Demise of LOF contracting puts ships in greater peril

During this decade, P&I payouts have involved less oil pollution, but increasingly container spillages, as more are transported on ultra-large vessels and feeder ships worldwide.

“Oil pollution once dominated, but there have been significant improvements in safety and loss prevention as the industry has learnt lessons from previous casualties,” said Mr Gross.

“Now, plastic pellets are risks, so we are working with the container sector on packaging and stowage of plastic, which makes a difference when casualties occur.”

The Shipowners Club head of claims, Ben Harris, thinks LOF contracts ensure salvors will use their experience, assets and skills to provide the best outcome from a maritime accident.

“It is a framework to achieve best endeavours and fair pay to save property, people and environment,” he said. “It is getting the balance right over time for a positive outcome.”

The International Union of Marine Insurance (IUMI), which represents hull, machinery and cargo insurers, also recommends the use of LOF when required for protecting assets, cargo and environment, according to its president, Frederic Denefle.

“LOF is the first tool to safeguard marine assets,” he said. He thinks some of the reasons for the declining use of LOF include a lack of knowledge and understanding of its benefits to marine insurance and loss prevention.

“New professionals coming into marine insurance need to understand LOF, salvage processes and principles,” said Mr Denefle.

“The salvage industry needs to align with new technologies and processes”

There also needs to be a greater understanding of the changing requirements from salvage providers, stemming from the growing adoption of alternative fuels and energy-storage technology on ships and through the growing transportation of batteries and hazardous cargoes in containers.

“There are more LNG carriers and record numbers of container ships being built with dual-fuel engines,” said Mr Denefle. “The salvage industry needs to align with new technologies and processes, such as alternative fuels and batteries, and find ways to meet new threats, such as operating in war zones.”

Shipowners are more wary of using LOF and would prefer towage contracts instead, unless salvage becomes more complicated and there is higher liability risk.

“We do not want to be pushed into a contract we do not want,” said Royal Netherlands Shipowners Association president and Wagenborg fleet director, Theo Klimp.

“We need balance between salvage efforts and pricing. When a vessel is in distress and needs towage we would make a deal, usually a lump sum or day rate, to get a tug,” he said.

“But if it is complicated operations and negotiations are blocked, we can be pushed into an LOF or WreckHire when a TowHire would be better,” he added.

Ideally, a salvor would work with the shipowner and insurer to find a fair solution for all. “We should work together and combine our strengths with full transparency between parties to get a distressed vessel to a safe location,” said Mr Klimp.

“We understand salvage companies need to earn money, but we need balance and contracts suitable for operations that are good for shipowners, P&I clubs and salvors. We should be working together for the same goal, but keeping costs under control,” he said.

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