Finally, sense returned and Lloyd’s reconfirmed its commitment to salvage arbitration and its open form LOF salvage contracts
However, this comes with a warning for the future and salvors should be wary.
Lloyd’s stunned the salvage industry earlier this year with notice it would close Lloyd’s Salvage Arbitration Branch (LSAB), overseeing LOF and negotiations between parties.
This came out of the blue and threw a curveball to an industry already under pressure from insurers and shipowners to reduce costs. For LOF enables rapid response to distressed ships requiring salvage to prevent loss of life and damage to marine environments and assets. Other contracts tend to slow salvage down, risking greater damage, but cutting costs to insurers.
LOF is an open format, reimbursing salvors for their services with enough remuneration to reinvest in assets, vessels and people. However, there has been resistance from hull, machinery and cargo insurers for these costs.
Many have turned to other contracts. In 2020, around a third of salvage revenue was from LOF. International Salvage Union (ISU) members recorded US$63M from LOF from a total of US$181M in dry salvage revenues.
ISU, along with International Group (IG) of Protection and Indemnity (P&I) Clubs and Resolve Marine, expressed their opposition to Lloyd’s proposals during Riviera Maritime Media’s LOF versus fixed contracts: when does salvage become wreck removal? webinar held 16 June during Riviera’s ITS Salvage Webinar Week.
By 25 July, Lloyd’s Council confirmed it would continue LSAB and support LOF after widespread industry consultation and stated its intent to increase use of the form by highlighting its benefits.
This is a boost to salvors and P&I Clubs, guaranteeing there will be a contracting format for a quick response to maritime incidents.
But Lloyd’s intends to review LOF and could instigate considerable changes. Reading between the lines, this could flip them in favour of insurers, reducing salvor remuneration. Lloyd’s will establish a working group to help drive this review and present actions to the council. This is for the future, but for now it is amending the charging structure to better reflect the importance of LSAB work.
So, salvors and tug owners beware, LOF is here to stay for now, but what could it be in the long term? It is likely to be a different beast in the future, one that salvors may come to loathe. It will again be down to the industry to lobby LOF steering groups and prevent it becoming unprofitable for salvors, with or without SCOPIC to cover environmental clean-ups.