ISU President’s opening address 02 December 2020
Like so many meetings and events this year I find myself addressing you remotely which is somewhat disconcerting to be honest. Normally I can see who “checks out” during my speech and adjust accordingly but now it will be quite confrontational if any of you logs off! This virtual conference can obviously not be a substitute for the industry coming together in person but I am grateful that the organisers have created this opportunity to connect us and I hope that those streaming this “live” as well as those “catching up” later will get some benefit. But we will all sadly miss those side conversations, chance meetings and introductions, to say nothing of catching up at the end of the day.
In my talk today I am going to give a view of where our industry stands as the year comes to the end and I will consider the ISU statistics – both financial and environmental – as well as some of our key initiatives.
But, before anything else, I am going to start by paying tribute to the superb way in which members of the ISU have responded to the challenges created by the corona virus and Covid-19. We have continued to serve our shipowner clients using our ingenuity and determination to provide services whilst keeping our teams and clients safe by rapidly adapting to the patchwork of measures – especially regarding international travel and quarantine restrictions. I cannot think of one case where appropriate services have not been provided when and where they were needed.
We look forward to the sessions tomorrow morning [Thursday 1010] considering casualty management during the pandemic.
The movement of teams and their interaction other parties is the key challenge and we have geared ourselves to work in different ways for at least the medium, if not long, term. The potential of a vaccine is to be welcomed but we all know it is optimistic to think it will magically return us to normal in a few months but it is certainly eagerly anticipated!
Both sides – insurers and contactors – are “feeling their way” regarding additional costs and expenses brought on by new requirements. The ISU executive committee has heard examples of both good and bad practice. Our view is that extra costs brought on by restrictions, quarantine-ing, aircraft charters, enhanced decontamination and so on are legitimate costs for which the insurers should pay. As ever, we need to return to the simple consideration of what might happen if contractors were unwilling or, indeed, unable to provide the necessary services.
In the wider shipping industry, crew welfare has been a major issue especially in the absence of conducting routine crew changes. This has meant extended periods onboard well beyond the normal duty periods and in many cases breaching international regulations with more than 12 months continuous time at sea. Trade associations, like ISU affiliate Intercargo, have raised concerns that the extra stress and pressure on seafarers compromises vessel safety. Fortunately, a considerable number of owners and vessel managers have been able to change out crews but there are still many out there that are stuck onboard with no sign of when they will be relieved.
Regardless of the current restrictions, the salvage industry continues to face economic pressure. The demise of Ardent means that over just a few years companies like Titan, Svitzer and Mammoet have all been lost to the industry. Whereas in earlier Salvage and Wreck conferences panel discussions were held about the question around overcapacity, it is now an open question whether the capacity of the industry is satisfactory and whether that capacity is aligned with the risks run by underwriters. It is a topic to be considered in more detail by the panel session I am joining tomorrow afternoon [Thursday 1430].
In any event, we need to recognise that there is no place for romantic or heroic stories about how things used to be, nor for old fashioned prejudice and characterisation of salvage professionals. Only through continued dialogue about today’s and tomorrow’s challenges and the basis on which salvage services are being remunerated we can ensure – as underwriters and salvors – that we continue to serve our mutual principal, the shipowner.
Maritime trade has existed for millennia but we are on the edge of significant changes in the decades to come. The shock of the current corona virus is dramatic and we all eagerly await to see a “V”-shaped recovery but there are other strategic forces at work, too.
Environmental concerns and public image are now central to all political and business decisions; Artificial Intelligence and autonomous vessels are coming and the idea of “re-shoring” – bringing manufacturing back closer to the consumer – is talked about increasingly by economists. These shifts will surely have an impact on shipping but there is no doubt that the sea and cargo ships will remain the principal method of moving things globally for years to come.
One 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 both raw materials – often in bulk – and finished consumer goods – usually containerised – reach their destinations in-tact and with minimal delay for both the consumer and the shipowner.
For an assessment of the current state of our industry, I will now turn to the most recent salvage industry statistics. These are for the calendar year, 2019, and were published in June of this year in line with our normal cycle, but we appreciate that something else may have dominated the news or had your attention.
The ISU statistics are collected from all ISU members by a professional third party, which aggregates and analyses them. The statistics do not include the revenues of non-ISU members but are the only formal measure of the state of the marine salvage industry.
The statistics are for income received in the relevant year but that can include revenue relating to services provided in previous years and therefore there is an element of “lag”. The statistics are for gross revenues from which all of the salvors’ costs must be met.
In 2019 gross revenue for ISU members was US$ 482 million compared with US$ 409 million for the previous year.
There were 216 services compared with 234 services the year before.
So, the headline 2019 statistics are broadly comparable with the previous year. Gross income has rallied but the numbers are still well below the levels of several years ago when annual income spiked to more than US$ 700 million, driven by a number of large scale wreck removals.
As most of you will be aware of, the market consists of two main segments: Emergency Response, which is contracted on Lloyd’s Open Form basis or commercial terms, and Wreck Removal is typically contracted on a lump sum basis.
LOF contracts were at very low levels – just 35 cases for ISU members with a historic low for LOF revenue US$ 49 million compared with US$ 104 million in 2018.
Because of the way how the salvage industry is funded, it strictly relies upon the revenue of projects, the use of LOF, and income from LOF cases, continues to be a cause for concern among salvors. Revenue from LOF cases represented 27% of all emergency response revenue and LOF cases accounted for 16% of all emergency response salvage cases in 2019.
