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Should a Container Operator become a Slot Charterer?


Jagan - May 25, 2014 - 0 comments

Article for Container Operators / NVOCC discussing the advantages of becoming a Slot Charterer

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  1. In our last article on calculating cargo exposures, we did suggest that it may be worthwhile for Container Operators / Intermediaries to consider becoming a slot charterer (should they be loading their own containers on feeders / vessels) so that it would provide them the benefits available under the Global Limitation Convention (the 1957 or the 1976). This article will discuss issues which arise on becoming a slot charterer together with some suggestions.
  2. Tetley defines a slot charteras “A Charterparty whereby the shipper leases one or more “slots”, each capable of holding a 20-foot container aboard a container ship
  3. The two main Global Limitation Conventions are the International Convention relating to the Limitation of the Liability of Owners of Sea-Going Ships (“1957 Convention”) and Convention on Limitation of Liability for Maritime Claims (“1976 Convention”)
    1. Both these conventions permit the Charterer to limit liability. The difference is that while the limitation amounts in the 1976 Convention are certainly higher, it is difficult to break limitation. Further, the 1976 Convention has a mechanism to increase the limitation amounts by way of the 1996 Protocol (which is in force from 13thMay 2004) and the amendment to the 1996 Protocol (which will come in force from 08thJune 2015).
    2. In order to work out the limitation amounts, we have considered the case of a big size container operator who loads say about 300 containers on any vessel (any one bottom) in the short sea trades (say the India – Middle East Trade). Although it would be difficult to state with certainty the value of cargo in each container, for the purpose of this example, we have taken the average value of the cargo as being USD 50,000 per container e. the total cargo exposure would be 300 X USD 50,000 = USD 15,000,000.
    3. We understand that UAE and Singapore have implemented the 1976 Convention while India and Malaysia have implemented the 1996 Protocol to the 1976 Convention.
    4. For the purpose of this example, we will only consider the 1976 Convention and the 1996 Protocol to the 1976 Convention. The limitation figures available under the above conventions are as follows:
      1. 1976 Convention: Article 6(b) of the 1976 Convention deals with the limitation amounts for property claims and allows claims to be limited as follows:
        • 167,000 Units of Account for a ship with a tonnage not exceeding 500 tons
        • For each ton from 501-30,000 tons, 167 Units of Account
        • For each ton from 30,000 to 70,000 tons, 125 Units of Account, and
        • For each ton in excess of 70,000 tons, 83 Units of Account
      2. 1996 Protocol to the 1976 Convention :Article 5 (2) b of the Protocol deals with the limitation amounts for property claims and allows claims to be limited as follows:
        • 1 million monetary units for a ship with a tonnage not exceeding 2,000 tons
        • For each ton from 2,001 to 30,000 tons, 400 monetary units
        • For each ton from 30,001 to 70,000 tons, 300 monetary units
        • For each ton in excess of 70,000 tons, 200 monetary units
      3. The units of account / monetary units mentioned in the 1976 Convention and the 1996 Protocol refer to the SDR Convention. The value of the units could be derived by checking at a conversion site such as xe.com/ucc. The values shown on 23 May 2014 is 1 unit = USD 1.54
      4. For the purpose of calculating the limitation figure, we have considered a vessel being of 29,000 tons GT (we understand that vessels of these sizes ply in the India / Middle East sector).
      5. The limitation amounts available for the above example would be as follows:
        • 1976 Convention :
          SDR 167,000 + SDR (29000-500) X 167

          = SDR 167,000 + SDR 4,759,500 = SDR 4,926,500
          = USD (1.54 X 4,926,500) = USD 7,586,810.00
        • 1996 Protocol to the 1976 Convention :
          SDR 1,000,000 + SDR (29,000-2000) X 400

