This Insight looks at some of the industry confusion and insurance issues arising from the new SOLAS requirement for declaration of a “verified gross mass” (VGM) for containers which coming into force on 1 July.
A recent survey by an online cargo booking organisation has found that two thirds of its customers thought there would be a moderate or major disruption in the industry when the rules came into force. Another organisation, involved in drafting guidelines, recently said that a large percentage of containers arriving at container terminals in July 2016 will not have a VGM. To add to the confusion, the US Coast Guard has said it has no jurisdiction to regulate either shippers or terminal operators. With a reported 150 million TEU shipped globally, 99 per cent said to be subject to SOLAS regulations, the changes look set to pose a number of challenges for stakeholders.
Prior to the new requirements, SOLAS required that the shipper declare, prior to loading, the gross mass of the container and to ensure it matched the actual gross mass. However, there was no effective enforcement in most jurisdictions and no IMO requirement to verify actual weights. Evidence gathered by various States during inspection campaigns and from incidents also pointed to some large discrepancies. For example, in one high profile casualty involving structural failure of the ship, 660 containers were weighed and the total weight of 137 containers (20 per cent) was found to be 312 tonnes heavier than stated on the cargo manifest. In another casualty, involving capsize of a containership at the berth the investigating authority concluded that a significant factor was a mis-declaration of container weights by the shippers. It was discovered that the weight of 16 containers was undeclared by a total of 278 tonnes.
Quite apart from weight mis-declaration having an adverse effect on ship stability and structural strength, the loss of containers overboard has been a growing concern. Furthermore, a common factor in stack collapse cases is the exceeding of tier and/or stack weight limits. Risks to crew safety also extend to shore workers handling containers that may collapse under their own weight or cause dangerous situations when shore equipment is overloaded. Governments and industry were agreed that something needed to be done and following many years of consultation the changes were adopted by the IMO in November 2014.
Additional commentary on the background for the new requirements can be found in the Gard Guidance on Freight Containers.
The new requirements
The new IMO requirements can be summarised as follows:
How the requirements will work in practice
The SOLAS requirements are mandatory, but how they will work in practice has largely been left to States and industry to work out. Many parties are involved in container logistics: cargo owners, packing companies, stuffing depots, freight forwarders, terminals, liner companies, shipowners and other transport providers. With a view to establishing a common approach to implementation and enforcement the IMO’s Maritime Safety Committee has provided guidelines regarding the verified gross mass of a container carrying cargo. These and other industry guidelines seek to address the many questions on the minds of the numerous stakeholders. For example, regardless of who packs the container, the shipper is responsible for the VGM. The shipper is deemed to be the legal entity or person named on the bill of lading as shipper and/or who (or in whose name or on whose behalf) a contract of carriage has been concluded with a shipping company. Therefore, the VGM responsibility may rest with a freight forwarder or an NVOCC (Non Vessel Owning Common Carrier).
Communicating the VGM
Container alliances between liner companies sharing space on each other’s vessels (which be owned or chartered from a third party owner) add a further layer of complexity. The VGM needs to find its way, via the bill of lading carrier, from the shipper to the company having responsibility for planning the ship’s stowage and communicating with the terminal and master.
A further complication, is that no precise time has been specified by which the VGM needs to be communicated. At the time of booking, the container may not be packed so the shipper may have only an estimated cargo weight and may not know the tare weight of the intended container. It is likely therefore that the VGM will have to be added to existing booking information, which is then extracted and sent to carriers as a separate EDI (Electronic Data Interchange) message. SOLAS itself does not require the shipper to declare the method used, yet guidelines from the Hong Kong Marine Department (HKMD) appear to do so. Work is ongoing to enhance current EDI systems and codes, and it remains to be seen how much variance there will be on cut-off times, imposed by carriers and terminals, for shippers to provide the VGM for stowage planning. The HKMD guidelines refer to the VGM being provided before the container arrives at the terminal gate.
Containers with and without a VGM
It is important to clarify that a VGM does not constitute an entitlement to load. The carrier is entitled to rely on the shipper’s VGM in stowage planning and is not required to verify the VGM themselves. Nothing in the SOLAS regulations limits the master’s ultimate discretion in deciding whether to accept a packed container for loading onto the ship.
