Sunday 12 September 2010

How Much Does it Cost to Use the Panama Canal?

The Panama Canal links the world's two biggest oceans; the Atlantic and the Pacific. When it first opened, in the early 20th Century, it saw around three vessels a day pass through; but today, almost 50 vessels a day use the canal.

A vessel must pay a toll fee to use the canal, which is calculated based on the size of the ship, type of ship and the number of passengers or the amount of cargo onboard. The typical rates paid are as follows:

Yachts and Other Small Vessels: USD 1,300 to USD 2,500
Loaded Containerships: USD 50,000 to USD 250,000
Cruise Ships: USD 80,000 to USD 300,000  

The most expensive toll fee ever paid was by the Disney Cruise Ship on 16 May 2008; of USD 331,200 for one West to East passage.

Saturday 11 September 2010

Q: What is the Biggest Ship in the World?

This question is one of the most frequently asked to anyone who works in the world of shipping, and unfortunately there is no easy answer. It really depends on what you mean by biggest.

Name: "Knock Nevis"*
Type: Supertanker
Length: 458 metres

Name: "USS Nimitz"
Type: Aircraft Carrier
Width (Beam): 77 metres

Name: "Batillus"
Type: Supertanker
GT: 275,276 tons

Name: "Oasis of the Seas"
Type: Cruise Ship
Capacity: 6,296 people (passengers and crew)

- o -

* The "Knock Nevis" has now reached the end of its useful life and has been sold to a firm of Indian shipbreakers. People often wonder why, in an industry of economies of scale, more supertankers of this size and larger have not been built. Well we have to remember that the Knock Nevis' size also caused its owners a lot of logistical problems; its huge size required a draft (a water depth) of over 80 feet, meaning some of the world's main shipping routes, like the Suez and Panama Canals and the English Channel, were no-go areas for the ship.

Q: What is the Difference Between an Ocean Liner and a Cruise Ship?

You will often hear people claim that their voyage onbaord the Cunard ship "QE2" (below) was one onboard the world's largest 'Ocean Liner'. This is correct, as the "QE2"(recently replaced by the "Queen Mary 2") was the world's largest Ocean Liner.

It was, however, nowhere near as big as, for instance, the "Oasis of the Seas" (below) or similar cruise ships; so what was the distinction?

The "Oasis of the Seas" and other such vessels are categorised as 'Cruise Ships'; large vessels used for the accommodation and entertainment of guests during a sea voyage for pleasure. An 'Ocean Liner', on the other hand, is a large ship which transports people from one designated port to another.

If you like, an 'Ocean Liner' is a form of sea transport which involves a luxury holiday, whereas a 'Cruise Ship' is a form of luxury holiday which involves sea transport.

The "Oasis of the Seas" goes on various different 'cruises' throughout the year, with different itineraries, starting and ending in the same port (usually Ft. Lauderdale, USA). The "QE2" on the other hand transported people across the Atlantic, between the ports of Southampton and New York and fed and entertained them on the way.

GUIDE: Towage Claims / Law

When we consider towage, we generally think of one vessel pulling another at sea. However, technically towage is merely any operation where one vessel is assisting another (helping to berth, ating as pusher tug, providing an escort, etc.

The vast majority of towage claims are claims in contract.[1] Routine towage operations under contract are referred to in law as “ordinary towage”, and are contrasted with the sort of ‘emergency’ towage which takes place during a salvage operation. In the vast majority of ordinary towage situations a tug will be providing services on a standard form of contract wording, which both parties will be familiar with.

“Knock-for-Knock” Terms (kfk / k4k)

It is important that our Members enter towage contracts which are on what is known as “knock-for-knock” terms, or terms more favourable. Knock-for-knock terms are essentially an agreement whereby each party takes responsibility for damage to their own property or injury to their own employees, regardless of how caused (i.e. who was negligent). Accordingly, the parties also agree to indemnify each other against claims brought by third parties against the wrong side. The most common standard form towage contracts all include such terms, or terms more favourable still.  

