MARINE CARGO & SPECIE RISK ACCUMULATION …RELEVANT YORK/ANTWERP RULES 1994 RULE OF INTERPRETATION...

1 Copyright © 2016 Risk Management Solutions, Inc.

MARINE CARGO & SPECIE RISK ACCUMULATION ON SHORE

April 2016

2 Copyright © 2016 Risk Management Solutions, Inc..

AGENDA

Background

Lessons learned from recent Marine Catastrophe events

– Risk management practices

– Data capture

Quantifying Cargo & Specie Cat risk

– Cargo-specific vulnerability

– Estimating exposure accumulations

Concluding remarks

3 Copyright © 2016 Risk Management Solutions, Inc.. Copyright © 2015 Risk Management Solutions, Inc. .

RMS BACKGROUND

RMS is the world’s leading provider of products and services for

the quantification and management of catastrophe risk

Work with most major insurance and reinsurance companies

in US & Europe

$2 trillion worth of insurance and capital markets

transactions based on RMS Risk Models

Trusted by regulators and rating agencies for over 25 years

RMS catastrophe risk models used for rated capital market

transactions


RECENT MARINE LOSSES: BAD LUCK OR THE NEW “NORMAL”?

Four record setting catastrophes for

Marine insurance in the past 5 years:

– 2011 Tohoku earthquake and

tsunami – $1B-$3B

– 2012 Costa Concordia: $2B loss

– 2012 Hurricane Sandy: $3B loss

– 2015 Tianjin explosions: $3B-$6B

loss (and still growing?)

The Marine Industry should expect more losses of this magnitude or greater!

http://www.google.com/url?sa=i&rct=j&q=&esrc=s&source=images&cd=&cad=rja&uact=8&ved=0ahUKEwjJiYnSkI_LAhUC6GMKHWSmBGcQjRwIBw&url=http://www.customsnow.com/blog/2012/11/hurricane-sandy-interim-processes-for-new-york-newark-related-cargo/&psig=AFQjCNFrSTuSGPOC025t0CKK6DQpVZLZ4A&ust=1456359657493370

http://www.google.com/url?sa=i&rct=j&q=&esrc=s&source=images&cd=&ved=0ahUKEwj8oKbrkI_LAhUU8WMKHWQcAI0QjRwIBw&url=http://www.chicagotribune.com/news/nationworld/ct-china-tianjin-explosion-20150812-story.html&psig=AFQjCNG-2bGiIAs7JgfR1uubJtb9AeUfZA&ust=1456359701241936


EVOLUTION OF PORTS THE PAST 100 YEARS

Development of container ships has

revolutionized the global shipping industry

and dramatically improved quality of life

However, containerization has also led to an

increase in Catastrophe risk:

– Huge increase in shipping volume

– Abandoning river ports (lower Cat risk) in

favor of sea ports (higher Cat risk)

– Longer-term, climate change will further

increase this risk

London 100 Years Ago

Shanghai Today


GROWTH IN SHIPPING CONTRIBUTES TO CARGO LOSSES

0

2000

4000

6000

8000

10000

12000

1970 1980 1990 2000 2010 2013

International Seaborne Trade (MM tons)


AND CLIMATE CHANGE WILL JUST MAKE IT WORSE….

Risky Business project Co-Chaired by New York Mayor

Bloomberg looked at the risk from storms, heatwaves

and flooding due to climate change

– RMS provided the detailed sector modelling of the

impact of climate change on coastal communities.

Climate change driven sea-level rise following from

higher representative concentration pathways (RCP8.5)

will increase expected losses from surge in New

York as follows:

Year Sea Level Rise* Property Surge AAL

Increase

2030 14cm 20%

2050 32cm 79%

2100 89cm 224%

* Sea level rise relative to 2010: Robert Kopp et al http://onlinelibrary.wiley.com/doi/10.1002/2014EF000239/epdf

http://onlinelibrary.wiley.com/doi/10.1002/2014EF000239/epdf


LESSONS LEARNED FROM RECENT CARGO CAT LOSSES


HURRICANE SANDY (2012): A WAKE-UP CALL!

