A look into marine salvage in the ’80s

Marine accidents involve a whole group of experts that most people in the maritime industry do not have daily contact with. Because of what they represent, many people would probably prefer to keep it that way. Salvors, marine firefighters, arbitrators, average adjusters, insurers, salvage lawyers, and salvage consultants, however, spend a great deal of time in order to be ready for just such emergencies. When the time comes, they may have a high-pressure situation on their hands, with tempers flaring, fires flaring, and responsibility up in the air and likely to stay that way until it can be brought back down.

The year 1984 has been a high-profile year for marine salvage, between the rash of attacks in the Persian Gulf and Red Sea and the recovery of radioactive containers after the sinking of the Mont Louis in the North Sea. Participants of the Third Symposium on Marine Salvage, held in New York October 1-3, heard from salvors involved in both areas. One speaker, Captain Hans Walenkamp of the Dutch firm Smit International, interrupted his direction of the Mont Louis North Sea salvage operation to address the meeting.

There are at least two distinct challenges involved with any marine disaster. The first job is to resolve the disaster itself and clean up the mess. The second one is to resolve what is often another mess — the claims and counterclaims on responsibility, liability, value, security, etc. There is little doubt that the owner of a vessel in trouble is over a barrel. Time is generally short, quick decisions need to be made, and he badly needs the salvor, yet there is little way of knowing what the salvage costs will amount to ahead of time. It is necessary, therefore, to come to some agreement on which later payment can be based. “Lack of contractual arrangements have, in too many instances, delayed the undertaking of timely salvage operations,” says Alex Rynecki, marine salvage consultant. Rynecki says at some point it is important to act before nothing remains to be solved.

‘No cure, no pay’

Some of the arrangements used include a fixed price based on the scope of work, agreement to U.S. or London arbitration, cost-plus work, and incentive bonus work. Due to the many unknown developments that might follow, one of the most popular is Lloyd’s Standard Form of Salvage Agreement, a well-known “no-cure, no-pay” basis. If salvage is not successful, no payment is made. If it is, the case is later negotiated or arbitrated.

Once the salvor has been contracted, his objective is to reach the site as soon as possible. The largest firms have ships located at a few key points around the globe and are able to fly equipment to these points within a day or two. For many years, the heavy construction firm of Merritt-Chapman and Scott was the major salvor on the Atlantic and Gulf Coasts of the United States. After that firm was liquidated, salvage services were available from a number of other groups with limited resources. Several years ago, the Moran Towing and Crowley Maritime interests combined their resources to form a Miami-based firm known as Ocean Salvors, which now provides a primary service to shipping on two coasts of the United States and in the Caribbean.

Using information about the stranded vessel, such as architectural specifications, materials, cargo, stress factors, and the hands-on knowledge of the crew, the salvor will perform calculations and develop a line of attack. Tactics will obviously vary from case to case.

Who owes whom? 

At the same time the mess is being cleaned up at the site of an accident, resolution of another mess is just getting underway. This is the intricate and complicated task of figuring out who owes what to whom and when. Under international law, the salvage holder holds the hull and the cargo until he receives some security that he will be paid. Although the ship owner is legally bound to post security for the cargo interests, a great deal of time may be lost contacting upwards of 1000 cargo interests if it is a large container ship. He may opt to post the security himself or post it temporarily until it reaches the destination.

General Average

One of the easier arrangements is a General Average agreement signed by the cargo owner accompanied by a cash deposit or underwriter’s guarantee in lieu of the cash deposit. It will often be the job of the adjuster to contact the shipper interests, or consignees, report that a casualty has occurred, notify them that General Average has been declared, ask for copies of the invoices and insurance details, and then verify the insurance. Generally, if any damage is done to the cargo during the salvage operation, a General Average sacrifice is made to which all interests contribute. Assuming the General Average pool is assembled, a settlement on salvage charges must be negotiated. At this point, says Donald O’May, chairman of the British Maritime Law Association on Salvage, “There is an inevitable tendency for salvors to gild the lily and for the salvaged property to minimize to the vanishing point the risks and the services rendered.”

Generally, the solicitors for the two interests will negotiate and try to reach an agreement. If this fails, it will go to arbitration and even an arbitration appeal. The settlement will generally be based on the degree of danger, the value of the assets, and the cost of the operation, among others. A report titled Marine Salvage in the United States issued in 1982 by the National Research Council found that salvage awards by courts or arbitrators as percentages of values saved averaged about 5.7 percent between 1970 and 1980. This was a reduction from about 7.3 percent between 1960 and 1970.

Problems with owners

Several other problems have also beset the industry.

There is an increasing reluctance by many shipowners to accept redelivery of the vessel once the salvor has done his job, some conference participants said.

FreightWaves Classics articles look at various aspects of the transportation industry’s history. Subscribe to our newsletter!

Have a topic you want us to cover? Email bjaekel@freightwaves.com.