Global marine salvage industry hit by reduced incomes due to drop in incidents
TUG AND SALVAGE WEEK
Many players within the global marine salvage contracting industry have been unable to invest in new equipment and technologies to provide adequate salvage responses to incidents, the director of the London P&I Club said recently.
In a social media post, director Steve Roberts said the reason for the under-investment is the number of shipping incidents declining year on year.
Roberts remarked that while the decline in incidents is “good for shipowners, their insurers and the environment,” it compels salvors to deal with reduced income.
He added that, at the same time, the decline (27 in 2021) in the use of the traditional Lloyd’s Open Form (LOF) salvage contract is further reducing contractors’ income. That is because LOF awards are uplifted to encourage investment in salvage resources.
He said LOF is based upon a clear and simple agreement between the owners of the “property in peril” and the salvage contractor wherein the contractor is paid only if the said peril has been adequately resolved.
One advantage of LOF is that it can be agreed without negotiation of its terms, ensuring an immediate response. Roberts said, however, it is also perceived to be expensive, particularly for non-urgent cases.
With modern communication allowing immediate communication, shipowners are forgoing LOF contracts and instead contracting salvage services on terms that they believe are more financially beneficial, such as a daily rate or single lump sum, added Roberts. New business is therefore decreasing, as is use of the salvage contract that seeks to reward investment, and the combined result is reduced income opportunities from traditional salvage.
Roberts claims this possibility could further reduce the number of players in the sector and, in the long term, result in reduced salvage cover and higher cost for shipowners and their insurers. It also increases threat to the safety of life and preservation of the environment through reducing capability, coverage, and reaction time.
The International Group of P&I Clubs meanwhile undertook an independent review into the delay in contracting and engagement of salvage services in marine casualties and what changes can be made to reverse this trend. The report found that, while shipowners and insurers have doubts about the cost effectiveness of LOF, there remained overwhelming support for its use in appropriate cases, and recommended that its perceived downsides should be addressed through reform and transparency of awards and to then promote the changes.
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