Sandy: Caused a record (at the time) $3B+

marine loss

Some effective risk management enabled

the Port to return to action quickly

BUT Marine mitigation focused on Wind

WHILE Marine losses were driven by Surge

Most Marine insurers also took Property

loss: Clash!

0

5

10

15

20

25

Category 1

Loss $

B

$18.75B

$21.75B

Sandy Insured Losses

Marine Cat risk must be managed and done

so in conjunction with Property Cat


HURRICANE SANDY LESSONS LEARNED

Hurricane preparations focused on wind rather than

surge

– Containers were unstacked to avoid tipping in wind

– Paintings in art galleries moved to basement to

avoid wind (broken glass) damage

Port used as “long-term storage lot” for autos

Potential moral hazard of “slow moving” (and well-

insured) artwork

Poor insurer knowledge of cargo in transit exposure

made for slow identification and quantification of loss

and delayed claims payments

Storm surge risk at coastal locations can be identified & quantified, thus

enhancing the ability to mitigate risk and manage future loss

100yr Surge Surface Elevation

Copyright © 2015 Risk Management Solutions, Inc.

TIANJIN EXPLOSIONS: LESSONS LEARNED

Third largest port in the World

Numerous accidental explosions (21 Tons

TNT equivalent) and fire at hazardous

chemicals storage facility in the port

Total Port damages could reach $5B-$6B

Large quantities of Cargo containers

15,000 new cars (up to 70,000 cars?)

176 deaths

800 injuries

Loss estimate continues to grow

Industry data capture practices must change to solve

the problem of port accumulations


HOW BIG IS 21 TONS TNT EQUIVALENT?

1996: Khobar Towers

Hezbollah: largest

terrorist bomb on record

10 Tons TNT

+

1996: Khobar Towers

Hezbollah: largest

terrorist bomb on record

10 Tons TNT

Accidental explosion was more than 2x the largest terrorist bomb on record

+

1993: World Trade

Center bomb

1 Ton TNT


TIANJIN “GROWTH IN LOSS” OVER TIME

While it is common for loss estimates in major

events to increase over time, Tianjin highlighted:

Ever-growing cargo exposure in Ports

Insurers data practices do NOT enable them

to estimate how much Cargo exposure they

have in a given port

– “…it was unacceptable for the industry to have

failed to address its poor modelling of cargo

exposures, having again been “surprised” by the

cargo losses arising from the explosion in the

Chinese port in August….” Ed Noonan, CEO

Validus

0

1

2

3

4

5

6

7

Credit Suisse Guy Carpenter IUMI

Growth in Estimated Marine Loss Over Time

$Billions

Aug 17, 2015 Sept 4, 2015 Feb 3, 2016


RISING TO THE CHALLENGE OF PORT EXPOSURE

Insurer cargo exposure in Ports is a “known

unknown”

Average daily exposure in major global ports can

be massive (Shanghai= $15B+)

Current insurance industry data capture practices

do not support the detailed quantification of Port

exposure

“High Tech Pirates hacked a shipping company to

figure out the perfect ship to plunder and located

specific high value containers” Business Insider:

March 1, 2016

Detailed estimates of exposure by cargo type

within ports can help raise the bar

The insurance industry must improve data capture on Cargo in Transit in order to

best manage major accumulations such as Ports


OTHER ACCUMULATIONS: AUTO STORAGE LOTS

Auto storage lots (manufacturers, dealers, rental

cars) represent aggregations of big ticket items

Autos are at high risk of hail damage

Cosmetic damage typically = total loss

Covered lot vs. non-covered lot

Key storage lot parameters

Location

Storage capacity

Values of cars stored

Covered/non covered

Local hazard

Exposure in Auto storage lots must be

tracked – particularly in areas of high risk

http://www.google.com/url?sa=i&rct=j&q=&esrc=s&frm=1&source=images&cd=&cad=rja&uact=8&ved=0CAcQjRxqFQoTCMml6769msgCFcpaiAodZ6QBEA&url=http://www.chrycoautonewsdigest.com/2014/06/page/14/&psig=AFQjCNHsl55tIJpMw5jC2jmkjf1MSqF-ig&ust=1443555407045158

http://www.google.com/url?sa=i&rct=j&q=&esrc=s&frm=1&source=images&cd=&cad=rja&uact=8&ved=0CAcQjRxqFQoTCJu25929msgCFQI7iAodZX0I4Q&url=http://www.automotivelogisticsmagazine.com/finished-vehicle-logistics/taking-hail-repair-in-hand&psig=AFQjCNHK2C9wAhoFSy7-LGgvp0lrkB-IPg&ust=1443555578570627


