GA & Salvage – Value of Containers – II

1. Recently one of the Average Adjusters collecting security for a GA advised that they wished to collect security for containers based on the values proposed by a large UK Insurer. Given that the valuation of our clients differed, our clients did not agree and instead maintained the valuation provided. We have had an opportunity to consider this afresh and are setting our thoughts below. We have written earlier on this topic (GA & Salvage – Value of Containers & General Average – Container Vessels) and except to probably emphasize, will not repeat what has been written earlier.
2. Given that the value of an individual container is not significant, the valuation of containers may not be considered sufficiently. This being the case, Container Operator’s (“CO”), either knowingly or unknowingly may provide incorrect values such that they may then contribute higher or lower to the GA than what they ought to do so. In so far as cargo is concerned, York Antwerp Rules 1994ⁱ (“YAR 1994”) has a provision for mis-declared cargo under R XIXⁱⁱ. However as numbered rules of the YAR are strictly construed, they cannot be applied to other property including containers (this is an anomaly which needs to be corrected).
3. What should the value of containers be?
   1. While the value of a dry container is not significant, given that container GA frequently occur in vessel’s which carry 5000 boxes or more, any difference of even USD 100 or USD 200 would have a far greater effect due to the multiplier effect (say 20% contribution and which have been under/over declared by USD 200, the difference would range by a sum of USD 200,000). If the vessels are larger, then the amounts will obviously be larger and therefore any under/over declaration would result in some parties bearing a higher/lower contribution and which is inequitable. This being the case, it is essential that at least for large vessels involving a sizeable number of containers, the values should, as far as possible, be correct. So, what should the correct value of containers be?
      1. CO’s Book Value: If the containers are wholly owned by the CO, they would be an asset, and which would be depreciated over its useful life. By way of an example, if a container was purchased initially for USD 2500, a CO may depreciate the value of the container over its useful life of 20 years say with an yearly depreciation of 5%. Accordingly, on this basis, the depreciated value of a 10-year-old container would be USD 870.
      2. Lessor’s Value: If a container is leased from a container lessor, the lease agreement would provide the values to be reimbursed in case of any loss or damage. While Lessor’s may provide for the container to be depreciated over its useful life, it is not uncommon for some lease agreements to provide for a minimum residual value, say capped at 50% of the initial purchased price i.e. the depreciation cannot go below 50% of the initial purchase price of the containers. In this case, even if the depreciation is similar as suggested in 3ai, the value of a 10-year-old container would be USD 1250.
      3. Current Replacement Value less depreciation:
         1. The Association of Average Adjusters, UK (“AAA”) Advisory Opinion G 13 published in 1975, suggested that the valuation of containers should be the current replacement costs less depreciation. However, the opinion does not mention the depreciation percentage. Our understanding is that the current replacement cost would be the value of new containers at the time of the incident and then depreciated to consider the age of the containers. The opinion further states that “for simplification purposes, the insured container values for both General Average Contribution and Sacrifice could well be adopted”ⁱⁱⁱ.
         2. At the time the advisory was published, the size of container vessels was much smaller with capacities ranging from a few hundred to a maximum of few thousand containers. Since then, the size of container vessels^iv has increased such that large vessels carry upwards of 15,000 TEU’s. This being the case, we submit that it is time for the AAA to relook at the earlier advisory opinion on the valuation of containers.
      4. Insured value: CO’s may insure their containers with an equipment insurer for all risks^v or on named perils^vi and with the policy engaging above a certain deductible or on a Total Loss^vii basis. For containers insured on Institute Container Clauses 1/1/87 form, Clause 2 does provide cover for GA and Salvage for its full contributory value (i.e. even if underinsured, insurers contractually agree to contribute based on the containers’ full contributory value). However, if the containers are insured on other bespoke wordings, then Insurers would provide cover based on values declared to them and which would mean that if the containers are insured for a value below their actual contributory value, then the Insurers cover and for that matter Average Guarantee’s would be limited to the Insured value.
