Seven deadly sins of joint ventures under competition law
Joint ventures in the energy and resources sectors.
Safety at sea depends upon a myriad of factors, including the safe loading of cargo. In order to ensure that the loading of cargo does not put a ship at unnecessary risk, the International Maritime Organisation (IMO) has adopted obligatory amendments to the Safety Of Life At Sea Convention’s (SOLAS) Guidelines on the Verified Gross Mass of a Container Carrying Cargo (the Guidelines). The Guidelines take effect on 1 July 2016.
The inaccurately declared weight of containerised cargoes poses a significant risk to life and property at sea. Weight, particularly its correct distribution, is paramount to a ship’s stability. Despite the IMO’s commendable objective to improve safety, many shippers have criticised the new Guidelines for a lack of understanding of the forwarding and supply chain process, and inadequate foresight in the implementation of the Guidelines.
Despite this criticism, the IMO’s efforts have provided an opportunity for the industry to review loading practices. In this article, we examine the likely effect of the Guidelines and the steps carriers and shippers can take to meet the new Guidelines.
The Guidelines are applicable to containers to be carried on seagoing ships. The main principles of the Guidelines are that the shipper is responsible for providing the packed containers’ verified gross mass (VGM) and the carrier must receive the VGM prior to loading.
The Guidelines define the “shipper” in surprisingly broad terms. Under the IMO’s definition, a “shipper” could be a freight forwarder, container operator, or an entity consolidating the cargo into a packed container, and not just the party with an interest in the containerised goods.
While the shippers’ obligation to provide the gross mass of packed containers is not new, the Guidelines’ VGM prescribed methods are.
The Guidelines prescribe two methods for verifying the weight of a container. Method 1 is for the shipper (or a third party by arrangement) to weigh the packed container upon its closing and sealing, eg. by weighbridge or outfitted crane.
The alternative approach, Method 2, is for the shipper (or third party) to weigh all packages and cargo items to be packed, including pallets, dunnage, packing and securing material, and calculate the total container mass using a certified method. Once the shipper has verified the packed container’s gross mass, they must record it on a shipping document signed by a duly authorised representative and submit it to the Master or his representative and the terminal representative.
Under the new Guidelines, a container without VGM cannot be loaded on-board a ship. States who are party to SOLAS have discretion to impose statutory penalties ranging from fines or even imprisonment, for non-compliance.
Insurance cover is another consideration. Non-compliance may invalidate both the shipper’s cargo marine insurance and the carrier’s insurance. One leading P&I Club has already issued a circular, warning carriers not to accept containers without a VGM against a shipper’s letter of indemnity, due to possible insurance complications.
On this basis, it is crucial that all parties involved in the container trade take proactive steps to comply with SOLAS and the new Guidelines.
Some recommended steps towards compliance with the Guidelines and increasing efficiency in the process of transporting cargo are set out below.
Carriers should review their existing business terms and conditions, commercial contracts, terminal service and haulage agreements, and other applicable standard terms, although their existing carrier bill of lading (B/L) terms may not require major revision. The amendments will need to ensure that the various processes, rights and obligations are clearly laid out and allocated to the appropriate parties.
It is also advisable that new procedures address consistent gate policies regarding VGM changes between booking and loading, prevention measures for containers without VGMs, and minimum requirements for the acceptability of declarations as VGMs. Establishing deadlines for VGM receipt, the rights and liabilities regarding booking cancellations, and the way in which this information is communicated, are also important.
In addition to establishing a record keeping system for discrepancies and corrections, which will greatly assist with every-day operations and potential claims, carriers are encouraged to identify the competent authority bodies in each applicable jurisdiction and understand how SOLAS has been implemented in each such jurisdiction, so as to better coordinate with other parties and minimise the risks of breaching local laws.
Given that the multitude of parties involved in the container trade and that, so far as SOLAS is concerned, the contemplated shipper is simply the party named on the ocean B/Ls, it would be sensible for shippers to reach an agreement with the cargo sale and purchase and forwarding chain parties who will be providing the VGM and who will, therefore, be responsible for it. The shipper should consider their potential exposure and whether they are the “shipper” or simply a “booking party”. Clarity as to the identity of the “shipper” will be needed in cases where parties, who individually ship less than a full-container load, consolidate their parcels into one container. When preparing new, or amending existing, agreements, terms of services, contracts, operational procedures, communication systems or other similar matters, the shipper must consider how the changes may affect their businesses, relationships with counterparts and the commercial opportunities changes to service terms may present.
It may also be advisable for the shipper to establish the identity of the competent authorities regulating the various container aspects and how the SOLAS amendments will be implemented, in terms of planning future operations.
It is noteworthy that forwarders, particularly when acting as non-vessel operating carriers, will have to review their agreements, standard business terms and house B/Ls, so that they include adequate protections for potential liabilities, at least in relation to claims usually expected from shippers and/or carriers.
All parties should speak to their insurance brokers, in order to ensure that their respective insurance policies protect them from the new risks and liabilities.
Historically, tough trading conditions in the shipping industry have meant that safety measures have lapsed. The IMO’s efforts provide an opportunity to review loading practices, provided commercial parties and SOLAS signatory states abide by and implement the new Guidelines.
Joint ventures in the energy and resources sectors.