Cargo liquefaction - An update

Solid bulk cargo liquefaction continues to be a hot topic for P&I Clubs and their Members. There have been several recent developments on which to update readers.

Background
The topic of cargo liquefaction gained prominence in Gard News in the early part of 2010¹ and since then Gard has dealt with a large number of enquiries and requests from Members to arrange precautionary surveys. Despite the well-publicised potential dangers, it appears that market forces are driving ships to carry cargoes that may liquefy and weak freight markets may make it difficult for owners and charterers to pass up employment opportunities.

Since early 2010, Clubs in the International Group of P&I Clubs (IG Clubs) have issued circulars alerting Members to the dangers and problems of iron ore fines shipped from India as well as nickel ore shipped from Indonesia and the Philippines.² Concerns have also arisen with regard to other cargoes and countries of shipment, such as sinter feed from Brazil,³ chromite ore and mill scale. The problems are often exacerbated by commercial pressures, and in difficult market conditions, owners will feel under greater pressure from charterers and shippers seeking to persuade owners to avoid extra costs and delays, such as may be caused by owners' own surveys and tests on cargo waiting to be shipped. Various charterparty clauses have been seen in circulation that attempt to weaken, avoid, and/or restrain owners' ability to take appropriate and necessary precautions, such as those set out in the aforementioned Circulars. This resulted in the IG Clubs recently producing a standard charterparty clause to assist owners in trying to resist commercial pressures that could lead to the International Maritime Solid Bulk Cargoes Code (the IMSBC Code) provisions and precautions related thereto being compromised.⁴

The heart of the problem
Members may well ask why they should go through the time, cost and trouble of arranging their own survey, sampling and analysis of cargo, when it is the shippers who are obliged under the IMSBC Code to declare that a consignment is fully and accurately described, that their given test results are correct to the best of their knowledge and are representative of the cargo to be loaded. The answer, and what lies at the heart of the problem, is inaccurate declarations and certificates from shippers. This may range from cargo being mis-declared as Group C (i.e., cargo not liable to liquefy), to inaccurate FMP (flow moisture point)/TML (transportable moisture limit) figures and/or moisture content. Judging by what has been reported at IMO level, this appears to have had disastrous consequences in some cases where it is likely that ships and crews had relied on declarations/certificates being accurate. In 2010 the IMO issued a circular⁵ referring to two serious casualties in the monsoon season of 2009 and many near-misses on ships engaged in the carriage of iron ore fines. In that circular the IMO stated: "some shippers have in the past declared iron ore fines as iron ore, which is a Group C cargo". This was followed by the loss of 45 seafarers and three vessels carrying nickel ore from Indonesia and a submission by China to the IMO in March 2011 which stated that "According to the evidence available, the direct cause of these accidents was the loss of stability as a result of cargo liquefaction and shift in bad weather. However, the cargo documentation provided to the masters indicated that the moisture content of the cargo samples was lower than the Transportable Moisture Limit (TML)".

The reasons behind inaccurate declarations and certificates are numerous and in Gard's experience these can range from a complete lack of knowledge that the IMSBC Code exists, a lack of understanding of the IMSBC Code, improper sampling and analysis procedures/equipment and even deliberate manipulation of samples/test results. The latter is particularly concerning and may arise because shippers are unwilling or unable to provide cargo with a moisture content below the TML because to do so would require an investment in time/costs to remove moisture. This may particularly be the case where cargoes are simply shipped straight from the ground without any processing.

Other problems and complications
Whilst unreliable shippers' declarations and certificates may be at the heart of the problem, this is complicated by several other problems, some of which are discussed below.

Successful shipment history
A number of shippers and charterers are quick to point out that many cargoes have successfully reached their destination without incident and without owners having arranged their own precautionary sampling and analysis. There may be numerous reasons for this, such as the fact that cargoes are rarely homogenous in all holds, as well as the weather and sea conditions. Some voyage orders have been known to advise masters to avoid heavier seas/weather, which is rather impractical and ignores the fact that conditions can not always be accurately forecast, particularly at a local level. Perhaps a significant factor is that the TML is set at 90 per cent of the FMP, in other words there is a 10 per cent safety margin. A cargo may therefore have a moisture content above the TML, but not so high as to reach the FMP. All this said, it is fair to say that the precise reasons why some cargoes liquefy and some do not are not fully understood. It is reasonable to assume that the IMSBC Code has been drafted with this in mind. Sadly, it would seem that numerous shippers and indeed some owners do not feel obliged to comply with the IMSBC Code. It is not uncommon to hear that, following the rejection of cargo by one owner, the very same cargo is loaded onto another ship.