      5. Value of containers at the termination of common maritime adventure:
         1. Rule XVII of the YAR 1994 states “The contribution to a general average shall be made upon the actual net values of the property at the termination of the adventure…”. Accordingly, based on the YAR 1994, the valuation of the containers should be accomplished when the containers’ part from the vessel. In major container casualties, the vessel would generally discharge the containers at a Port of Refuge (“POR”) and subsequently, the containers will be loaded for on carriage on other vessels should the POR be not the destination provided under the contract of carriage.
         2. The value of a container would depend on the age (Date of Manufacture “DOM”), condition of container and location (whether the location is container deficient or surplus i.e. will it require to be moved to another location as empty to be gainfully employed and in which case, additional costs, post purchase, would have to be incurred). Given that the containers are employed for carriage, the value of containers should be “seaworthy containers” and not on as is where is basis.
         3. Containers are now freely traded, at least at the major container ports and which frequently would also act as POR’s. This being the case, prices of generic containers can easily be ascertained by seeking a quote from a few Container Traders (“CT”) based at these locations
   2. Correct value:
      1. We submit the correct way, as per the YAR 1994, would be to seek the valuation of the containers at the place where there is a termination of the maritime adventure for which the GA is declared.
      2. The practice for the vessel is that Owners submit a valuation certificate from one or two ship valuers as evidence of the value of the vessel at the time of completion of adventure. The costs incurred for the valuation certificate are included in the GA kitty.
      3. Similarly, the valuation of containers can be accomplished by the CO by engaging CT’s to provide a valuation certificate. However, given the numbers of CO’s who may be involved in a voyage, it would be better if the valuation exercise is commonly undertaken by the Average Adjuster on behalf of all CO’s with the costs to be included in the GA kitty. The CT’s should be asked to provide valuations based on the age (say 0-2 yrs, 3-6, 7-12, 13 and above), demand and supply at location where the adventure ends keeping in mind the additional supply of containers arising from this incident (these details will be known to the Average Adjuster given that they would have collected the BL’s issued for the containers loaded on the vessel).
      4. Should a CO later dispute the value provided by CT’s, then the onus would be on the CO to provide evidence to substantiate their valuation^viii.
4. In conclusion, in the case of major container casualties,
   1. the valuation of containers for the contributory value should be accomplished at the location where the adventure is terminated.
   2. the value should be ascertained by the Average Adjusters seeking valuation from a few CT’s.
   3. this will ensure that COs contribute equitably to the value of their containers.
   4. while this may be an added procedure, the prevailing system leaves much to be desired and may be inequitable to some parties.

^i. We have considered YAR 1994 as it is the most used wordings found in Bills of Lading issued for container shipments. Similar provisions apply in other editions of YAR.
^ii. Rule XIX – Undeclared or Wrongfully Declared Cargo: Damage or loss caused to goods loaded without the knowledge of the shipowner or his agent or to goods wilfully misdescribed at time of shipment shall not be allowed as general average, but such goods shall remain liable to contribute, if saved.
Damage or loss caused to goods which have been wrongfully declared on shipment at a value which is lower than their real value shall be contributed for at the declared value, but such goods shall contribute upon their actual value. 
^iii. See Lowndes & Rudolf XV edition Para 17.47 second para and which also state that “In the majority of container ship cases the usual practice is to adopt the values used by leading insurers for standard types of containers”.
^iv. See for instance, Ever Given and which a capacity of 20,124 TEU’s, APL Vancouver and which has a capacity of 9,200 TEU’s.
^v. Institute Container Clauses – Time 1/1/87
^vi. For instance, the cover provided in the TT Club A11 Carrying Equipment
^vii. See an article published by AzmiLaw on Total Loss Cover for Marine Hull Insurance and which will similarly apply for other marine covers.
^viii. See Rule E of YAR 1994 which provides for strict timelines and allows the Average Adjuster to estimate the contributory value based on the information available.