Standard Form Contracts

The main standard form towage contracts used are as follows: 

“UK Standard”[2] - These are the main terms used by harbour authorities in the UK and are used for all general day-to-day towage operations undertaken by their tugs. They are found throughout the common law world and are considered exclusionary, in that they generally exclude the liability of the tug, for damage to the tow and even for damage to the tug (which must be paid for by the tow). For this reason they are considered more favourable, for the tug, than basic “knock-for-knock” terms.

“Towcon” 2008
[3] - Towcon contains a basic form of knock-for-knock terms, where the tow and tug agree to meet their own liabilities. Where the tug collides with another vessel or property it accepts liability for the damage and where the tow collides it does the same. The contract is designed for use in the ocean towage of a vessel from one place to another at a fixed rate.

“Towhire” 2008[4] - Towhire contains the same basic form of knock-for-knock terms as Towcon, but the contract is designed for the hire of a tug for a period of time, rather than for one specific job.

“Supplytime” 1989 or 2005[5] - Supplytime is not technically a towage contract but a charterparty for the hire of a vessel. However, it is often used in the offshore industry as a contract under which to hire a tug, which will then provide towage services. The contract contains knock-for-knock terms but there is a risk if the tug, once hired, is used for towage operations involving third party vessels. They may then bring claims directly against the tugowner, who would be unable to rely on contractual defences or limits.

Contracts at Common Law 
Sometimes terms are not agreed in advance of the towage operation, or the terms used by the tug are not properly incorporated into the contract of towage. In these circumstances the courts will apply what they call an ‘ordinary contract of towage’. This is a contract with only basic terms, under which the owner of the tug is required to provide a seaworthy tug, which is properly manned and equipped and they must be competent and use skill in carrying out the operation.

A common law towage contract, such as this, is not desirable for a tugowner because although it still absolves them of liability for accidents beyond their control, it does not provide the necessary defences, limitations of liability and safeguards that the normal standard form conditions provide.

The often cited general principle of towage that "tug is servant of tow", in other words the tug is (generally) the smaller vessel and is only acting under the instructions of the larger vessel. The principler comes from The Niobe (1888).   

[1] There are some notable exceptions. In salvage claims where there is no contract claims arising are based on equitable rights at common law. In so-called ‘gratuitous’ towage situations, where no charge is made for the towage service, claims are based in tort. And where the tow is capable of being considered ‘property’ (say a dumb barge incapable of independent navigation and with no crew) then a claim in bailment is also possible.
[2] UK Standard Conditions for Towage and Other Services (Revised 1986) – Issued by the British Tug Owners Association.
[3] BIMCO’s Towcon 2008 – International Ocean Towage Agreement (Lump Sum).
[4] BIMCO’s Towhire 2008  – International Ocean Towage Agreement (Daily Hire).
[5] BIMCO’s Supplytime ’89 / Supplytime 2005 – Time Charter Party for Offshore Service Vessels.

GUIDE: Salvage Claims

'Salvage' is the term used in maritime law to refer to the process whereby a third party rescues a vessel from a danger which would have likely destroyed it by sinking, breaking it up or otherwise. 

The third party is generally entitled to a financial reward for such an action as their assistance can often lead to a saving of several thousands or millions of dollars for the vessel's owner (the vessel may be worth a considerable amount, its cargo may be worth a considerable amount and the consequences of its loss being avoided - i.e. no fine for oil pollution - may also be worth a considerable amount to the owner.

A salvage operation is generally distinguished from 'wreck removal' as its purpose is usually to save a vessel as a going concern, whereas a wreck removal generally concerns a vessel which is already agreed to be a total loss. Consequently salvage operations usually try to cause minimal damage to the concerned vessel whereas wreck removal operations often involve intentionally breaking the vessel involved into pieces.

There are myriad laws around the world concerning salvage and each situation will turn on the particular laws and contracts that apply, as well as the court which has jurisdiction, but there are some general principles which are useful to know as a base knowledge.


1. Normal contractual assistance will not generally constitute a salvage operation. For example, if your vessel is in distress and you decide you need the services of a tug to tow you to a safe port. If you radio a local port and agree basic contractual terms for a towage operation with a set fee then the tug owner could not take your vessel back to port and claim salvage.