Average income from each LOF case in 2019 was US$ 1.4 million representing 10% of the average LOF salved value.
The ISU does not to devote all its energy and resources to the support of LOF but we are committed to our position that in many emergency response situations an unamended LOF remains the best and most appropriate contract.
It is interesting to see the clubs also recognising the value of LOF facilitating, as it does, rapid intervention, which can prevent a casualty from becoming a costly disaster. Despite the efforts of Lloyd’s, the ISU and others we still find it hard to promote the benefits of the contract particularly to less experienced property underwriters but we must not give up on that challenge and this afternoon [Wednesday 1400] the Lloyd’s Salvage Appeal Arbitrator, Jeremy Russell QC will examine the assessment of LOF remuneration.
The P&I Clubs funded SCOPIC revenue at US$ 17 million was the lowest since 2001.
Revenue in 2019 from operations conducted under commercial contracts was US$ 131 million – up from US$ 75 million the previous year. Average revenue from non-LOF contracts was therefore US$ 720,000 per case.
Wreck removal income continues to be a major source of income for members of the ISU. In 2019, 101 operations were reported with a gross income of US$ 284 million – 59% of total income.
Wreck removal tendering and contracting continues to be a point of friction between salvors and the clubs. ISU is engaged with the International Group and others to re-work the wreck removal tendering code of practice and is participateing in the review of the BIMCO wreck removal contracts. Transparent tender processes and contractor selection, the use of Quantitative Risk Assessment and the fair apportionment of risk are the key matters. And a panel is addressing this on Friday morning .
I am sure that the spirit of cooperation will prevail as we both serve the shipowner and must work in their interests. Assessing the exposure from different angles to then jointly develop the optimum solution sounds like a logical way forward but is not often recognised as such. As a number of cases have already demonstrated, price is not everything. Contractors with a proven track record of well-managed successful operations provide more certainty and, when performance is under government and media scrutiny an efficient, clean and safe job is essential. Transparency and realistic pricing is also essential to ensure a range of contractors are able to compete fairly for work internationally and in all territories.
Grave reputational damage is ever-present in serious marine casualties, mostly from the threat, or reality, of pollution from cargo, bunkers or both.
In 2019 ISU members provided services to vessels carrying more than 2.3 million tonnes of potentially polluting cargo and fuel. The data come from the results of the ISU’s Annual Pollution Prevention Survey and demonstrate the critical role salvors have in protecting the marine environment.
VLCC cases can have a significant impact on the overall numbers. Crude oil in 2019 was 400,000 tonnes and cargoes of refined oil products were 280,000 tonnes.
The number of containers involved in ISU members’ services in 2019 was 25,800 TEU which equates to 390,000 tonnes if you allow a nominal 15 tonnes per TEU.
The largest single category was bulk cargoes which account for 960,000 tonnes in 2019. Bunker fuel remains remarkably consistent at 116,000 tonnes compared with 112,000 tonnes the previous year.
ISU is always transparent with these numbers – 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.
It is easy to become complacent about such large numbers but we must remind ourselves of the impact of a spill of a few hundred tonnes in a sensitive area on nature, animals and coastal communities. Furthermore, some jurisdictions could cause the owner and insurers serious difficulty and expense not to mention the public outcry about such spill, just think about the grounding in Mauritius earlier this year.
Attitudes to the natural world have rightly changed dramatically in recent years and the wellbeing of our planet is now at the centre of political and business decision making. It is perhaps the biggest societal shift we have seen in a generation and the movement will continue. It is essential that there continues to be global provision of expert salvage services to respond to maritime emergencies and, in most cases, it is only the professional salvors who have the skills, experience and courage to make those interventions and prevent environmental catastrophes.
I do not think salvors take enough credit for this important work and, as the leaders of the industry, we must make sure that wider society is properly aware of the importance of our environmental work.
In other matters, we continue to be concerned about containership fires and the mis-declaration of cargo which has potentially lethal consequences for cargo ship crew and our teams. IUMI and the insurers have some shocking numbers about the surprising frequency of boxship fires – one every fifteen days [Note: source – speech at 2019 Salvage and Wreck Conference, Rahul Khanna, Allianze] – which, thankfully in most cases, do not result in a major incident. But it is surely only a matter of time before we see another Honam and we must not forget that fire claimed five lives.
The possibilities of autonomous ships and how to deal with them as casualties will certainly become more and more important. Like with a number of offshore installations, salvors should be involved in their design and in considerations about their operation. We have a valuable contribution to make here and it would be a missed opportunity if our experience and observations were not used. That can, in fact, also be said for LNG fueled vessels and containership design regarding firefighting which is why some of our members actively participate in such discussions.
As I now come to the end, I am sure that you would expect me to mention the importance of sufficient compensation for salvors. I do not think it is difficult to make a strong case for the importance of the professional, experienced marine salvor operating with their own people and much of their own equipment, all focussed on reducing the business interruption of a shipowner and limiting their exposure.
But appropriate rewards are vital to ensure the continued necessary investment in training and development of highly qualified staff and in specialised equipment so that there will continue to be provision of professional salvage services where and when they are needed.
The industry has contracted but coped well with the virus and stands ready to work cooperatively with insurers to mitigate risk, reduce loss and keep trade flowing for the benefit of our clients – the shipowners.