Of equal importance is that notwithstanding the shipper’s responsibility for the VGM, if a container is received without a VGM, the master or the terminal may obtain the VGM on behalf of the shipper by weighing the packed container in the terminal or elsewhere. Whilst many terminals do have their own weighing facilities, many probably do not. This is likely to cause some disruption, delay and extra costs, which will be made worse if overweight containers need to be re-packed. It is worth to note that SOLAS regulation VI/5 requires that a container is not packed to more than the maximum gross mass indicated on the Safety Approval Plate under the CSC. A container with a gross mass exceeding its maximum permitted gross mass should not be loaded. Extra costs and demurrage charges are likely to be charged by the terminal, and passed on through the relevant shipping companies to the shipper. One North American terminal has reportedly mentioned a weighing fee of USD190, whereas another in the UK has a published fee of around USD25.
Certified VGM methods and weight tolerances
Responsibility is placed on national administrations to set up or implement appropriate standards for calibration of weighing equipment and certification of the two VGM methods. Unfortunately, the indications so far point to different approaches and not the sort of consistency that certain European trade organisations are calling for. US shippers have been even more vocal, especially about having to verify the tare weight of the carrier’s container under method 2, even though the guidelines are that they would be entitled to rely on the weight stated on the container itself. Some carriers look set to make this easier by providing an online database of tare weights for their containers. It appears some administrations, such as the MCA and HKMD, will require a shipper to register and seek approval for their method 2 verification process with the relevant national body, which given the number of shippers is no small task. This may explain why, for example, the Danish Maritime Authority (DMA) has taken what appears to be a simpler approach, allowing the VGM to be based on a “suitable weight" or "in accordance with a certified method" by reference to certain weighing or auditing standards. The DMA has also granted shippers an interim period until 30 June 2017 under method 1 allowing measuring equipment to have an accuracy of +/- 1,000 kg. By comparison, the HKMD appears to require use of authorized weighing scales listed on their web site, a listing which requires the HKMD to approve calibration reports. The UK Maritime Coast Guard Agency (MCA) has recently dropped any requirement for a specific weight accuracy and has stated that the VGM should be as accurate as reasonably practical taking into account methodology and operational variances. The MCA has however set an enforcement tolerance of ±5% or ±500kg, whichever is the greater. The US Coast Guard (USCG) has said that it does not plan to adopt or publish any allowable error variance.
Fines and Penalties
Failure to comply with the SOLAS VGM requirements may result in fines and other penalties imposed by competent authorities or port state control in accordance with relevant national legislation. Many States have already given notice that such legislation is in place. How States will go about inspections is unclear since it is unlikely that shipping companies will be required to report infringements but may be expected to keep records available for inspection. Numerous states have indicated that they may conduct spot checks of weights themselves. The USCG has said it will not impose fines, appearing to expect the industry to ensure a VGM is in place before loading.
Procedures and discrepancies
Guidelines suggest that carriers will be expected to have procedures in place to deal with the new VGM requirements, especially to deal with weight discrepancies and to ensure no container is loaded without a VGM. At least at the outset, terminals, are unlikely to have uniform procedures of their own, making the process harder for carriers. In practice, containers will most likely be allowed to enter the terminal but be blocked from loading until the VGM has been confirmed. Terminals will be conscious that they have a joint responsibility with carriers not to load without a VGM and will most likely look to the liner companies they have contracted with to rectify the situation. It is clear from the guidelines that if the container is weighed at the terminal (presumably by certified equipment) that is the gross mass that should be used for ship stow planning. However, as the DMA point out, a loading crane in the port cannot be used since the terminal operator must not initiate the loading until a VGM is available. It is less clear what should happen if the container is not weighed at the terminal but a discrepancy is identified, eg between a shippers VGM held by the terminal and that held by the carrier. Some States look set to provide access to databases for checking approved shippers/weighing facilities, for use when discrepancies are suspected.
Implications for P&I cover and claims handling
Cover for extra costs and demurrage charges etc
Disruption and delay at the load port terminal resulting in extra costs and demurrage charges arising from unplanned container movements, re-weighing, re-stuffing etc. are operational in nature. These extra costs will therefore be for the Members’ own account. P&I cover is a named risk mutual insurance primarily covering Members for their legal liabilities to third parties with certain exclusions.
