Welcome Address “ISU Annual Overview”
Captain Nicholas Sloane; President of the International Salvage Union
Good morning and thank you Andrew for the introduction – it is indeed a privilege and an honour to address you all this morning on behalf of the ISU. It is just on 39 years that I have been in the industry and I still feel extremely passionate about.
It is fantastic to be here “in the room” with so many familiar faces after what has been far too long working remotely.
I hardly need to say that for all industries, professions, families and individuals in all parts of the world, 2021 was, as with 2020, a year like no other. I hope that we are now past the worst of the pandemic and that more and more normality will return in 2022 and I extend my sympathy to all those who have suffered loss and hardship.
Despite the great challenges, the members of the International Salvage Union continued to deliver professional salvage services around the world. I do not want to spend too much time on the pandemic today because the approach of ISU members has been, in so far as possible, to deliver “business as usual”.
I think salvors have responded superbly to the unprecedented circumstances. We have continued to serve our shipowner clients using our ingenuity and determination despite the increased personal risks, inconveniences, and bureaucratic obstacles. Appropriate services have been provided when and where they were needed. And it is always worth reminding one of how different things might have been if commercial contractors were unwilling or unable to provide the necessary services.
Crew welfare on board ships has been a major issue and we share the concerns raised by many shipping trade associations that the extra stress and pressure on seafarers during the past two years is unacceptable and compromises vessel safety. The inability of the international community seemingly to recognise the special case of seafarers and to facilitate their travel has been very disappointing. We will touch more on that in the panel discussion tomorrow.
This year we have also contended with the fundamental question of Lloyd’s continued support for its salvage arbitration branch and the “Lloyd’s Open Form” contract. And – as I am sure you would expect – I am going to cover this in more detail shortly.
Another area that I shall concentrate on is environmental protection. It would be impossible to have missed the coverage of the recent CoP 26 climate change discussions and there can be no doubt that environmental matters are at the top of the political and business agenda. It is an area where salvors make a great contribution and this is also a topic I will say more about later.
My first exposure to LOF salvage was in August of 1983 – before Article 14 was introduced – then I was again involved in June 2000 – with one of the first LOF Scopic cases – so it has been great to see the evolution of the LOF contact form my own personal perspective.
Talking about the Lloyd’s Open Form. In April Lloyd’s issued a note indicating it was going to conduct a review of its support for its’ Salvage Arbitration Branch. It was not clear at the outset what the review might mean specifically for LOF but, without the Lloyd’s Salvage Arbitration Branch, and the association with Lloyd’s, it was the ISU – and many others’ viewpoint that the LOF would be gravely, if not fatally, damaged.
It was the ISU’s position that to discontinue the support and endorsement of Lloyd’s for LOF would have a serious impact on safety at sea and a potentially significant impact on the environment and an increase in loss of property such as ship, cargo and threaten businesses ashore affected by damage and pollution.
LOF has had a truly global, recognisable identity in the maritime sector for more than 100 years and is the “contract of choice” for emergency response where those at sea face imminent peril and its success is based on world-wide understanding and acceptance of it as the “go to” contract.
The marine business of Lloyd’s has diminished over the years but values of ship, cargo and bunkers – and the complexity of many cases – has increased significantly. Over the past 10 years, the average total salved values of ISU members’ LOF cases is more than US$1 billion each year. And there is greater financial exposure beyond the immediate casualty.
I always say – if you think “emergency response” is expensive – then try a CTL leading to a “wreck removal!”
It was very encouraging to see that the response to Lloyd’s consultation was universally in support of the “salvage arbitration branch” and the LOF contract. Shipowners, insurers and salvage contractors all agree that the availability of LOF is essential to sustain the provision of the salvage services that prevent and mitigate potentially huge losses and protect the environment. Without LOF the great benefits of the associated SCOPIC regime would also be lost and there would be a return to the use of the Salvage Convention’s Article 14, turning the clock back more than 20 years.
Following the consultation, Lloyd’s said it “recognised and had listened to” the high volume of representation in support of the LSAB and the LOF, made by market representatives, committees and other interested parties and said it would continue to operate its Salvage Arbitration Branch.
Lloyd’s said it is “determined to increase the use of the form and to highlight the benefits that its use can bring” and a LOF market working group is being established. We support this initiative, but we want to be sure that salvors are properly represented because our members are party to the great majority of LOFs that are signed.
The decline in the use of LOF is indicative of a general reduction in the number of cases and the salvage industry continues to face economic pressure. Several major players have been lost to the industry in recent years and I believe that it remains to be seen over the coming years whether the capacity of the industry is capable of delivering the kind of professional services that owners, insurers and governments rely on in all parts of the world.