OTHER ACCUMULATIONS: FREE PORTS

There are over 20 major Free Ports globally – havens for

the storage of art, valuables and collectibles

Major benefits of Free Ports:

o Security

o Storage

o Tax advantages

Huge but unknown accumulations of exposure in Free

Ports

o Geneva Free Port: "It would be probably the best

museum in the world if it was a museum".[(Jean-Rene

Saillard of the British Fine Art Fund)

Major Cargo & Specie writers should attempt to

estimate exposure at Free Ports


OTHER SOURCES OF CARGO & SPECIE ACCUMULATION

Fixed locations with relatively known values

o Art Galleries

o Museums

o Wealthy households

o Commercial businesses

Importance of data capture

o Address

o Specie type & values

o Level of protection

o Building construction type

Major Cargo & Specie writers should attempt to

estimate exposure at all key locations

http://www.google.com/url?sa=i&rct=j&q=&esrc=s&frm=1&source=images&cd=&cad=rja&uact=8&ved=0CAcQjRxqFQoTCLKc_cPCrMgCFcWliAodRtkHkg&url=http://museum.escubes.com/2015/09/j-paul-getty-museum-j-getty-museum/&psig=AFQjCNF4VbYa-kTycUq7mP1auKFzx7l8cg&ust=1444175341339804

https://www.google.com/url?sa=i&rct=j&q=&esrc=s&frm=1&source=images&cd=&cad=rja&uact=8&ved=0CAcQjRxqFQoTCOKA8I_DrMgCFYaViAodpsAF1A&url=https://newamericanpaintings.wordpress.com/2013/01/31/art-for-sandy-relief-a-closer-look-at-the-artist-relief-project/&psig=AFQjCNG3lVwkOaNF_Zj49NGka7i49llB2A&ust=1444175412938122

http://www.google.com/url?sa=i&rct=j&q=&esrc=s&frm=1&source=images&cd=&cad=rja&uact=8&ved=0CAcQjRxqFQoTCNWR3KrCrMgCFcw5iAodjckF6Q&url=http://www.hauntedamericatours.com/hauntedhouses/ChambersMansion.php&psig=AFQjCNEEMFED5TUiSUXBKXTK75IHVbF-bA&ust=1444175288985407


KOBE (1995) & TOHOKU (2011): OPERATIONAL RISK LESSONS LEARNED

Kobe port was built on two artificial islands

– Significant liquefaction led to flooded cargo

– Amplified shaking destroyed piers & cranes

90% of Kobe berths were inoperable. Alternative

ports couldn’t handle Kobe traffic

Shipping cost increased significantly

Most roads, railroads and lifelines connecting the

port suffered severe damage. Long recovery

time of infrastructure vs. port

Tohoku: many adjacent ports impacted

Port operational risk planning needs to

incorporate risk of adjacent Ports and

connecting infrastructure

https://www.google.com/url?sa=i&rct=j&q=&esrc=s&source=images&cd=&cad=rja&uact=8&ved=0ahUKEwjPr4SrnqjLAhVS02MKHYQ6CsoQjRwIBw&url=https://www.fhwa.dot.gov/publications/publicroads/96fall/p96au17.cfm&psig=AFQjCNEm308palE0sGxSCLMif-lTPSQS1A&ust=1457222327164931


CHALLENGES OF MANAGING MARINE CARGO & SPECIE CAT RISK


CHALLENGES OF MARINE CARGO & SPECIE CAT MODELING

Vulnerability:

Current industry “best practice” is to model Cargo & Specie as “Warehouse Contents” in Cat model

– The actual vulnerability varies widely depending on the type of Cargo or Specie

– Underlying hazard can vary significantly depending on where you assume the Cargo & Specie is located

Exposure:

Cargo & Specie exposures change over time

– Exposure can move and the location is frequently unknown

– Values change over time

– Exposure faces a wide range of Cat perils as it moves around the World

– Data capture practices are sub-optimal

Best practices for Marine Cat risk management dictate the understanding

of Cargo Cat risk and its correlation with Property Cat risk


MARINE MODEL VALUE PROPOSITION

Portfolio Management

– Holistic view of Cat risk including Marine (5%-15% of property Cat amount)

– Include Marine Cat in capital modeling (Lloyds RDS, Solvency II)

– Improve decisions around reinsurance needs

– Improve exposure management

Cargo Underwriting

– Improve pricing of Cat component of Cargo

• Pricing models specific to cargo type with improve competitiveness and

risk selection

• Enable companies to increase premiums

– Better risk selection and pricing, leads to increased premiums and more

profitable Cargo book

Total Cat Risk

Marine Cat

Property &Human Cat


MARINE CARGO & SPECIE VULNERABILITY


VULNERABILITY: CHALLENGES WITH CURRENT MARKET PRACTICE

Current industry best practice: model all cargo

types as “warehouse contents”

Challenges with this approach

In reality, vulnerability will vary significantly

based on:

– Cargo type

– Packing practices

– Storage facility

– Location

4 red curves = North Atlantic hurricane model, warehouse contents (low,

medium, high, very high damageability).

Grey Curves = Cargo model, average damageability.

Wind Vulnerability

Modeling of specific cargo & Specie

types will provide a more accurate

and typically lower risk


Cargo & Specie Specialized Vulnerability Curves

Differentiating vulnerability by cargo type:

o 18 Cargo & Specie types (auto, electronics, break bulk, consumables, general

specie…)

o 12 Storage methods (container, warehouse, tank, outside…)

o Factoring in potential salvage value

o 10 Damage mechanisms modeled (wind, water, volume loss….)

o Consideration of damage reduction measures (movability, storage in safe….)

Key perils to monitor

o Wind and surge

o Earthquake

o Hail

o Flood

o Terrorism

Model losses at key locations and analyze correlation with property losses

HOW DAMAGEABLE IS IT?


Marine Product Categories / Occupancy

OCC_SCHEME OCC_TYPE Occupancy Type

RMSMARINE

0 Unknown

1 Automobiles

2 Break Bulk

3 Dry Bulk

4 Liquid Bulk

5 Consumables

6 Temperature Controlled

7 Electronics

8 Explosives

9 General Cargo

10 Heavy Industry

11 Petroleum Products

12 Pharmaceuticals

13 Project Cargo

14 Livestock

15 General Specie

16 Fine Art & Collectibles

17 Cash In Transit

18 Jewelers’ Block


Storage Configuration (Construction

Class)

BLDG_SCHEME BLDG_CLASS Construction Class

RMSCGSPEC

0 Unknown

1 Special Design Facility

2 Silo

3 Liquid Tank

4 Gas Tank

5 Inside Warehouse at Port

6 Containerized - Inside Warehouse

7 Containerized - Stacked Outside

8 Open Lot or Stockpiled Outside

9 At Destination - Warehouse

10 At Destination - Retail

11 Museum or Institution

12 Retail or Private Building


Incorporating Underwriter Specific Knowledge

Contents Grade Damageability

1 High Damageability

2 Moderate Damageability

3 Average Damageability

4 Low Damageability

Specificity of product (e.g. fishmeal vs.

canned food, both “consumables”)

Packaging – better or worse than average

Loss mitigation measures of warehouse,

storage facility, or port terminal – better or worse

than average.


Robust Risk Differentiation

– 18 cargo types

Determines susceptibility to

damage

– Movement

– Rain water

– Flooding

– Contamination

– Power loss

– Port Delays

DIFFERENTIATING RISK BY CARGO CATEGORY


DETAILED IDENTIFICATION OF SPECIE TYPE & SITUATION

Specie Types (Occupancy)

Specie Storage Combinations (Construction)

Marine Modifier Option

Salvage Potential

Unknown

Lowest

Low

Average

High

Very High

Cargo & Specie

Packaging

Unknown

Deficient

Standard

Superior

Cargo & Specie

Protection

Unknown

None

Slightly Protected

Well Protected

Specie Storage

Unknown

Inside Vault

Outside Vault

Window

Sprinkler Type

Unknown

Wet

Dry

Specie Secondary Modifiers


MARINE CARGO & SPECIE EXPOSURE AGGREGATIONS


Current industry Best Practice: model

estimated exposure at the centroid of the

port

Challenges with this approach

Where is the centroid of a Port?

