Major cargo claims analysis - Dry bulk and dry unitised carriage

An article in Gard News issue No.175 covered some of the general highlights from a recent Gard analysis of major cargo claims for the five-year period between 1996 and 2000. This article considers some of the analysis results for the dry bulk and dry unitised sectors of cargo carriage.¹

Dry bulk
In terms of frequency and value, dry bulk claims accounted for 13 per cent and 12 per cent respectively of the total major cargo claims. As mentioned in the general highlights, the average claim value was USD 504, 267.

Types of cargo and vessel
Forty seven per cent of the major dry bulk claims concerned grains/meals, 18 per cent fertilizers and 18 per cent cement. Other cargoes included slurry and ore. Not surprisingly, all the vessels were bulk carriers.

Types of claim
Wet damage claims accounted for 47 per cent and contamination claims 33 per cent of the major dry bulk claims. The other types were deterioration, delay and extra handling. In value terms, contamination claims have proved the most costly at an average of USD 435,600 per claim, with wet damage claims at an average of USD 227,286 per claim.

Causes of the main types of claim – wet damage and contamination
Wet damage claims
It is perhaps not surprising that hatch leakage is the most common cause of major dry bulk claims. Leakage through pipes, bilges and defects in the steelwork has also caused claims. One hatch leakage claim involved a bulk carrier carrying a cement cargo from Turkey to the USA. The vessel encountered heavy weather – November in the North Atlantic. This, combined with defects in the hatch covers, resulted in significant ingress to No.1 hold. The entire top surface of the cement was solidified up to three feet thick. It took five days for a bulldozer with a jack hammer to remove this layer of “concrete”. The cost of settling this cargo claim exceeded USD 200,000.

Of the other cases, hold leaks originated from the bilge in one case and an unknown source in another. The pipe leak case involved a broken sounding pipe, which allowed sea water ingress during heavy weather. It was necessary to destroy the partly damaged wheat cargo as dumping overboard was not possible.

Not surprisingly, heavy weather was a factor in each of the cases involving hatch leakage. The average age of bulk carriers suffering hatch leakage was 21 years. The recent Gard News article entitled “Tightness of hatch covers”² provides guidance on what is meant by weathertight, what the common causes of hatch cover problems are and the types of tightness tests that can be performed.

Cause of wet damage claims - DRY BULK
(number of claims and average value in USD)

Contamination claims
As can be seen from the chart below, there are numerous causes giving rise to contamination claims, which are among the most costly major dry bulk claims. One of these cases concerned a shipment of bulk corn from the United States to Japan, where it was to be processed for use as animal feed. During discharge operations the receivers discovered that the cargo was emitting a disinfectant-like smell. Investigations revealed that the holds had been painted recently. Following an analysis of paint samples, it was determined that the source of the problem was a high level of chemicals in one of the raw materials used for the paint. Since this was not apparent at the time of application, sufficient time had not been left to expel the chemical by ventilation. Unfortunately, the shipowner was unable to avoid liability as he was unable to show that due diligence had been exercised by his servant – the paint manufacturer. The cost of settling this claim exceeded USD 900,000. For further commentary on this interesting case, see the article “Due diligence to make the vessel seaworthy” in Gard News issue No. 160.

The hold and pipe leak cases involved bunker fuel contamination brought about in one case by a crack in the air pipe to the bunker tank which ran through the hold, and in the other case from a grab damaging the tank top to a bunker tank during discharge. In one of the two poor hold preparation cases, remnants of a previous cargo were contaminated with the Karnal Bunt disease.³ This led to the rejection of a whole cargo of fertiliser. The cargo was sold for salvage at a loss of over USD 6 million. In the second case, rusty holds caused contamination to a cargo of soda ash, which could not then be used in the manufacture of glass.

Cause of contamination claims - DRY BULK
(number of claims and average value in USD)

Dry unitised
For the purpose of the analysis, dry unitised carriage was assumed to cover packaged, bagged, palletised and stand-alone dry cargo not carried in a container. In terms of frequency and value, dry unitised claims accounted for 39 per cent and 36 per cent respectively of the total major cargo claims. As mentioned in the general highlights, the average claim value was USD 472,370.

Types of cargo and vessel
28 per cent of the major dry unitised claims concerned steel cargoes and 22 per cent concerned project cargoes. Other cargoes included bagged sugar, forest products and vehicles. The ships carrying these cargoes were mostly general cargo vessels (55 per cent) and bulk carriers (38 per cent). Some heavy lift vessels were also involved.

Types of claim
Physical damage claims accounted for 48 per cent and wet damage claims 27 per cent of the major dry unitised claims. Others types included contamination claims (9 per cent), condensation damage claims (7 per cent) and loss overboard claims (5 per cent). In value terms, condensation damage claims have proved the most costly at an average of USD 867,000 per claim, with physical damage claims following at USD 595,333 per claim and wet damage claims at USD 274,923 per claim.

