Salvage revenues are on the rise bolstered by wreck removal work, but profit margins have tightened as competition has increased the use of fixed contracts
Marine salvage revenues are beginning to recover from the slump encountered in 2016, however, shipping companies and insurers are still pressurising tug operators to reduce their prices. According to the International Salvage Union (ISU)’s statistics, gross revenues for its members was US$456M in 2017, up 20% from US$380M in 2016.
ISU president Charo Coll welcomed the rise in revenues and 2017 activity levels, but had a message of caution when the statistics were published in June. “The total revenue of US$456M was an increase on the previous year, but that is still more than 30% down from the US$717M of 2015,” she said.
Revenues in this half of the decade have been much reduced compared to the first half. Total revenues in 2013 and 2014 were more than US$750M per annum, and more than US600M in each of 2011 and 2012.
“The industry continues to be active, continues to invest and continues to be effective in helping to mitigate loss for shipowners and insurers, but, at the same time, ISU members are also experiencing financial hardship,” Ms Coll added.
This is because fewer salvage projects are conducted on Lloyd’s Open Form (LOF) terms, and more on fixed contracts that favour shipowners and insurers.
“Forces of competition are making salvors undertake cases for lower returns,” said Ms Coll. “LOF revenue is much reduced and a contributing factor could be the increased use of side agreements.”
“Forces of competition are making salvors undertake cases for lower returns”
It is ISU’s understanding that these agreements are used to reduce LOF awards and settlements for salvage projects. This is placing financial pressure on salvage companies to lower their prices at a time when tug operators are investing in new resources, including hardware and people.
Ms Coll continues to encourage the shipping industry to support its professional salvage providers to prevent any reduction in its capabilities to tackle maritime emergencies. “It is vital for world trade that there is a well-resourced and capable marine salvage industry available to save life, protect the environment and save property,” she said in a report.
ISU splits revenues into dry salvage services which represents emergency response, and wreck removal. The number of dry salvage services in 2017 was 251, down from 306 operations in 2016, which was a 20-year high.
Revenue from dry salvage was US$173M, of which US$54M (or 31%) was from LOF cases. This was the lowest amount since 1999 and continues the downward trend of LOF revenues, said Ms Coll. LOF was used in 18% of all dry salvage cases in 2017. The average revenue from each LOF case has fallen to US$1.6M in 2017 from US$3.9M the previous year.
Ms Coll highlighted that this was compared to 70% of dry salvage income and 34% of cases in 2007, which confirms the continuing decline in the financial significance of LOF over the past 10 years.
Revenues from SCOPIC* contract special compensation was US$20M, down from US$60M in 2016, and the lowest annual revenue for this contract class since SCOPIC was introduced in 1999.
Income from dry salvage conducted under contracts other than LOF and SCOPIC in 2017 was US$119M, which is up 58% from US$75M in 2016, further reflecting the increasing use of fixed contracts.
In contrast, revenue from removing wrecks during 2017 has risen to more than half of the ISU member revenues for the first time since 2013. Salvors worked on 120 wreck removal projects, which combined produced income of US$264M, or 58% of total revenue. This was also an increase from US$172M income in 2016.
Ms Coll said wreck removal income has grown during the past decade and remains an important source of income for ISU members. This is partially due to the industry tackling large projects, such as the Costa Concordia cruise ship and Sewol ferry wrecks. This is also due to more political pressure to remove historic wrecks and those due to marine accidents in the last decade.
Salvage companies saved 3.4M tonnes of pollution from being discharged into the world’s oceans in 2017, up from nearly 2.7M tonnes in 2016. This included 1.4M tonnes of bulk cargo and around 0.8M tonnes of crude oil that was prevented from entering the sea from damaged ships.
* SCOPIC clause (Special Compensation P&I Club Clause) is an amendment to Lloyd's Open Form and provides an alternative remuneration to salvors when the salved fund was insufficient to allow them to recover adequate payment under Article 13 of the Salvage Convention 1989
2017 ISU member income
(US$ rounded) 2017 2016
Total revenues 456M 380M
Dry salvage 173M 150M
LOF 54M 75M
Average LOF 1.6M 3.9M
Non LOF 119M 75M
SCOPIC 20M 60M
Wreck removal 264M 172M
Salvaged value 995M 845M
Dry salvage jobs 251 306
% LOF 18 11
Wreck removal jobs 120 131
Pollution saved (tonnes) 3.4M 2.7M
Major 2017 salvage projects
Removal of the wreck of passenger ferry Sewol was the biggest project in 2017, but the majority of vessel salvage was due to the damage to marinas in the Caribbean following devastating hurricanes in Q4 2017.
Sewol was raised from the seabed off Jindo island, South Korea, in March 2017 and loaded on to semi-submersible heavylift vessel White Marlin. The 6,825gt ferry was raised 40 m using a tandem lifting method designed by Shanghai Salvage.
The ferry capsized on 16 April 2014 in South Korea with the death of more than 300 passengers. The wreck weighed more than 16,000 tonnes, due to water, stones and sand inside the ship and was one of the most complex salvage operations ever undertaken.
In the Caribbean, salvors including Resolve Marine Group, removed hundreds of damaged recreational craft, cargo boats, ferries and supply boats in the US and British Virgin Islands in the aftermath of hurricanes Irma and Maria. Resolve was also involved in salvaging 56,597 dwt bulk carrier Cheshire when it was on fire off the Canary Islands in August 2017.
Another major salvage project in 2017 involved refloating tanker Agia Zoni II, which sank on 10 September, near Salamina Island, causing a considerable oil spill. One of the longest running salvage projects this decade started in 2017 and continues this month. This is the salvage of Kea Trader, a container ship that grounded on a reef in New Caledonia in July 2017.