Charterers' liability: Nickel Ore - urgent warning on cargo liquefaction


Published: 16 November 2010


The issues involved in the carriage of mineral bulk cargoes are not new. Indeed the significant number of incidents in recent years, involving fluorspar from China, iron ore from India and nickel ore from Indonesia and the Philippines have shown that despite a lot of effort the basic dangers have not gone away.

The Club has previously advised on these matters in:

  • Skuld’s web article of September 2009
  • Skuld web circulars of November 2007 and May 2006
  • Skuld Beacon article issue 2 of 2007

Recent high profile casualties involving nickel ore from Indonesia have once more brought this problem to the front pages. As a result Intercargo has released a Warning (news release 03/10) reminding owners and operators of the very serious risks involved.

The risks involved, such as capsized vessels, lost vessels, crew deaths, are well known. Parties in the shipping industry need to be aware as to how they can be held liable for these losses.

In particular charterers can be as vulnerable as owners to the risks incurred when loading such cargo, especially when the charterer is the “last time charterer” in a chain, just before the voyage charterparty.

Charterers' liability under NYPE 1946 form

Charterers, under a typical NYPE 1946 form, could be held entirely responsible for loading operations. The master may have limited duties - with respect to charterers - to intervene in case of bad stowage.

Charterers have a strict liability to owners in case they load unsafe cargoes

Under common law, Hague and Hague-Visby Rules as well as express charterparty terms, the charterer usually carries a strict liability to only load safe cargoes onto the vessel. Even if the charterparty fails to expressly mention “safe” cargoes, there will be an implied obligation under the law.

What happens when there is delay caused by inappropriate cargo

Substantial time loss that may be involved when a vessel needs to discharge an unsafe cargo and, absent an express clause to the contrary, such loss will usually be for charterers own account.

What is the problem?

Simply stated, mineral cargoes in bulk can liquefy if they contain too much moisture (invariably water).

Think about filling up a bucket with sand at the beach, half way up, and then topping it off with water. Once nicely mixed you get a slush of mud.

Imagine putting that into a cargo hold of a bulk vessel.

Bulk carriers are simply not designed to carry cargo in such a state. It de-stabilizes the vessel, leading to listing and ultimately capsizing and sinking.

This process can happen in minutes.

The problem occurs in mineral cargoes of predominantly fine particles, mined and stored in conditions which allow absorbing large amounts of water which is then retained, with minimal drainage or evaporation occurring.

Where does the problem happen? - Recent hot spots

  • India
  • Indonesia
  • The Philippines
  • New Caledonia
  • China

But this problem can occur anywhere that mineral cargoes in bulk are produced and shipped.

What cargoes are most at risk?

  • Iron ore
  • Nickel ore
  • Fluorspar

  Liquefication, however, can affect any bulk mineral cargo

Why does the problem happen?

The cargo is often mined and stored in quite simple facilities that provide no protection from the environment. These mines are often located in countries and areas where facilities and infrastructure are generally under-developed and where the climate and weather leads to frequent large rain falls.

Monsoon rains may be a particular issue, but a hot and humid climate is present in all the countries where this problem is prevalent.

The cargo may be wet when mined or become wet when left in open storage areas. Drying from sunlight rarely does more than affect the surface of the cargo, which is stored and transported in exposed condition.

The Bulk Cargo (BC) Code and IMSBC Code

At this time the BC Code remains in force, and the IMSBC Code will become mandatory from 1 January 2011 under the SOLAS Convention. These codes are produced by the IMO (International Maritime Organisation) for the safe loading, stowage and carriage of bulk cargoes.

Among other provisions, the BC Code governs the loading of such mineral bulk cargoes, and clearly states that a shipper must provide clear information about the cargo before shipment.

The most critical information is documentation stating the moisture content and the Transportable Moisture Limit (TML). A cargo is not safe for shipment when the moisture content exceeds the TML. To find out if a cargo is safe requires the Flow Moisture Point (FMP) to be measured against which the TML is calculated.

The way these values are ascertained, is by way of tests as set out in the Appendix to the BC Code. One can do rough and ready “spot checks” with the so called “Can test”, but in order to be absolutely sure the cargo must be tested in a lab set up specifically to deal with this issue and such test must be undertaken by suitably qualified persons. The tests have to be done for every cargo, as no two cargoes are alike.

Particular issues

 In many of the problem places, there are no good facilities to undertake the tests required by the BC Code, with the actual equipment being basic or inappropriate and the requisite know-how very limited or the BC Code even deliberately ignored.

Cargo storage - from production to loading - may be entirely exposed to the elements and shipments may occur during high moisture / humidity / rain seasons such as the Monsoon affecting India in the summer months.