          = SDR 1,000,000 + SDR 10,800,000 = SDR 11,800,000
          = USD (1.54 X 11,800,000) = USD 16,632,000
    5. If you recall, we started with a cargo exposure of USD 15 million (please see 3ii) above) and by application of the 1976 Convention, the exposure could be limited to USD 7.5 Million approx. With respect to the limitation available under the 1996 Protocol to the 1976 Convention, you will note that they do not appear to be of assistance. However, the limitation amounts under the 1996 Protocol are marginally higher than the cargo exposure of our example.
  4. A point to be noted is that while Charterers would be entitled to limit liability under the provisions of the 1957 and 1976 Conventions (and the protocols) for all claims. This however will not include claims brought by Owners against Charterers (see The Aegean Sea[1998] 2 Lloyd’s Rep 39, The Tasman Pioneer[2003] 2 Lloyds Rep 713 & The MSC Napoli [2009] 1 Lloyds Rep 246).
  5. One of the common slot charters used is the BIMCO SLOTHIRE. Clause 13 of the SLOTHIRE deals with Indemnity and Agency.
    1. Subsection a states “ The Charterers undertake that no claim or allegation shall be made against Owners or any servant, agent or Sub-contractor of the Owners by any person whomsoever, other than the Charterers, which imposes or attempts to impose upon the Owners or any such servant, agent of Sub-contractor or any Vessel owned by any of them, any liability whatsoever in connection with Goods and Containers, or their carriage (even if such liability arises wholly or in part by reason of the act, neglect or default of the Owners of such servant, agent or Sub-contractor) and in the event of any such claim or allegation being made, the Charterers shall indemnify the Owners and such servant, agent or Sub-contractor against all consequences whatsoever thereof”.
    2. Subsection b states “ The Charterers shall not make any claim or allegation against any servant, agent or Sub-contractor of the Owners which imposes or attempts to impose on any such servant, agent or Sub-contractor any liability whatsoever in connection with Goods and Containers, or other carriage, (even if such liability arises wholly or part by reason of the act, neglect or default of the Owners or of such servant, agents or Sub-contractors), and, in the event of any such claim or allegation nevertheless being, the provisions of sub-clause 13(a) shall apply as if such claim or allegation had been made by the persons other than the Charterers)”.
    3. By considering both these sub-clauses, you will note that only the charterers can claim from the Owners. This being the case, Charterers must first deal with the claims which either arise with or without Owners negligence. Once the Charterers have settled the claims, they (Charterers) could then pursue owners for their claim.
    4. If cargo interests decide to break the contractual claim and pursue the Owners instead, then these sub-clauses in the SLOTHIRE provide an entitlement to Owners to seek indemnity from Charterers.
  6. Most of the Transport Liability Policies for Container Operators / Intermediaries exclude cover for the Insured’s role as a charterer. We have considered some of the policies and whose wordings state as follows:
    You are not covered for

    1. any Vessel or aircraft which is owned, chartered or leased by the Insured or on the Insured’s behalf”,
      Or
    2. You are not insured for risks if you charter the ship under a slot or space charter unless you contract with the ship operator on terms which are no more adverse than Hague – Visby Rules or any compulsorily applicable transport law or convention and you are not liable to the ship owner, lessee or operator, or performing carrier for risks arising from the management, navigation or operation of the ship”,
      Or
    3. charter of an aircraft or vessel except under Charterer’s Liability Schedule effected
  7. The resistance for Transport liability Insurers is understandable as the slot charter party would put the onus of dealing with all the cargo claims in the first instance to their Insured. This would obviously lead to additional costs and which can indeed be substantial. This being the case, if Container Operators wish to act as slot charterers, they must advise their liability insurers and seek cover for their role as slot charterers to avoid any issues in their coverage.
  8. In conclusion, Transport operators / intermediaries should
    1. Consider the volumes they are loading on any one bottom to consider as to whether by acting as slot charterers, they would be able to minimise their exposure.
    2. If they decide to act as a slot charterer generally or in any specific trade lane, they should advise their Transport Liability Insurers of the same and seek specific cover for their role as slot charterers.

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