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Stowage of heavy lift cargo: legal and insurance implications

The project cargo trade, as with many segments of the shipping industry, experienced a boom during the pandemic owing to the constraints on available tonnage to match demand. This development emphasised the importance of careful stowage of multifaceted cargoes, as contracting parties sought to optimise cargo space on vessels. Whilst market conditions may have changed somewhat, correct stowage remains vital to charterers involved in this trade. Strict compliance with the vessel’s cargo securing manual is essential.

Contractual and operational background

There are customarily three principal contractual players in the carriage of project cargo: the head owner of the vessel (the “Owner”); the intermediate charterer operating the vessel on time charter (the “Operator”) who, in many instances issues their own bills of lading; and the sub-charterer who contracts to have the cargo shipped (the “Merchant”, as is the customary name under a booking note). The Merchant may be a freight forwarder, in which case additional cargo interests may feature as parties to the contract of carriage.

Carriage under the same or overlapping voyages of different cargoes with multiple concurrent Merchants is conceivable. Further, the head charter might normally be concluded on an amended iteration of the NYPE form. Whilst the sub-charter would most often take the form of a booking note, it is not unknown for this to be concluded as a voyage charter, such as a version of Gencon or the Heavycon 2007. Under the latter form the Hague/ Hague-Visby Rules are replaced by a knock-for-knock liability regime, but we see that the standard provisions in this regard are sometimes amended by the parties.

Moreover, unlike most other cargoes, heavy lift goods are not uniformly sized and shaped. Careful stowage, therefore, assumes primacy. Considerable preparation goes into drawing up a detailed stowage plan, so all cargo presented may be safely loaded onboard in accordance with the contractual requirements. It is our experience that the stowage plan is commonly prepared by the Operator, who will often have considerable in-house expertise, including highly specialised personnel and, in some cases, software able to process complex calculations as regards the cargo properties in the context of both stability and hold space.

Shut-out cargo

Things can go wrong. Where a stowage plan does not accurately delineate the physical dimensions of the cargo, the vessel may find herself unable to load the full complement of goods presented. The question then arises as to the consequences flowing from the shut-out cargo. An Operator may find, subject to the contractual provisions, that without all cargo loaded, a reduced amount of freight is payable under the sub-charter.

Conversely, the Merchant would not be able to load some or all its cargo for onward carriage to the place of discharge. In those circumstances, the Merchant would require substitute tonnage to perform the voyage, necessitating additional voyage costs. The question of who is to bear these costs will likely turn on whether the cargo, as described in the packing list presented by the Merchant, inaccurately stated the cargo’s physical properties or whether the stowage plan prepared by the Operator was deficient.

Part-cargo

A further complexity in the breakbulk trade resonates from the frequent fixing of part-cargoes. Each parcel loaded at a different port must fit in alongside the other cargoes stowed onboard the vessel.

Therefore, it can happen that a part-cargo is blocked from fitting into a vessel’s hold by a parcel loaded at a previous port, and somehow, the stowage plan did not envisage this. In such a scenario, the Operator would face lost earnings from the freight on the shut-out cargo as well as, potentially, claims from its shut-out counterparty for failing to perform the contractual voyage. A recovery action by the Operator for these losses by way of a damages claim against the Merchant at the first load port would again likely be a factual question of whether there was a misrepresentation in respect of the description of the cargo’s physical properties by that Merchant or whether the Operator erred in the stowage plan.

A similar dispute is also possible regarding the nature of the cargo presented at the intermediate load port. The permutations are not limited to these examples given. The flexible character of stowage is ripe for disputes.

The reader will note the absence of any mention of the Owner in these scenarios. The responsibilities tend to land on the Merchant and the Operator in circumstances where the Operator draws up the stowage plan. Further, delays in restowing would not ordinarily be an off-hire event under the unamended NYPE 1946 form and opportunity costs resulting from lost freight are not the concern of an owner under a time charter, unless, of course, such an owner was itself at fault. Nonetheless, if the Owner were to contract directly with the Merchant or were to prepare the stowage plan itself, the Owner could find itself involved in a dispute as to the consequences of shut-out cargo.