2. It is generally accepted that the salvor has a right to a reward for saving the vessel because as we have seen above his service in this regard can be priceless but clearly he cannot merely decide the ship is his own property. Therefore the courts' view is that an amount of reward should be given to the salvor by the distressed vessel, which is appropriate to the value of the vessel saved, the level of distress it was in and the level of risk which the salvor(s) had to take to salve the vessel.

3. As time is of the essence when a vessel is in distress it is understood that neither the salvor nor the captain / owner of the distressed vessel will generally have time to take lengthy legal advice and negotiate contractual terms for the salvage operation. For this reason procedures such as LOF (Lloyds Open Form), have evolved,  which allow the parties to essentially agree that the operation will go ahead and if they are unable to agree on the appropriate amount of salvage reward afterwards then a specialist arbitrator appointed by Lloyds of London shall make the decision. This option is popular with salvors and distressed vessels as in the heat of the moment it allows decisions to be made quickly without the risk of any gross injustice resulting to either side.

4. In some countries certain vessels in distress may be able to benefit from the assistance of a charitable organisation, such as the RNLI in Britain and Ireland. They respond rapidly to emergencies at sea and whilst the crewmembers waive their right to claim maritime salvage, it is widely accepted that a suitable donation should be made to the service in lieu of them claiming any salvage.


These terms refer to parts of a ship or its equipment or cargo which wash up ashore. Flotsam refers to things which are accidentally lost at sea (say cargo which is washed overboard in a storm) and Jetsam refers to things which are intentionally put overboard (usually to lighten the ship in heavy weather or in the event of engine problems). When either washes up on the shore they are sometimes referred to as salvage, mainly because in principle those finding them are rescuing them on the shipowners behalf (they should be reported to the receiver of wrecks but sadly this does not frequently happen).

Often cargo which is not paid for or accepted by the consignee (say rolls of paper which have got wet during transit and the buyer rejects them or shop fittings for a shop which has gone bankrupt) will be sold as, or for, salvage. Often such goods only achieve a fraction of their original value, which is referred to as their salvage value.

Wednesday 1 September 2010


This is a collection of terms that I have built up after being asked by someone what something means or which I have heard people appear to misunderstand. I have endeavoured to explain each in simple terms.

Click here for my list of industry acronyms.

Actual Total Loss - A reference to a vessel which has been completely destroyed or irretrievably lost. For example where a boat is broken to pieces in a storm and scattered by the sea or where a ship sinks in very deep water. Can be contrasted with Constructive Total Loss (below).

Air Draught - Refers to the space available above water, for instance to warn of low handing objects of cranes.

Allision - Contact between a ship and some fixed object like a quay or shore crane.

Anchorage - An area where vessels can safely drop anchor and stay, usually close to a port.

Bunkers - The fuel used on ships, i.e. people will often say the ship is going into port to 'take on bunkers'. The term can actually apply to any form of fuel oil which is used onbaord a ship, it doesn't have to be used in the ship's main engine. Therefore even diesel oil used by equipment onboard can be said to be 'bunkers'. Lub oil would not however be classed as bunkers because it is not fuel.

Butterfly Valve - This is a type of valve used in pipes or pipelines which allows the pipe to be closed or flow through it limited, from the outside. This is done by turning a handle or moving an actuator (often controlled by a motor) on the outside of the pipe which turns a circular piece inside the pipe which can close off the pipe. When turned completely sideways the pipe is fully open. A picture of the pipe design is available here. Because defects in the valve are only usually noticeable after a failure occurs (the working mechanism is invisible from the outside) this can lead to incidents onboard.

Butterworthing - This describes the system of cleaning the tanks onboard a vessel with a special hose with multiple nozzles, like this, which spray high pressure water in all directions. The system was used by, and hoses produced by, a company called Butterworth, which resulted in the type of tank cleaning being described as Butterworthing (much like how 'vacuum cleaning' became 'hoovering').