Causes of the main types of claim – Condensation damage, physical damage and wet damage
Condensation damage claims
Condensation damage claims produced the most costly major dry unitised claims. In two of the claims improper ventilation led to cargo sweat and damage to cargoes of sugar. The cost of settling these two claims exceeded USD 2 million. One of these claims involved a shipment of a bagged refined sugar cargo from Zeebrugge to the Middle East, via the Suez Canal in May. At discharge the sugar was found to be variously caked. The cause was attributed to cargo sweat resulting from improper ventilation of the holds. Ventilation was not conducted in accordance with the dew point rule and this resulted in humid air being drawn into the hold and condensing on contact with the sugar through the bags. It is disappointing that the crew was not aware that the ventilation of bagged refined sugar is not strictly necessary. More disappointing, however, is the failure of the crew to apply the most basic of general principles: “cold to hot, ventilate not”.

The claim involving poor stowage was brought about by wet hot rolled steel coils being stowed in the same hold as dry cold rolled steel coils.

An article entitled “Don’t work up a sweat” published in Gard News issue No. 173 provides guidance on condensation and ventilation. The article explains the types of condensation, proper ventilation practice, ventilation systems, temperature measurements, ventilation records and stowage considerations.

Cause of condensation damage claims - DRY UNITS
(number of claims and average value in USD)

Physical damage claims
Poor stowage and/or securing is behind most physical damage claims to dry unitised cargo. An example of one such claim concerns a plasterboard cargo shipped from the UK to Canada. The plasterboard sheets were packaged and stowed in tiers in the hold of a general cargo vessel. Heavy weather was encountered in the North Atlantic in January. Over 1,400 packages were damaged due to shifting. The proximate cause of the shifting was a lack of air bags in the lower part of the hold, which left void spaces for packages to fall into. The cost of settling this claim exceeded USD 350,000. This and other cases prompted Gard’s Loss Prevention Circular on the use of air bags as dunnage. Gard’s circular No. 07-02 entitled “Use of air bags as dunnage” covers the functions and types of air bags and some precautionary measures when using them.

In the other claims caused by poor stowage, compression damage appears to be a common theme. The underlying problems ranged from cargoes being over-stowed when they should not have been, or cargo stowed in too many tiers to the poor alignment of dunnage. In some cases shipper’s instructions were either not followed or were over-relied on. All the claims caused by poor handling involved heavy lift or project cargoes. In one case a transformer was damaged when the ship decided to carry out discharge with the ship’s crane whilst a heavy swell was prevailing. In another case the set up of the crane’s lifting gear contributed to a transformer weighing some 110 MT turning over during loading. The one claim caused by discharge equipment failure involved the failure of a crane sling during loading resulting in damage to a railway wagon. In those claims predominantly caused by poor securing, insufficient (as opposed to defective) lashing materials on heavy cargoes such as steel, vehicles and machinery appear to have been the main problem. An article entitled “Improper lashing and securing of cargo” in Gard News issue No. 173 considers what can happen if the guidance set out in the Cargo Securing Manual is overlooked.

Cause of physical damage claims - DRY UNITS
(number of claims and average value in USD)

Wet damage claims
Again hatch leakage features prominently when it comes to wet damage claims on dry unitised cargo. Hold leakage is also a common cause. In one case a bulk carrier loaded steel coils in Latvia for the USA. It was November, but the North Atlantic was kind on this crossing. The vessel arrived at Philadelphia with the cargo in good order. She then went on to discharge at Camden and New Haven, again without problems. After discharging at New Haven the vessel ballasted No. 2 ballast tank for the passage down to New Orleans, where the balance of the cargo would be discharged. On arrival at New Orleans, 60 cm of seawater was found in the bottom of No. 2 hold. Unfortunately, a repair to a hopper plate carried out before loading was found to be defective and this allowed the water to ingress into the hold from the ballast tank. Cargo claim settlements exceeded USD 300,000. What made matters worse in this case was a failure of the crew to conduct proper bilge soundings. Gard News issue No. 160 features an article entitled “It is not such a drain to avoid bilge problems” which considers the most common problems associated with cargo space bilge systems.

In the claim caused by ballast mis-operation, the wrong tank was ballasted causing flooding in two holds to a depth of 80 cm. The ballast water entered the holds via a manhole cover and access doorway which were open because the vessel was docking for repairs. A cargo of cocoa beans and rubber bales was damaged. In the claim caused by rain a severe storm in the monsoon season caused wetting to a cargo of bagged rice during loading in India. The hatch covers were not closed in time.

The average age of the vessels suffering hatch leakage was 15 years.

Cause of wet damage claims - DRY UNITS
(number and value of claims and average value in USD)

Further analysis results
In future issues Gard News will look at the major cargo claims concerning liquid bulk, container and reefer unitised carriage.