Income from salvage operations is very variable when looked at on an annual basis and we should be cautious in considering any single year of the ISU’s salvage industry statistics. However, our latest statistics for 2020 show significantly weaker revenues with a dramatic fall in wreck removal income and services:
- Gross revenue for ISU members were US$ 301 million, compared with US$ 482 million in 2019
- There were 182 services provided, in 2019 the number was 216 services
- There were 40 Lloyd’s Open Form cases, up from 35 in 2019 and LOF revenue was up at US$ 60 million compared with 2019’s US$ 49 million
- Wreck removal income was significantly down at US$ 98 million from 52 services, in 2019 there was US$ 284 million from 101 services
The total revenue for ISU members was down by 38 per cent compared with the previous year. The wreck removal income stream fell by 65 per cent. In recent years wreck removal income has represented roughly 50 per cent of our members’ income but in 2020 it accounted for just under 33 per cent.
Average income from each LOF case in 2020 was US$ 1.5 million representing 9 per cent of the average salved value of the ship and its cargo.
Revenue from LOF cases amounted to 33 per cent of all emergency response revenue and LOF cases accounted for 22 per cent of all emergency response cases in 2020.
SCOPIC revenue at US$ 24 million was up from US$ 17 million in 2019.
Revenue in 2020 from operations conducted under contracts other than LOF was US$ 119 million, down from US$ 131 million in 2019. The average revenue from each non-LOF contract was therefore US$ 838,000.
Do keep in mind that statistics are for income received in the relevant year but that can include revenue relating to services provided in previous years and there can be an element of “time lag”. The statistics are for gross revenues from which all of the salvors’ costs must be met.
Governments have talked for many years about zero tolerance for pollution, but society now demands it. Widespread public support for the environmental movement shows that care for the environment is now mainstream and that has put it at the heart of political and economic decision making.
- The Poseidon Principle – on ship financing – is taking a greater hold of the shipping community – and the incumbent responsibility to be a good global citizen – means that shipowners and their liability underwriters, shall need to be even more concerned on environmental impact of their activities – their ESG responsibilities.
ISU members have been preventing pollution for decades and we are very proud of our great contribution to environmental protection. Countering marine pollution is a core business for members of the ISU, facilitated by their people, skills, equipment and innovation.
In 2020 our members provided services to vessels carrying more than 2.5 million tonnes of potential pollutants – that included more than 30,000 containers. We are always transparent with the survey – we know that not all of these potential pollutants were at risk of going into the sea. Some cases will have had limited danger, but many others will have carried a real risk of substantial environmental damage. We only need to look at the coast of Sri Lanka to see the reality.
We often concentrate on dirty cargoes and of course a casualty’s bunker fuel can be a major source of pollution. In our 2020 pollution survey the total quantity of bunker fuel involved in our members’ cases was more than 110,000 tonnes. And there were 14 separate cases where the casualty vessel had more than 2,000 tonnes of bunker fuel on board.
And in my own career my first SCOPIC case in June 2000 involved the Treasure which only spilled 1500 tonnes of bunker fuel but which put over 50,000 penguins at risk and led to one of the largest ever animal rehabilitation operations.
I do not think salvors take enough credit for this important work and we must make sure that wider society is properly aware of our environmental role. I am pleased that there is a session later in the conference specifically considering environmental social and governance – the so called “ESG” – issues particularly for the insurance industry. I am looking forward to being a part of that panel discussion.
It surely should be to the mutual advantage of insurers and members of the ISU to demonstrate to society that they work together to protect the environment. It is an area IUMI has said it intends to focus on and we should like to support that initiative. It would be good to explore ways in which the role of the professional salvor was recognised as part of the insurance industry’s public commitment to good ESG practice.
This leads me on to re-state some of the other values of the professional salvor:
Emergency response, environmental protection and major projects all involve physical and financial risk. The traditional salvor – a typical ISU member – has a willingness and ability to take on the financial risk of a salvage job under the LOF – “no cure, no pay” model. During a major operation the salvor might be carrying many millions of dollars of risk and be financing the work from their own resources including the costs of any sub-contractors. Under this no cure no pay should the salvage not be successful that could lead to the demise of the salvage contractor. This reflects the confidence and skills of the professional salvors’ teams in such a response.
Under most commercial terms, the risk is not carried by the salvor and the owner may be required to pay substantial sums at short notice with a possible impact on cashflow. This is not a matter which gets the attention it deserves because it is a major benefit to the shipowner.
