers and P&I Club members.
The salvage industry response
ISU acknowledges these are difficult times for our partners and we cannot be seen to ignore reality – both our own and that of others. 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.
In short 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. We must not “cling to the past” but embrace a more creative and diverse approach to contracting.
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.
And that core purpose is supported by the commitment that ISU will:
Encourage high standards of operation and conduct by its members.
Promote the value and benefit of its members’ services including protection of the marine environment.
Engage with shipowners, insurers and other key stakeholders to represent its members’ interests.
Work with IMO, and others to improve delivery of marine services and safety at sea.
And ISU will be a source of information and expertise about marine salvage and major marine projects and promote best practice and cooperation.
We need to make sure that we put out strong messages that ISU members offer core salvage services which protect the environment and prevent disasters. We do not think we have shouted loudly enough about our contribution to environmental protection. We must not overlook that in 2017 ISU members’ operations involved vessels carrying more than 3 million tonnes of pollutants. Of course not all of that was going to go into the sea, but, without our interventions, there would undoubtedly have been some substantial pollution events.
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.
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 excellent project management, successfully delivering complex projects particularly with the removal of wrecks.
In essence, it means LOF will be a less significant feature of ISU’s messaging and there will be a shift in emphasis to promote the wider capabilities of ISU members in a world where global trade, care for scarce resources and protection of the environment is foremost.
These ideas are being translated into our strategic plan for the next five years. There are some actions that we have committed to undertake straightaway. One of the first items is to conduct a survey of our key stakeholders to properly understand current perceptions of the ISU and the salvage industry against which progress can be measured. Some of you here today may be contacted to participate in that survey and we hope that you will take part an active part in it.
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 also want to establish better contact with stakeholders representing wider civil society, particularly the marine focussed environmental groups.
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. And we want to explore the possibility of creating an educational/training aspect to ISU’s work with the credibility to offer Continuing Professional Development across relevant professions. This might involve formal association with appropriate academic and professional institutions.
We are going to use social media channels in the ISU communications mix and we have started work to update the visual identity of ISU, not a “re-brand”, but a “re-fresh.”
To conclude, ISU must promote the full range of its members’ services and the value they add under different contracts. The use of Lloyd’s Open Form has diminished significantly and is unlikely to return to historic levels though it remains an important contract. The traditional business model of salvage with tugs on station is no longer viable – although there are still a large number of salvage tugs available worldwide. That is not to say that ISU members do not invest in salvage – they do, with an emphasis on portable equipment, technology, people and training and still a large number of salvage tugs worldwide.
ISU members are excellent project managers delivering, safe, helpful solutions to clients’ problems and ISU members’ services facilitate trade and economic growth. We are positive about our contribution to shipping, the economy and the environment. We want the increasingly diverse work of the traditional salvor to be recognised and valued and rewarded sufficiently to support the continued availability of professional salvage services.
And now, as I come to the end, I should like to take this opportunity to thank Mark Hoddinott, the ISU General Manager, who is retiring next week. We gave Mark a proper farewell at our recent AGM but I would like to note publicly at this conference that Mark has been central to the work of the ISU and its development over the past six years. Many of you will know Mark very well because he has been part of the salvage industry as a tug master, salvage master and in senior corporate positions for nearly 40 years. He has been a great servant of the industry and ISU is very grateful to him and we wish him a long and healthy retirement. Mark’s successor is Roger Evans who many of you will also know well and who will do a great job for ISU. So, in finishing, I thank Mark and welcome Roger.