Risk can vary drastically within a large

Port

The type and value of cargo stored

varies by terminal

Hazard Varies Widely Within a Port*

Nil

3%

35%

45%

* Amounts shown represent 250 yr modeled Wind+Surge losses for “Contents”

EXPOSURE: CHALLENGES WITH MARKET PRACTICES

Modeling of specific cargo & Specie

locations will provide a more

accurate measure of risk


PORT-SPECIFIC INDUSTRY EXPOSURE DATABASES (IEDS)

Enabling a Market Share Approach

Throughput by cargo type

o Volume

o Import/export

o Dwell time by cargo type

o Local cargo handling practices

o Seasonality

Storage facilities

o Location (lat/lon, elevation)

o Facility type (warehouse, tank, silo….)

o Number of floors


TERMINALS Terminal Type Name

Container

APM Terminal

Brooklyn Port Authority Marine Terminal

Maher Terminal

Port Newark Container Terminal

General Cargo/Break Bulk

New York Container Terminal

Red Hook Container Terminal

Global Marine Terminal

Automobile

North East Auto Terminal (NEAT)

The Elizabeth Port Authority Marine Terminal

Port Newark

Port Jersey-Port Authority Marine Terminal

South Brooklyn Marine Terminal

Petroleum Products

International Matex Tank Terminal (IMTT)


OPEN LOT STORAGE (PORT ELIZABETH)


VALUE PROPORTION DISTRIBUTION

O

c

c

u

p

a

n

c

y

T

y

p

e

New York/New Jersey Distribution of Value (in Million USD) Construction Class

Value in USD % Special Design Facility

Silo Tanks Inside

Warehouse Containerized -

Inside Warehouse Containerized - Stacked Outside

Open Lot or Stockpiled

Outside

Unknown 5% - 5% 5% 20% 10% 20% 40%

Automobiles 8% - - - 5% - 5% 90%

Break Bulk 14% - - - 50% - - 50%

Dry Bulk 3% - 10% - 45% - - 45%

Liquid Bulk - - - - - - - -

Consumables 13% - - - 10% 45% 45% -

Temperature Controlled 1% - - - 70% 30% - -

Electronics 3% - - - 70% 20% 10% -

Explosives - - - - - - - -

General Cargo 18% - - - 34% 33% 33% -

Heavy Industry 10% - - - 33% - 34% 33%

Petroleum Products 23% - - 85% - 5% 10% -

Pharmaceuticals 2% - - - - 50% 50% -

Project Cargo 1% - - - - - - 100%

General Specie 1% - - - - 100% - -

Known through research

Partially estimated

Estimated


Current Practice

– Code lat/lon of Port Centroid in Property

model

– Assume contents coverage

Impacts vary significantly

– Vulnerability: Product type & storage

configuration

– IED: Spatial distribution of exposure

Property Model is Too coarse for Underwriting Marine Profitably…


IMPROVED UNDERSTANDING OF CARGO RISK IN PORTS

Estimate of cargo values by type and

location enables quantification and

market share calculation of risk

Models enable understanding of port-

specific risk

– Breadth and severity of natural perils

facing a Port

– Wind vs. Surge

– Seasonal factors (hurricane season)

– Liquefaction risk

To improve on this market-share approach the Cargo industry will need

to develop real-time cargo tracking capabilities


CONCLUDING REMARKS

The Marine industry will continue to incur losses of

magnitude equal to and greater than recent events

Lessons learned from these events coupled with

science-based models can reduce this risk

– Improved understanding of risk

• Source and timing of risk

• Differentiate areas at risk of wind, surge & EQ

• Magnitude of risk

– Catastrophe preparation

– Pricing Cat portion of Cargo risk

The industry must improve data capture, particularly

for Cargo in Transit to best understand and manage

the risk

Download RMS Cargo study on

www.rms.com


THANK YOU!

