Benefits and legal risks in deploying bulk carriers to ship containers for owners and shippers alike
 We've come a long way from the days of Mark Twain, who famously said that "history doesn't repeat itself, but it often rhymes". There has been many a time when people have had cause to repeat the maxim on discovering its truth.
Yet it is still surprising to learn that there is cause to say it again in at least in response to the massive supply chain congestion we have endured for the last two years - and that is the return of the bulk carrier to move containers in our brave new Covid world.
For wasn't that how the father of containerisation, Malcom McLean, got started? His first containership was not a containership at all, but a tanker converted into a dry bulker.
McLean had secured a bank loan for US$22 million, and in January 1956 bought two World War II tankers, which he converted to carry containers on and under the deck.
McLean oversaw the construction of wooden shelter decks, known as Mechano decking. This was a common practice in World War II for the carriage of outsized cargo, such as aircraft. It took several months to refit these ships, construct containers to carry on and below decks and design trailer chassis to allow removable containers.
On April 26, 1956, with 100 invited dignitaries the converted tanker, the SS Ideal-X now re-dubbed the "SS Maxton" after McLean's hometown in North Carolina, was loaded and sailed from the Port Newark-Elizabeth Marine Terminal, New Jersey, for Houston, Texas, carrying fifty-eight 35-foot trailer vans, later to be called containers.
Today because of the Covid crisis, we have come full circle. Again bulk carriers have been pressed into service to move containers when there weren't the cellular ships or containers, or container slots to take them, too busy were they being stuck in traffic, often empty, but still unavailable for use to those who desperately needed them as they inched their way through the gridlocked supply chains the world over.
But things are not as simple as they were in Malcom McLean's day as London solicitors, from Campbell Johnston and Clark, point out, Dispute resolution lawyers Ian Short and Cecilie Rezutka address the complications, which have arisen since in their article in Hellenic Shipping News Worldwide.
Mr Clark and Ms Rezutka write of new risks and liabilities, and how one can prepare oneself in the role of plaintiff and defendant depending on the circumstances one finds oneself.
For instance, there are risks for carriers to consider. From an insurance perspective, it is not uncommon for owners’ P&I policy to exclude cover for deck cargo. It is therefore important for an owner of bulk carriers who anticipates shipping containers above deck to discuss this with their P&I Clubs. Otherwise, an owner can essentially be left uninsured in respect of cargo and third party liabilities occurring as a result of shipping containerised cargo above deck if the carrier has not suitably protected itself against such claims.
"It is equally important for an owner to ensure that carriage of deck cargo is permitted under the terms of the charter party and, from its point of view, that as much responsibility for such carriage can be passed to the charterers. Likewise, it is important that bills of lading are authorised for deck cargo carriage such that bills of lading are issued which specifically set out the cargo that is to be carried on deck," they said.
"Rules will apply to the carriage of a container on deck unless the bill of lading states that the container is going to be carried on deck, and it is in fact carried on deck. Only if these two criteria are fulfilled can the carrier contractually reduce its obligation to care for the cargo to a lesser duty than that which is provided by the rules or exclude its liability for damage or loss to deck cargo altogether. Otherwise they would breach Article III of the rules."
Since cargo carried on deck is more prone to damage arising from an exposure to the elements such as bad weather, swell or loss at sea, carriers commonly seek to exclude their liability. Bills of lading used in the dry bulk trade (eg, the Congenbill) will therefore need to be amended to state clearly what or how much or that all cargo is to be carried on deck to ensure that the carriage falls outside the rules and the carrier can set its own standards.
Such cargo will then also need to be actually carried above deck as otherwise the rules will apply, they said.
"Where the rules do not apply, it becomes key for the carrier to ensure that liability for deck cargo is fully excluded. The best way to do this in relation to defeating underlying cargo claims is that the appropriate exclusion is incorporated into the bills of lading issued for deck cargo," they advise.
"It may be more difficult for a carrier to have direct control over what clauses are incorporated into a sub-voyage charter that in turn may be deemed to be incorporated into the bill of lading terms and, as above, not all jurisdictions where cargo claims are brought recognise the concept of incorporating charter terms into the bill of lading.
"The best way to protect the carrier’s position therefore is to have clear wording on the face of the bill of lading that the carrier’s liability for deck cargo is excluded," they said.
In the recent High Court case, the scope of a deck cargo exclusion clause came before the bench that related to deck cargo “loaded on deck at shipper’s and/or consignee’s and/or receiver’s risk; the carrier and/or owners and/or vessel being not responsible for loss or damage howsoever arising”.
"Fortunately for the owners, the court held the clause to be sufficiently clear as to exclude any claim, including any loss or damage caused by the vessel’s unseaworthiness or the carrier’s negligence. From a bulk carrier owners’ perspective if the carriage of containerised above deck cargo is contemplated, it would be prudent to agree a term in the charter party with charterers that any bills of lading that are authorised to be issued must contain suitable wording on their face clearly excluding liability for the carriage on deck cargo," they said.
Now taking the beneficial cargo owners' side, there are a number of things to consider.
"Cargo interests should be aware of how a deck cargo exclusion clause affects any potential claims for loss or damage to containerised cargo," said the lawyers. "Where a deck cargo exclusion clause is properly incorporated into a bill of lading, a cargo interest may lose any right to recover from the carrier for loss and damage to the cargo so carried.
"Depending on how widely the exclusion clause is worded, it might not only exclude the carrier’s liability for any damage or loss that might naturally occur from the carriage of cargo on deck but also that which is caused by the carrier’s negligence or its failure to exercise due diligence to make the vessel seaworthy," they said.
"It is for cargo interests to bring themselves outside the scope of the exclusion clause which, if widely worded, cargo interests might struggle to do. Cargo interests ought to ensure that adequate insurance is in place that would cover cargo losses in such circumstances," they advised.
Trying new techniques, while not without risks - legal and otherwise - possess opportunities. Some are serendipitous in nature. While using bulk carriers to ship containers may well have met the needs of the Covid crisis, the practice will be dropped when the crisis is behind us. Yet other advantages to such a measure may reveal themselves through actual experience of the past. In this way shipping boxes in bulk carriers may yet be advantageous in another, and as yet unknown circumstances.
At the same time, the advice of Campbell Johnston and Clark's dispute resolution team is good to remember, as while the opportunities presented in deploying bulkers to ship containers may be renewing the risks presented by the lawyers will remain the same. |