Quality and experience are critical, and ISU encourages the use of contractors who mostly 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 for an inexperienced crew to engage in opportunistic salvage simply because the vessel was available, close by and relatively cheap? And without the contactor bearing the financial risk? What if the effort is unsuccessful or makes the situation worse? There are examples where there has been loss of life of tug crews due to their inexperience and ability to respond to a casualty in a winter storm. These should all be important considerations for owners their insurers and their brokers.
Another of the great benefits provided by ISU members is the facilitation of world trade. By preventing losses and assisting casualties we help to keep goods moving, ensuring that raw materials – often in bulk – and finished consumer goods – usually containerised – reach their destinations in-tact and with minimal delay. Our interventions keep ports open and berths available. The world was given an armchair seat to watch this in practice with the case of the Ever Given in the Suez Canal earlier this year. The ultra-large containership was refloated by ISU members supporting the local authorities and releasing the backlog of goods and cargoes.
The Ever Given was not the only cases where giant containerships have grounded in busy waterways. In 2017 ISU members refloated the 4,000 teu CSCL Jupiter on the River Scheldt which was obstructing traffic going into and out of Antwerp. And the the year before the CSCL Indian Ocean grounded in the River Elbe in the approaches to Hamburg and was refloated by ISU members. Both services required the use of multiple assets and highlighted the potential for large casualties to cause prolonged blockages of major ports leading to severe economic consequences, to say nothing of the potential for pollution and economic loss to cargo and hull interests. A major marine property insurer has already identified the possibility of the $2 billion loss. In these cases, the quick and effective response of a professional salvor averted the risk and made critical work look deceptively easy.
Fire on containerships remains an important issue and one of concern to salvors and which insurers also feel very strongly about. There are grave risks to crew, cargo and vessel and, once salvors are involved, real danger their operatives made worse by the ever present risk of mis-declared cargo be it though poor administration or a deliberate act.
It is said that over 18,000 Teu’s a day are mis-declared (around 6.5 M a year!) – and sailing the seas as we speak.
Action is required to improve detection, protection and firefighting capability as well as cargo declaration. ISU members are often the only agency available to deal with these incidents at sea, and there have been many examples of brave efforts going back to the Hyundai Fortune, MSC Flaminia and more recently the MSC Daniela, Maersk Honam, Yantian Express, Xpress Pearl and very recently the Zim Kingston.
These interventions are an area of specialty for many ISU members.
Places of Refuge
Places of refuge is a perennial issue that ISU has campaigned on for nearly two decades. Good progress was made by the European Union which took the lead to press for international action through the International Maritime Organisation. Unfortunately, the process has stalled and the bureaucratic working of the IMO means it will not advance until well into next year. That is disappointing because, as most of us in this room know, casualties do not improve with age and often the single most important requirement is a safe and sheltered location where the vessel can be taken for stabilisation, cargo and bunker transfer or temporary repair.
Even for the most enlightened coastal states, I would question whether, faced with a situation like the Presitge in 2004, they would really offer a place of refuge?
ISU members are excellent project managers and, although down in 2020, wreck removal continues to be a substantial part of the industry. The sums of money and financial risks are huge and we support the trend for the tendering process to be more rigorous and transparent and we recognise that risk needs to be considered in a methodical way; both during the tender and execution phase. It will drive up performance all round if the process is transparent, fair and ethical.
And price is not everything – the value of certainty and quality of execution must not be underestimated. Recent high-profile cases demonstrate that very optimistic bids can turn out to be just that.
All parties need to cooperate during operations and it should be the same when we negotiate industry-wide matters on dry land. ISU wants to work constructively with the Clubs and we have been fully engaged with the work to revise the BIMCO wreck removal contracts. There are some differences of opinion on key matters and work has been paused for a period while the clubs and salvors discuss issues with their own constituencies. But we are about to re-start the process with the aim of reaching a satisfactory conclusion with revised contracts that are clear, fair, balanced and popular. The objective is to have BIMCO contracts which all parties are happy to use.
I will conclude by saying that it is not difficult to make a strong case for the importance of the experienced, professional salvor operating with their own people and much of their own equipment. But appropriate rewards are vital to ensure the necessary investment in equipment, training and the development of highly qualified staff so that there will continue to be provision of professional salvage services where and when they are needed. That is by no means assured at present.
The industry has contracted but coped well with the virus and stands ready to work cooperatively with shipowners and their respective insurers – property and liability – to mitigate the risks for all parties, protect the environment reduce loss and keep trade flowing for the benefit of our mutual clients, the shipowners and wider society.
Thank you again for giving the honour and privilege of addressing you today.