Sampling
The IMSBC Code includes provisions for sampling and there is often a problem obtaining sufficiently representative samples. Owners are often refused access to shore stockpiles, if indeed there are any, as some cargoes are taken directly from the ground and loaded to the ship. Even if access to stockpiles is given, shippers may not make clear which stockpiles will be used to load the vessel. The number of samples required for analysis also presents a logistical challenge (especially if the laboratory is located overseas). For example, for a stockpile of 50,000 MT, sampling according to the IMSBC Code requires 200 samples to be taken and then combined to at least 50 sub-composite samples. Owners trying to avoid delays by making early survey arrangements can also face the problem that, according to the IMSBC Code, the time interval between moisture content testing and sampling shall not be more than seven days. If unprotected cargo is affected by precipitation between testing and loading, further sampling and analysis would be required. It is also worth mentioning here the danger of Members and their crews over-relying on 'can tests'. Whilst these may indicate if cargo is unfit for shipment they can not determine if a cargo is fit to be loaded - this can only be determined by proper laboratory testing. To make this clear, one of the revisions to the IMSBC Code agreed at the 16th Session of IMO Sub-Committee on Dangerous Goods, Solid Cargoes and Containers (DSC 16) was to make clearer the limitations of the 'can test' by adding to the IMSBC Code a statement that "If samples remain dry following a can test, the moisture content of the material may still exceed the Transportable Moisture Limit (TML)".

Testing
Some  shippers have questioned whether the tests recognised by the IMSBC Code are suitable for certain cargoes, particularly if they have a larger particle size and/or the cargo consists of only a small portion of fine material that may liquefy. Experts advising Gard and the IG have been able to successfully test numerous cargoes, using the different test methods, with reasonable consistency. The lack of independent laboratories that are competent to perform testing, especially with regard to the FMP/TML, is also a problem, not just in the country of shipment, but world-wide. With many competent laboratories located outside the country of shipment there can be significant delays and costs. Often owners take the decision to start loading pending laboratory analysis results, but this can also lead to complications if such analysis shows the cargo to be unsafe. However, a lot of good work has been done, notably in India, where industry experts have witnessed proper testing in a number of independent laboratories, often through training by the very same experts.

Cargo already loaded
If cargo is loaded and subsequent concerns arise as to its fitness for safe carriage, there is the obvious problem of identifying within the bulk what parts of the cargo are unfit. Often, therefore, the whole bulk has to be discharged. However, it can be extremely difficult to get cargo re-discharged at the place of loading. This may be because of a lack of facilities to take cargo back: in some remote locations cargo is bulldozed into barges from ashore and whilst cargo can be off-loaded to barges with the ship's cranes, shippers may have a problem getting it back ashore. There may also be complications caused by local customs regulations,  which may consider a cargo to be exported once loaded. Quite often, when owners find their ships with unsafe cargo on board, lawyers are instructed and legal battles with charterers and others ensue. The  on-board rectification of cargo moisture levels is far from straightforward. Many attempts, using various techniques, have been carried out but with limited success, particularly in holds that are full.

P&I cover
Whilst Gard does not see the P&I cover as a complication or problem as regards liquefaction issues, Members may benefit from the clarification given below.

Gard has taken the decision not to afford cover for the cost of precautionary surveys. Some say that such surveys are a measure to avert or minimise loss. Subject to certain provisos, Gard's Rule 46 provides cover for "extraordinary costs and expenses reasonably incurred on or after the occurrence of a casualty or event for the purpose of avoiding or minimising any liability on the Association". Whilst it is debatable whether any event has taken place at the time a precautionary survey is requested, the key point in Gard's view is that the primary purpose of such surveys is to confirm that the cargo is safe for carriage and not to minimise any liability on the Club.

In addition, Gard's Rule 8 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". The IMSBC Code is part of SOLAS (a statutory requirement) and under SOLAS the master has an overriding duty and authority not to load the cargo or to stop the loading of the cargo if he has any concerns that the condition of the cargo might affect the safety of the ship.

It should also be borne in mind that bulk carriers are not the only ships that carry dangerous cargo. Container ships carry many dangerous goods and the Club can not be expected to pay for surveys to check that the numerous dangerous cargoes are safe for carriage. For similar reasons as those outlined above, P&I cover is unlikely to respond to the cost of discharging an unsafe cargo.