The cargo may also be mixed in with other cargoes prior to loading, meaning it is not homogenous and while one hold’s load may be perfectly safe the next hold could be a disaster waiting to happen.

Sampling and testing may at times only be locally permitted or practically possible while loading is under way. The wrong cargo or parcels may be subjected to test on the shore side and indeed it is now the case that in some places the shippers deliberately delay the provision of documentation until the last day of shipment. Such documentation may be of dubious value at best.

The Club has even had reports of threats of violence being made from the shore side in Mindanao, Philippines, when the ship’s side wanted to question and probe the accuracy of information provided and test the cargo to be loaded.

The “Can test”

The "can test" as described in the Code, is a useful way to check whether the cargo could be unsuitable for shipment. It is typically performed by an alert master before loading any particular parcel of cargo.

This involves filling a can with a sample of the material and banging it 25 times on a hard surface, and if after doing this moisture can be seen on the surface of the sample, then further and more thorough testing should be called for.

However, interpreting the results of the can test may be much more difficult, and some crews may therefore be unable to decide whether action should be taken. As a guide the photograph below shows a sample of material after a test where the moisture content is too high.

It is emphasised that the “Can test” can never be a substitute for laboratory testing.

What can be done about it?
Prevention is better than the cure.

Vessels should not load if the right documentation is not provided in advance. Loading should not be undertaken if the documentation does not look sound. Loading should be stopped if there is a possible problem. Competent surveyors with requisite experience should be used every time.

The extra cost and time of such pre-loading loss prevention should not be a deterrent: the consequences of a problem in terms of money and possible loss of life are simply too severe.

  A Dollar saved can be many lives lost

Advice to Charterers

Charterers need to know that under the law they will have a clear duty to only load safe cargo. Indeed under normal NYPE 1946 provisions the charterers bear all the risk in relation to the cargo safety, loading and stowage.

Case law has shown the master has little responsibility to intervene and the consequences may land entirely with the charterer even if the master could have positively intervened to prevent the problem. (See The ER HAMBURG [2006] EWHC 483 (Comm))

This places a very significant burden on the charterer.

What happens when masters intervene?

The master can, however, intervene at any time and it has happened quite frequently that the danger only becomes “apparent” by the time loading has already been half completed. That usually leaves the vessel sitting at the loadport for a long time - often months - until the issue is resolved by discharging the cargo.

When the parties finally agree to discharge, it may turn out that the remote loading area has little or no facilites to engage in a discharge process. Furthermore a discharge may be a “re-import” of the cargo which requires a customs’ license to be arranged. Arranging the practical and legal requirements can take weeks, if not months.

The time lost can lie fully on charterers!

The primary onus will therefore be on the charterer. Loss prevention here is worth its weight in gold. The extra cost and time to do this right, prevents the charterer from having to suffer the loss of:

  • serious delay : the vessel can be stuck for months;
  • extra cargo handling costs (for discharge of the unsafe cargo);
  • liability for the full value of the vessel, the cargo and the loss of life should a tragedy occur.

P&I Cover

If an unsafe cargo is loaded and shipped knowing that it was unsafe - or if it should have been apparent that it was unsafe - then this may prejudice insurance cover.

Always Back to Back

As a charterer, the key is to ensure that obligations owed to owners in relation to the cargo to be loaded are fully Back to Back (BTB) down the charter chain and also apply in respect of any COA, fixture note, other shipment contract or indeed any direct sales / purchase arrangement with the shipper.

If you are not BTB you can get caught out both ways, thereby suffer a substantial loss.

Check your counter-party

Bad counterparties have always been around. The financial crisis has highlighted this problem, but the lessons learned may be quickly forgotten.

A time charterer is at great risk when sub-charterting to a little known time or voyage charterer with no significant operation and track record. Liabilities amounting to millions of USD may be stuck with the unlucky charterer who did not check the credit worthiness of their trading partner.

  Bad counterparties have no hesitation in walking away from their obligations!

What about the mines?

It is also the case that some of the loading areas and mining operations in Indonesia and the Philippines may be operating without proper license or authorization. This makes dealing with problems that arise due to unsafe cargo even more difficult.

How can Skuld help?

Skuld’s claims handlers and technical services have a wealth of experience dealing with this type of problem. Our local correspondents, surveyors and experts are equally experienced and can give quick pro-active help very quickly to solve even the trickiest issues if they are involved at an early stage.  In this regard charterers, even in the middle of a charter chain, should conduct proper pre-loading surveys and analysis of the cargo prior to it being shipped and board.