Monday, 2 March 2015

STEEL SHIPMENTS

March 2, 2015.
The transport of steel remain one of the cornerstones of global industry and shipping, but the risk of significant claims persists given the sensitive nature of the cargo and the ease with which it may sustain damage or suffer from other issues.


Steel re-bar shipments from Turkey
Steel is a significant export from a number of Turkish ports, and steel re-bars are often consigned for shipment in areas such as the Marmara Sea, Izmir / Nemrut Bay and Iskenderun Bay.

This cargo is produced from steel pre-cursor material as well as steel scrap. Melted down and mixed with iron and manganese, these re-bars are often readied for shipment and stored without any protective cover or packaging.

While steel cargo claims have often involved coils, project cargoes and other more sensitive materials, the Association is aware of claims having arisen in connection with this cargo, too.

As is often the case, even though a pre-loading survey may note deficiencies in the cargo and have them noted on the mate's receipts, the demand for clean bills of lading is a typical feature of steel cargo trading. In part it is due to the arrangements for the letter of credit / other trade financing, as well as specifications that may exist in the underlying sale contracts (and to which members may not be a party or have sight of). Commercial pressure may then be applied to force the issuing of such documents. Often these issues are then resolved by way of a letter of indemnity arrangement, to which more below.

The basic P&I cover position is that bills of lading must accurately reflect the cargo laden on board, and should not be issued clean if on inspection or during loading there were visible defects or other issues that would call for the bills to be claused.

Particular issues for steel cargoes
Wet cargo - fresh water
Cargo may be wet when offered for loading. Such cargo should be considered rejected as it may deteriorate during shipment. Temperature fluctuations inside the cargo hold could also create further condensation that affected both the wet cargo and any other cargo shipped in a dry condition. Rust and corrosion may follow, which could be grounds for cargo to be rejected at discharge port, or at least generate cargo damage claims.

Wet cargo - sea water
Depending on local wind and wave conditions, there may also be airborne spray of sea water affecting the port and which could come in to contact with cargo being prepared for loading. It would be prudent to check with a silver nitrate test prior to loading whether any noted wet areas indicate the presence of salt water. This issue can affect older cargo stored for some time, as well as recently produced cargo just arriving at the port. In any event sea water presence on the cargo brings with it a significant chance of corrosion during the subsequent sea voyage.

Time of loading
It has been noted that sometimes it is the visually less attractive cargo which is arranged for shipment during night shifts, presumably to be less noticed by the vessel and any attending pre-loading surveyor. Hence extra vigilance at night time is advisable.

Duration of loading
If loading takes a significant amount of time, then humidity and moisture may accumulate in cargo holds. Where possible, depending on weather conditions and general safety, ventilation should be carried out for cargo already laden and in closed off holds.

Very new cargo
Sometimes cargo presented for loading may be so fresh as to still contain significant heat from the production process. If these are loaded immediately then this may exacerbate the condensation issue inside the hold during shipment. Such very fresh cargo should be allowed to cool sufficiently before loading.

Mill scale
This issue arises from the forming of a thin layer on the outer surface of the cargo during the production process. It may have a bright and light grey appearance.

During the handling of the cargo this so called mill scale may chip and brake off.

Underneath the cargo may have a darker and more matte look.

That may lead to a perception, especially at the discharge port, that there is a cargo quality or grade issue, which could mean rejection and / or claims.

Where this is noted on loading it should also be clearly remarked in the mate's receipts as well as bills of lading.

Cargo specification issues
The vessel is likely to be unaware of the specifications required for the cargo in the underlying sales contract. It has on occasion occurred that cargo was shipped that was later alleged to be not to specification, and that may include issues such as:

a. cargo size and dimensions
b. thickness of the steel, weight of the steel
c. other quality and grade issues

It is not possible for a vessel to assess these matters when the cargo is presented for loading, but it has happened before that in some jurisdictions vessels were held responsible for delivering cargo not to sale contract specifications. In such circumstance it is likely that well preserved evidence, appropriately claused bills of lading and clear rights of recourse in charterparties and other contracts will assist in dealing with such difficult cases.

Letters of Indemnity
It may be the case that either by way of ad hoc agreement, or by way of advance contractual arrangement, the parties agree to have clean bills of lading issued for commercial purposes. As it is well known that such arrangement can be prejudicial to P&I cover, it is typically part of such arrangements that while the mate's receipts are claused, the clean bills are issued against the promises contained in a so called "Letter of Indemnity" (LoIs).

These letters, however, come with a significant risk and health warning as follows:


  • not all LoIs are legally enforceable;
  • some LoI / clean bill arrangements could be considered a fraud under English law
  • the LoI does not replace prejudiced P&I cover
  • the issuer of the LoI is unlikely to have insurance backing for the promises given
  • absent a clear and counter-confirmed guarantee, the LoI will not bind third parties such as parent companies or banks
  • a LoI is therefore likely to be only as "good" in terms of financial and moral strength as the entity giving it
  • LoIs need to be carefully drafted and reviewed to ensure they assist in mitigating the risks as best as possible

Even members who are very experienced with this practice should take the time and care to not consider this as a "routine" exercise, but instead devote to it the commercial risk management attention and due diligence it deserves.

The consequences, when it all goes wrong, can be extreme including very high levels of financial losses with no chance of recourse.

Source:http://www.skuld.com

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