STS operations from a Charterers’ perspective

Skuld Charterer

In this issue of the Skuld Charterer, Skuld will be looking into liability aspects of STS operations and how the club can cover such liabilities. Recovery of losses from third parties is another area where Skuld can help the assured.

Ship-to-ship transfers

It is common for both dry and liquid cargo vessels to perform ship-to-ship ("STS") transfers. STS operations are a different risk to ordinary chartering of a vessel. Having two vessels alongside each other increases the risk of physical damage to either vessel. The consequence can be a need to repair the declared vessel, or even the other vessel, with resulting costs, liabilities and lost time.

Contractual liability

STS forms part of the cargo operations and is almost exclusively performed at the request of the charterers. Many charterparties envisage STS operations and include clauses aimed at regulating the liability regime between owners and charterers. The most common STS clauses give charterers a right to request STS operations, but owners are protected insofar that all STS operations are done at charterers' risk, time and expense. If there is no STS clause in the charter party, charterers are often requested to give a Letter of Indemnity ("LOI") to owners. Whether under a charter party clause or in an LOI, charterers normally give a straight indemnity to owners for all damages, repair costs and lost time. If the LOI wording is wider or more onerous than standard industry STS clauses, P&I cover may be affected. We recommend our clients to contact Skuld for review of the LOI to ensure that the wording does not expose clients to liabilities which could prejudice cover.

Physical damage to the declared vessel

Careful planning of STS operations by charterers in cooperation with owners is therefore necessary to minimize the risks taken on by charterers. OCIMF guidelines and MARPOL rules must be followed. Even if the STS operations are well planned, incidents can still occur resulting in physical damages to both vessels. Causation may rest with inadequate or undersized fenders, swell and prevailing winds and currents, mooring arrangements or the feeder vessel arriving with too high speed or at the wrong angle of approach.

In cases of damage to the declared vessel, charterers may have to arrange repairs of the damage or be held liable for repairs performed by owners. Repair costs may also include costs, expert or class surveys, as well as time spent for repairs. Other liabilities are delays such as waiting for repair crew or permission to do hot works. Hire will normally continue to run under a time charter party during such delays. If the charterers have a sub-voyage charter party with an STS clause, time on hire can possibly be pursued against the voyage charterers.

Skuld recommends incorporating an STS clause in all sub-charter parties, preferably on back-to-back terms to the head charter.

P&I cover and assistance from Skuld

It is in the interest of charterers as well as the club to control the costs and time spent on repairs, to minimize the losses and liabilities incurred. Charterers will need to obtain repair quotes from workshops in ports where the damaged vessel may call. Charterers entered with Skuld, can use Skuld's extensive network of both P&I and H&M correspondents to obtain contact with potential workshops or repair yards.

STS operations are not specifically listed as an exclusion, and liability for damage to the declared vessel is as a starting point covered under the Charterers' CT&C, clause 5. The P&I insurance also covers charterers' liability to owners for loss of use and time lost during repairs of physical damage. Survey costs, legal fees or technical expert costs will also be included in the P&I cover.

If the owners request security from charterers for the physical damages to the vessel and the estimated time for repairs, the club can in many cases also provide a Letter of Undertaking on behalf of charterers, subject to policy terms. P&I cover is therefore an advantageous insurance cover to place for a charterer.

Liability for damage to the other vessel will most likely, depending on the facts and causation, be covered as collision (Charterers' CT&C, clause 11) or possibly property damage (Charterers' CT&C, clause 12).

Recovery from other parties

To the extent that charterers' liability falls within P&I cover, the club will assist a charterer in a recourse action against other potentially liable parties. Recovery could be sought under a sub-charter party if an STS clause has been duly incorporated, or under an LOI for the STS operations placing liability on sub-charterers.

A word of warning is necessary to mention in relation to LOIs; charterers should be careful to accept LOIs from a sub-charterer whose financial standing is unknown or questionable, as that may void any realistic recovery. An indemnity given under an LOI is only as good as the financial standing of the company signing the LOI. In many cases a claim may be successfully fought under the LOI, but with no financial strength behind the LOI signatory, the victory may be of no value.

Finally, it is not uncommon that charterers (particularly in the liquid trade) have appoint a third party to provide the STS equipment (fenders etc.) and/or a mooring master to assist with the operations. In the event of an incident where an STS provider has been appointed, charterers should investigate whether the provider can give information/evidence regarding the cause of the incident, which could be useful in defending a claim.

Skuld Charterers' P&I cover

In essence, good and careful planning of STS operations is paramount to ensure good loss prevention. If a physical damage still occurs to the declared vessel during STS transfer, Skuld's charterers' P&I and FD&D cover will be a good insurance to have in place.

Your dedicated Skuld team of underwriters and claims handlers will be available to provide support in advance of the operation to assess cover, review STS clauses and LOI terms, as well as in case of an incident, assist in the handling of third-party claims and providing legal advice regarding underlying charter party disputes.

Should you have any comments or questions, then please do not hesitate to contact us at any time. On behalf of your Skuld team of underwriters and claims handlers who serve our charterers and traders 24/7/365.

Øystein Kirchner Gjerding

Vice President, Head of Claims Skuld Western Europe