So what costs does Gard cover? Clearly, the carriage of these cargoes may give rise to various claims for which Defence cover may be available, including survey costs in connection with such claims and incurred with prior approval from Gard. Cover may also be available if a survey is subsequently used in the defence of a claim that is covered by P&I. That brings us to the more difficult issue of Club cover where a Member does not follow the recommendations made by the Club, notably those set out in the International Group of P&I Clubs circulars. As stated in those circulars "...if a Member fails to comply with the [IMSBC] Code or local regulations when not in conflict with the Code, they should also be aware that they might be prejudicing Club cover. All of the Group Clubs have similar Rules which in essence exclude cover for liabilities, costs and expenses arising from unsafe or unduly hazardous trades or voyages".⁶ Until such time as Gard or the IG Clubs may decide to take a stricter line, Gard's approach has been to forewarn Members that there is a grave risk of losing cover⁷ if the Member knowingly carries unsafe cargo, for example where independent test results on samples show a moisture content in excess of TML. Members are also at significantly greater risk of prejudicing cover if unsafe cargo is loaded without any checks, or if the Member loads unsafe cargo from a country where there is a history of unreliable shippers' certificates, doing so solely on the basis of ‘can tests' and without independent sampling and analysis.⁸ Of course, much depends on the facts of each case and there are likely to be a number of facts (notably whether or not the cargo is unsafe and/or the shipper's certificates are accurate) unknown to the Club at the time cargo is presented for shipment and Members seek the Club's position on cover.

Gard's view is that it essentially boils down to a question of risk which one Member may be prepared to take, but which at a certain level, the mutual membership of the Club can not reasonably be expected to share. Is it right that an owner who does not follow the recommended precautions, thus avoiding time, trouble and cost, should get the same level of cover as one who does?

Cargoes not listed in the IMSBC Code
The fact that a number of cargoes that may liquefy, such as nickel ore and iron ore fines, are not listed in the IMSBC Code causes uncertainty. However, the IMSBC Code recognises (in section 1.3) that some cargoes that may liquefy may be not be listed in it. The IMSBC Code also states that "many fine-particled cargoes, if possessing a sufficiently high moisture content, are liable to flow. Thus any damp or wet cargo containing a proportion of fine particles should be tested for flow characteristics prior to loading".⁹ In addition, Group C cargoes are defined in the IMSBC Code as cargoes not liable to liquefy and Group A cargoes are defined as cargoes which may liquefy. The words emphasised tend towards a more cautious approach, which given the potentially disastrous consequences, is wholly appropriate.

At the 16th Session of the IMO Sub-Committee on Dangerous Goods, Solid Cargoes and Containers it was agreed, as a matter of principle, that if a cargo may liquefy it should be categorised as Group A. As mentioned above, section 1.3 of the IMSBC Code deals with cargoes not listed in the IMSBC Code and if such a cargo may liquefy the IMSBC Code requires preliminary suitable conditions for carriage to be set by three competent authorities, i.e., those in the port state of loading, the flag state of the ship and the port state receiving the cargo. Gard has yet to see any such ‘tripartite agreement' issued in respect of nickel ore or indeed iron ore fines (despite IMO circular DSC.1/Circ.66 recognising that iron ore fines are not listed but may liquefy).

Local pressures
Mention has already been made of commercial pressures. There are also local pressures, despite the fact that some states, such as India, have taken the problem seriously and introduced national regulations in support of the IMSBC Code. For example, a circular recently issued by one Indian port authority, concerned with the effect of loading stoppages on berthing schedules, required the production by the owners' P&I surveyor of test certificates together with a statement by the surveyor that the cargo was fit for loading. The circular went on to suggest that if, despite such certificates, vessels subsequently stopped loading, surveyors' licences would be reviewed. This is a good example of the pressures that local surveyors often face, not least since such pressure may cause them to believe they are being asked to choose between their own livelihood and the lives of those on board ships. It is worth emphasising here that a surveyor appointed by the Club on behalf of the owners is not speaking for the Club itself. Neither the Club nor the owner can confirm whether or not a particular cargo is safe to carry and it is not their obligation to do so under the IMSBC Code. Owners should be aware that doing so could prejudice any potential recourse against a shipper/charterer were something to go wrong. Local tensions have also seen surveyors and experts, especially those from overseas, refused access to ports. Local authorities have also been known to have threatened legal action against the removal of samples from the country for testing overseas without their prior approval (which is unlikely to be given anyway).

What is being done to address the problems?
Alerting Members to the problems and dangers has been a priority in the past year. Members have then been able to raise the level of awareness within their own organisations and with long term business partners. Whilst Gard tries to lend as much support to its Members as it can, this is an industry problem that needs to be addressed at a national and international level.

National level
As already mentioned, some states have recognised the problems and dangers of liquefaction and have taken action.  For example, The Indian government, through the Directorate General of Shipping (DGS), has issued a number of Merchant Shipping Notices which generally support the IMSBC Code. China is also understood to be in the process of drafting regulations. It is of course important for national provisions to be in uniformity with the internationally agreed IMSBC Code. Where they broadly are, these can be powerful points of reference for shippers attempting to compromise safety. A number of states have also made submissions to the IMO, with various suggestions being made to address the problems (see below).