Peter Ulrich

[email protected]

+1 (510) 608-3341

Paul Burgess

RMS Singapore

[email protected]

+65 9758 2208

mailto:[email protected]

mailto:[email protected]

(GENERAL AVERAGE) BASIC PRINCIPLES, RELEVANT YORK/

ANTWERP RULES 1994 & CASE STUDY

BY

WILLIAM PANG

DIRECTOR

MARINE CLAIMS OFFICE OF ASIA

The General Insurance Association of Singapore & The Singapore Maritime Foundation (SMF)

Marine Risk Accumulation at Shore and at Sea

YORK/ANTWERP RULES - DEFINITION

Rule A There is a General Average act when, and only when, any (1) extraordinary sacrifice or expenditure is (2) intentionally and reasonably made or incurred for the (3) common safety for the purpose of (4) preserving from peril the property involved in a (5) common maritime adventure.

1. Extraordinary

Not something which cargo have right to expect Ship-owner to bear under Contract of Affreightment.

2. Intentionally and Reasonably Made or Incurred

(as contrasted with “accidental”)

(e.g. Grounding – accidental damage to ship and cargo; intentional jettison of cargo and damage to engines, plus salvage expenses.

Fire – Accidental damage to ship and cargo; Intentional damage by water to extinguish).

3. Common Safety

The action must be for the COMMON SAFETY and not merely for the safety of part of the property involved.

4. Peril

Peril must be real and substantial and not imagined, but need not be immediate.

Peril must affect all interests (refrigerating machinery breakdown-danger to meat cargo is not G.A.)

5. Common Maritime Adventure

There must be more interests than one (e.g. Ship and Cargo).

RELEVANT YORK/ANTWERP RULES 1994

RULE OF INTERPRETATION

York/Antwerp Rules override law of destination.

Provision of numbered rules, whether positive or negative, override lettered rules.

LETTERED RULES (General Principles)

Rule A – Definition

Rule B – General Average sacrifices and expenses shall be borne by different contributory interests.

Rule C - Only such losses, damages and expenses which are due to the direct consequences of General Average Act (Damage to environment, release of pollutant substances, delay or loss of market not admitted in General Average).

(cont’d)

YORK/ANTWERP RULES 1994

LETTERED RULES (General Principles)

Rule D – Losses due to fault of parties to adventure (Rights to contribute not affected but this does not prejudice any remedies/defences may be opened against or to that party in respect of such fault).

Rule E – Onus of proof (Party claiming in General Average must show the loss or expense claimed is properly allowed in General Average).

Rule F – Substituted expenses (see also Rule 14). Rule G – General Average adjusted as regards both loss and contribution upon basis of values at time and place when and where the adventure ends.


NUMBERED RULES (Specific Cases)

Sacrifices

Rule 1 – Jettison of Cargo

Rule 2 – Damage by jettison (eg. damage to ship)

Rule 3 – Extinguishing fire (eg. damage to cargo)

Rule 5 – Voluntary stranding (eg. intentional beaching of vessel)

Rule 7 – Damage in refloating (eg. vessel’s engine)

Rule 9 – Ship’s materials etc. burnt for fuel

Rule 12 – Damage to cargo in discharging, storing reloading & stowing


Expenditures

Rule 6 – Salvage remuneration, taking into account the skill & efforts in preventing or minimising damage to environment as referred to article 13 of The International convention of salvage 1989.

Rule 8 – Discharging cargo into lighters

Rule 10 – Entering and departing port of refuge expenses (eg. port disbursements, fuel and stores and handling of cargo necessary for common safety and/or to enable repairs to be carried out)

Rule 11 – (a) Crew wages and maintenance, bunkers and stores consumed during prolongation of voyage as occasioned by the vessel’s detention at the port of refuge for damage inspection and repairs. -- (b) Allowance of crew wages and maintenance, bunkers and stores in General Average as per (a) above, if repairs were necessary for safe protection of voyage.