Restowage liabilities

Aside from damages claims within the charter chain, a charterer, either as Operator or Merchant, should be aware of the risks of restowing at a port en route to the final place of discharge, whether a subsequent load port or a port of refuge. Operations may be required to rearrange cargo to create space to allow otherwise shut-out cargo to be loaded or shifted cargo to be re-lashed.

First is the question of the costs of these operations relating to shut-out cargo, which are potentially considerable and are regulated by the charter terms. There may be a debate between the contracting parties in the charter chain as to the cause of any shifting and, if due to improper stowage, the party contractually responsible for stowage will have to bear the expenses of this operation. Nonetheless, to avoid undue loss of time, a party believing itself to be innocent might, under reservation of rights, reasonably decide to arrange restowing unilaterally. Where the final costs of this would fall would be determined later.

Second, and perhaps a more significant financial upshot of shut-out cargo, is the potential liability for damage to cargo during restowage and who is responsible for any damage to the vessel. There are a multitude of potential insurance repercussions arising out of this type of operation. If a charterer has agreed to perform restowing, it should confirm with its own liability insurer that the risks of these operations, including damage to cargo, are covered.

Knock-for-knock

As to liability, the situation changes where the charter provides for a knock-for-knock regime akin to those widely adopted in the offshore industry and seen, perhaps most often, in the heavy lift trade in the Heavycon 2007 form. This standard form contract does not appear so frequently but, when it is, is most often used where a singularly large cargo is to be loaded with no other separate parcels carried concurrently. Clause 22 sets out the knock-for-knock terms, which provide for a simple mechanism by which, amongst other things, the charterers are relieved of responsibility for damage to the ship and, by equality of arms, the owners are not responsible for damage to cargo. Aside from assessing whether such a liability regime is suitable for the contract, charterers should confirm that, should these knock-for-knock terms be agreed, their insurance remains in place as regards potential cargo damage during loading, discharge and any re-stowage operations.

Considerations for charterers

In summary, careful and precise stowage of project cargo is paramount; mistakes can be expensive. A charterer as the Merchant should ensure cargo documents are accurate, including the description as to dimensions and weight, to avoid the financial consequences of, amongst other things, shut-out cargo, whereas a charterer as Operator will rely on their expertise in drawing up an appropriate stowage plan.

In addition to operational care, charterers may benefit from negotiating their contract terms prudently. At all times, a clear allocation in the contract of the responsibility for cargo loading and the accompanying costs is vital. Further, whilst providers of heavy lift tonnage were in a stronger negotiating position during the pandemic, market forces have tilted this balance away from the ship to cargo. As such, in less adverse conditions, a charterer may consider it expedient to deny the owner any option for a part cargo. This would preclude the risk of the charterer becoming liable for lost earnings and other claims arising out of a shut-out part cargo. Further, charterers would be wise to assure themselves of the appropriate form of the contract, including the suitability of any proposals for a knock-for-knock regime, which can create an exposure if the position is not carefully aligned up and down the contractual chain.

As is known, Skuld requires certain approved terms in contracts for the carriage of cargo, as set out in Appendix 6. For heavy lift carriage, Skuld has approved the use of the Heavycon form, provided that it is not materially amended (Section 4 of Appendix 6).

Finally, as cargo operations in this trade are complex and damage is potentially very expensive, we would emphasise the necessity of accurately clausing bills to reflect any pre-existing damage and referring to any remarks in the mate’s receipts; and where cargo is carried on deck, this needs to be stated in the bills. Charterers should always refer in good time questions of cover arising out of unorthodox clauses and restowage operations at an intermediate port to their underwriting contact in Skuld.

How can Skuld help?

As described above, the handling and transport of project and heavylift cargoes can be quite complex and may lead to both P&I and FD&D disputes, as well as more practical questions regarding the operations’ impact on P&I cover. Skuld’s claims handlers and underwriters are available to assist the assured with practical advice and potential additional covers if needed, and ensure that the operations are not interrupted and can continue without cover being prejudiced.

Should you have any comments or questions, then please do not hesitate to contact us at any time. On behalf of your Skuld team of underwriters and claims handlers who serve our charterers and traders 24/7/365.
Source: Skuld

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