Monday, November 19, 2018
Costa Concordia

The International Salvage Union (ISU) is the global trade association representing marine salvors, its members provide essential services to the world's maritime and insurance communities.

Members are engaged in marine casualty response, pollution defence, wreck removal, cargo recovery, towage and related activities. The principles of salvage and salvage law have evolved over many centuries.

The ISU Marine Journalists Lunch is one I try to attend each December to hear an update from the ISU President on the state of the salvage industry. On December 4th 2017, I was unable to attend the ISU Press Lunch due to a spot of ill health, but felt it was well worth reporting on the President's remarks. The President of the ISU is Charo Coll who was elected at the AGM in Singapore on September 2017 succeeding John Witte who continues as a member of the ISU Executive Committee. Speaking at the Journalists Lunch, President Charo Coll said:

"The first thing to say is that the salvage industry has experienced a major drop in gross revenues in the last 18 months. The latest statistics are from 2016 and they show that ISU members’ income from emergency response and wreck removal was US$380 million - that is a reduction of nearly 50% on previous years [2015 = US$ 717]. We need to wait several months before the 2017 numbers are collected and it will be interesting to see if 2016 was unusual or the start of a trend. Naturally, all the salvors in the room hope that the drop in revenue will be reversed.

Despite this difficult picture we think that the salvage sector is resilient and is still a vibrant industry ready to offer vital services to shipowners.

I would like to say something about the state of the Lloyd’s Open Form salvage contract. It is well known that the use of LOF has declined steadily over the years. The number of LOF cases that realised revenue for ISU members in 2016, was just 34, its lowest level for many years and produced an average reward for each case of about US$2 million.

This year the number may be over 50 but we know that the days of more than 100 LOFs each year have gone. But ISU still considers LOF to be the best contract in many emergency response situations. It has such great benefits including speed and the key fact, often overlooked, that the salvor carries all of the financial risk and the owner and insurer pays nothing until the job is successfully done.

There are many theories about the decline of LOF including increased competition among salvors and oversupply of contractors in some locations. There is also a large amount of capacity available from the under-utilised offshore sector. It means salvors may be more prepared to work on commercial terms just to secure the work. But there also seems to be a determination by some shipowners and their hull underwriters - especially in Northern European shipping markets - to avoid using LOF contracts and, if a LOF contract is used, in some cases to require the use of “side letters” and agreements.

It is ISU policy to support the use of the Lloyd’s Open Form salvage contract in its un-amended form. The effect of these amendments might be, for example, to "cap" the salved values or to agree to calculate the award based on tariff rates. The salvor still carries the same amount of risk but for a reduced reward and that is not fair. An idea being considered is to make it compulsory for any side agreement to be reported to Lloyd’s when it is notified of the LOF."

More on this and other news in Sea Breezes Magazine - February 2018 Issue
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