Substituted Expenses

Rule 14 – Temporary repairs (see also Rule F)

Allowances in General Average

Rule 16 – For sacrifice of Cargo

Rule 18 – For sacrifice of Ship

Rule 20 – Commission – 2%

Rule 21 – Interest @ 7% per annum

Contributory Values

Rule 17 – Contributory Values

Case Study – “FIRMINO II” Container Vessel

Casualty – Collision with VLCC “Memphis D” in the Singapore Strait

Casualty Summary:-

o Container vessel “Firmino II” runs aground following contact with VLCC “MEMPHIS D”.

o One of the containers containing DG ignites due to the impact of the collision, causing a fire to break out in Hold 2.

o There is some bunker pollution from “Firmino II”.

o Smit are engaged on LOF terms (invoking SCOPIC), to put out fire and refloat vessel

o After vessel was successfully re-floated and fire put out, damage inspection carried out reveals severe hull damages sustained.

o All cargoes are required to be force discharged in order for repairs to be carried out.

o As a result, a transhipment vessel was arranged to forward cargo to discharge port instead of storing the cargo at port during repairs.

o After carrying out temporary repairs as recommended by Class Surveyor, the vessel was towed to a repair port.

o Owners of “Firmino II” declared General Average. MCO appointed as Adjusters.

Applying the York-Antwerp Rules to the above casualty:-

Rule A:

General Average Act – EXTRAORDINARY Salvage services under LOF terms (both refloating and fire fighting operations).

The above General Average was INTENTIONALLY AND REASONABLY made or incurred.

The above salvage services were for the COMMON SAFETY of ship and cargo.

For the purpose of preserving from PERIL the property involved, i.e. ship and cargo.

The said voyage involved more than one interests, i.e. ship and cargo, which constitutes a COMMON ADVENTURE.

GA SACRIFICE – per York Antwerp Rule 3 – Water damage to cargo during fire fighting (US$2 million)

GA Expenditure – per York Antwerp Rules: 6, 10 & 11 – involving salvage, port disbursements, cargo force discharge, port disbursements, crew wages and maintenance, fuels and stores.

Details of Ship and Cargo Values:-

Ship sound valuation taken at US$25 million, less damage at US$10 million, gives us a Ship’s Contributory Value of US$15 million.

Cargo and containers valued at US$100 million, out of which cargo sacrifice due to wet damage amounts to US$2 million. However, after taking into account made good in General Average, the Cargo’s Contributory Value remains at US$100 million.

Salvage (York Antwerp Rule 6)

Salvage signed on basis of LOF, with SCOPIC Clause invoked – total salvage remuneration US$12 million (of which US$8 million relates to containing oil leakages/pollution under SCOPIC). Therefore, US$4 million relates to successful refloating of ship and extinguishing of fire in cargo hold.

You will note that it is advantageous for Owners to sign salvage under LOF as the Contributory values of ship and cargo are US$15 million and US$100 million respectively, i.e. about 87% of the salvage is to be contributed by cargo interests. If on the other hand, the salvage was not LOF but on a lump-sum, no cure, no pay basis, imagine Owners will have to settle with the Salvage company concerned most of the salvage on behalf of cargo interests.

Declaration of General Average:-

Most hull policy nowadays is incorporated with a “Small GA” Clause. Therefore, for the purposes of this case study, we have taken that the “Small GA” Clause is limited to US$500,000.

Owners’ decision to declare General Average is likely based on the following factors:-

• Total Salvage amounts to US$4 million and together with GA expenditure, such as prolongation of voyage as occasioned by detention at the port of refuge and repair ports, estimated in total at US$4.5 million, exceeded the above “Small GA” Clause.

Declaration of General Average :-

• Cargo’s Contributory value is about 87%.

• Salvage on basis of LOF, so Salvage company, as the first lien, will collect salvage security from both ship and cargo, etc properties involved.

• If General Average not declared, Owners will lose out 87% of the General Average expenditure of US$500K (this is in addition to the salvage signed under LOF).

• If General Average declared, and should cargo alleged unseaworthiness of vessel, Owners are likely able to recover unpaid cargo’s proportion of General Average (and salvage) from Owners’ P & I Club.

MARINE CARGO & SPECIE RISK ACCUMULATION …RELEVANT YORK/ANTWERP RULES 1994 RULE OF INTERPRETATION...

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