Gard’s P&I rules expressly exclude liabilities, costs and expenses arising out of a failure to load any particular cargo or cargoes (Rule 34.1.v), claims by or against the Member relating to demurrage, detention or delay, the Member’s general monetary loss or loss of time except where the Member is legally liable to a third party and such liability (e.g. in relation to cargo) is covered by the Rules (see for example Rules 63.1.j and 63.2). Whilst a Member is also covered (Rule 35) for certain extra costs and expenses they incur themselves, such as for handling and discharging cargo, this is only for extra costs and expenses necessarily consequent upon damage to the cargo or damage to the ship or disposing cargo which has been rejected by the person entitled to delivery. Also excluded from this cover are costs that form part of the daily running costs as well as costs that the Member is able to recover from any other party.
In view of the above exclusions, Members are recommended to review their existing booking and bill of lading terms to ensure they sufficiently cover the shippers’ responsibility for the VGM and permit the carrier to lien the cargo if shippers do not pay extra costs and charges when no VGM is provided, a discrepancy exists or extra freight is due. Terminal contracts should also be reviewed in terms of relevant charges and cut-off provisions.
Cover relating to VGM issues
Members will be familiar with Gard's Rule 8 which provides that, it shall be a condition of the insurance of the Ship that... the Member shall comply or procure compliance with all statutory requirements of the state of the Ship's flag relating to the...safe operation...of the Ship, which would include SOLAS. Therefore, a failure to comply with this condition may dis-entitle the Member to recovery under the P&I cover and this is likely to be very relevant to fines imposed for loading without a VGM.
Some Members have enquired about the wider implications of a container being loaded without a VGM, such as for cargo and other liabilities arising out of stack collapse, including container loss and removal, cargo shortage claims and container handling accidents due to overloading of equipment or the container shell itself. It is difficult to provide general guidance because cover is determined on the facts of each case and the reason why a particular container(s) has been loaded without a VGM may be relevant, as may the causal connection between the circumstances and the relevant P&I liability, cost or expense. For example, cover may be more at risk if a container is deliberately loaded without a VGM and causes an incident because of it is weight. On the other hand, if a VGM has been provided and the Member relies on it, cover implications are unlikely arise, unless perhaps a significant discrepancy has been ignored. Gard’s Rule 74 also has an exclusion for the ship being employed in or on an unsafe or unduly hazardous voyage. If just one container is involved, it is difficult to foresee that that Rule 74 would apply, however it could take effect when a shipper has very many containers on the same ship, all with VGM discrepancies that the relevant State would regard as significant. For example, the HKMD guidelines accept a tolerance of +/-5% between the shipper’s VGM and the VGM obtained by the carrier on the shipper’s behalf.
The VGM will be an additional piece of evidence which may be relevant to determining a carrier’s liability for a claim, any package limitation (which is often based on the weight of the goods) and any recourse against a shipper for liability caused by an incorrect VGM. The bill of lading will not necessarily record the VGM, as the bill of lading weight has principal importance for the weight of the goods themselves. However, the cargo weight may be capable of being determined from the VGM and so may be relevant evidence if the carrier faces claims for shortage. Carriers sometimes face claims from receivers in connection with fraudulent shipments where fraudsters have packed the container with goods having no value. It might be argued that the VGM allows carriers to detect any obvious discrepancies.
Where to find more information/guidance
The MCA has issued a useful Marine Guidance Note and several industry organisations have also issued guidelines. A coalition of industry experts has compiled a list of frequently asked questions (FAQs) and their answers. All these are accessible via the IMO website.
The new VGM requirements are clear. Implementation and enforcement is less so, therefore it will be important for all stakeholders involved in container logistics to engage with each other about obtaining, providing, transmitting and receiving the VGM. If disruption and delay is to be avoided, the role of the terminal appears to be key, since arguably that is where the VGM can most easily and accurately be determined under method 1. If determined upon terminal entry that ought to be sufficiently in advance for stow planning in the vast majority of cases. Shippers therefore looking to avoid the complications and national variations surrounding method 2, may therefore be attracted by a weighing contract direct with a terminal that they exclusively use for exports. Shippers that use many terminals may seek to make terminal weighing arrangements with their carriers.
There is likely to be some short term pain for long term gain and a future where the dangers of mis-declared container weights become a thing of the past. Importantly, carriers will still rely on shippers declaring accurate weights and on national administrations policing them – as we have seen with hazardous goods mis-declarations, carriers are sometimes let down on both fronts.