International level
Industry bodies, including the International Group of P&I Clubs, have attended numerous meetings in the past year which recently culminated in joint industry papers being submitted to the 16th Session of the IMO Sub-Committee on Dangerous Goods, Solid Cargoes and Containers. That session included a meeting of a Working Group on Amendments to the IMSBC Code, including the evaluation of properties of solid bulk cargoes. The meeting was attended by state and industry representatives and on 22nd September 2011 it reported on measures to improve safe transport of cargoes that may liquefy.  These measures are considered in more detail in the article "Future IMSBC Code amendments regarding cargoes that may liquefy", which appears elsewhere in this issue of Gard News.

What can owners do in practice?
One might say that the IMSBC Code already provides a sufficiently sound basis on which to safely transport solid bulk cargoes that may liquefy. The agreed amendments to the IMSBC Code, which seem unlikely to come into effect until 2013 at the earliest, should serve to strengthen the precautions to be taken, notably by shippers. Ultimately, however, much depends on shipper compliance and if there is insufficient confidence in the reliability of shippers' declarations and certificates, owners and their Clubs will be hesitant to relax their own precautions. So this is what owners can do, practically speaking:

Know what to expect
- Understand the problems and complications, such as those mentioned above.
- Chartering and operations departments and most importantly ships' crews should be aware of the dangers and precautions.
- If they are not satisfied the cargo is safe to carry, owners should be ultimately prepared to sail without cargo and to deal with the consequences (safer than the alternative).

Pre-fixture/order
- If the vessel is on time charter, check whether the cargo is permitted under the charterparty.  Consider excluding it given the time/trouble/costs/risks involved.
- If owners are prepared to carry these cargoes (in accordance with the IMSBC Code) discuss the owners' expectations with the charterer well in advance.
- Try to incorporate into the contract the charterparty clause recommended by the International Group of P&I Clubs.
- Do not accept any charterparty clauses that may compromise the IMSBC Code or prevent owners' appointment of certain surveyors/experts.

At fixture/order
- Demand proper declaration of the cargo and its Bulk Cargo Shipping Name.
- Consult the IMSBC Code.
- Make swift contact with Gard for guidance on specific cargoes/countries so that sampling and independent testing can be arranged to try and minimise delay.
- Seek to clarify any improper declarations/certificates with charterers before the vessel arrives at the load port.
- Remember that the master will need support/help locally and that this can take time (sometimes days) to arrange.

Before loading
- Demand the proper IMSBC Code documentation, including the shipper's declaration and certificates of moisture content and TML/FMP.
- Check shipper's documents against the provisions of IMSBC Code.
- Do not accept for loading any cargo or parts of cargo until it has been properly tested and documented as safe to carry in accordance with the IMSBC Code.
- Support the master's overriding authority under SOLAS not to load the cargo or to stop the loading of the cargo if he has any concerns that the condition of the cargo might affect the safety of the ship.

Conclusion
Inaccurate declarations and certificates from shippers appear to be at the heart of the problem with the transport of cargoes liable to liquefy, though it is recognised there are numerous complications. Whilst factors causing liquefaction may not be fully understood, the IMSBC Code adopts a cautious approach, which is wholly appropriate, given the potentially disastrous consequences. Until such time as the risks of liquefaction in a given cargo can be identified with more certainty, the role of authorities in the ports of loading is vital to ensure that shippers comply with the IMSBC Code. If they do not, owners and their P&I Clubs will have no option but to continue to take their own precautions. Owners who choose to run risks, calculated or otherwise, may have to face the consequences on their own.

Footnotes
¹ See for instance the article "Liquefaction of unprocessed mineral ores - Iron ore fines and nickel ore" in Gard News issue  No. 197.
² See Gard P&I Member circulars No. 16/10 (iron ore fines) and No. 23/10 (nickel ore).
³ See Gard Loss Prevention Circular No. 6/11.
⁴ See Gard Alert of September 2011.
⁵ DSC.1/Circ.66 (revised in 2011).
⁶ Gard's Rule 74 states: "The Association shall not cover liabilities, losses, costs or expenses arising out of or consequent upon the Ship carrying contraband, blockade running or being employed in or on an unlawful, unsafe or unduly hazardous trade or voyage".
⁷ In respect of for liabilities, costs and expenses arising out of carrying unsafe cargo or out of non-compliance with the IMSBC Code.
⁸ Unless an independent expert customarily advising the Club/IG can confirm that the shipper's documents are in accordance with the IMSBC Code and acceptable based on representative samples and proper analysis from a competent laboratory.
⁹ Section 2.1 of Appendix 3.

Any comments on this article can be e-mailed to the Gard News Editorial Team.