Common Carrier - Most 'carriers' for the purpose of shipping law are contractual carriers, in other words they carry cargo or people against a Bill of Lading or passenger ticket, i.e. on agreed terms. There do still exist what are known as 'common carriers' who basically agree to move certain goods or people based only on common law terms. They generally issue no documents with terms on them and carry lots of small amounts of goods or people on short journeys and wish to keep admin' costs low. The equivalent on land would be a public bus, where someone can jump on and off without agreeing any carriage terms.

Constructive Total Loss (CTL) - This is a reference to a vessel which is being treated as a total loss for insurance purposes even though it is physically still there. This generally applies where the cost of salvaging the vessel or making it usable again is greater than the value of the vessel itself (i.e. greater than the cost of buying another similar vessel). For example where a ship worth USD 50,000 is grounded and a hole is punctured in its hull, the quoted cost of patching the hull, towing it to port and fully repairing it might be USD 75,000. In the circumstances its owners would call their hull insurers and tell them they were treating it as a CTL.

Ice Demurrage - This is a type of Demurrage which uniquely occurrs when a port that a charterer has asked a ship to go to is closed or blocked due to ice. Generally the ship will be able to claim demurrage for the resultant delays at the standard demurrage rate as it is a risk of the charterer, trading in such areas, that the ports will be closed and it is generally considered that the price of the goods involved will 'factor in' such risks and costs.

Zodiac - This is a type of small, inflatible boat. They get their name from the manufacturers, Zodiac, but the boats have proven so popular in their field that in the same way peolpe might describe any vaccum cleaner  as a Hoover, any boat mathcing this description is sometimes referred to as a Zodiac.

GUIDE: Collision Claims

Collision claims, also known as RDC claims*, involve incidents where two ships have made contact, or in layman's terms when two ships have hit each other. 

Where a collision occurs which is 100% the fault of one vessel, that vessel shall bear its own losses and compensate the other for its losses as a result of the collision. However, because of their very nature collisions almost always involve a degree of fault by each party involved. The general rule is therefore that the total damage is calculated and the % liability of each vessel for causing the collision is calculated and each vessel's owners pay their fair percentage of the total damage.  

Time Limit for Claims
Collision claims are, in most jurisdictions, subject to a two-year time limit, which runs from the date on which the collision occurs. This limit comes from the 1910 Collision Convention, which most countries have ratified.**

Wash Damage
At law claims for 'wash damage' (where the movement of one vessel creates waves in the water which damage other vessels) are generally considered collision claims and dealt with as such by the courts. This is the case even though there is no physical contact between the ships. It is important to note that, despite this, the wording of some P&I and Hull policies will be such that wash damage claims cannot be considered as collisions (if they cover 'contact' with a third party vessel for example).

FFO Claims
When a ship makes contact with property other than another vessel (shore cranes, bridges etc.) and causes damage to it, this is not considered a 'collision'. Technically it is an 'allision' (two moving objects collide with each other, whereas one moving object allides with a fixed object). This term is less common today and these claims are more frequently known as FFO claims, which stands for 'Fixed and Floating Object' claims. Hitting a quay would be an example of damage to a fixed object and cracking a navigational buoy would be an example of damage to a floating object).

* This is the old terms for collisions and stands for 'Running Down Collision', essentially a reference to when one ship ran down, i.e. into, another. 
** Convention for the Unification of Certain Rules of Law with respect to Collisions between Vessels (Brussels, 23 September 1910)

Tuesday 31 August 2010

ARTICLE: Shipping Accidents on Video

A few of the maritime accidents of the world caught on video.

Monday 30 August 2010

The Most Exclusive Marinas in the World

Owners of the world's largest superyachts are not exactly short of cash, which is lucky, because finding somewhere to "park" them can be a costly endeavour. Although you've paid out tens of millions of dollars for your very own floating five-star hotel, a trip to Monaco or St. Tropez will still cost you thousands of dollars a night.

In fact, a recent survey recorded the cost of keeping your superyacht moored in some of the world's most desirable marinas; and here are the top ten most expensive, along with my thoughts on each! By the way, these prices are for visitors on short stays, if you were going to hire a berth for year-round storage the cost would be considerably less (a marina where it cost EUR 2,000 a day for a peak-season superyacht visitor, might work out at only EUR 100,000 a year for an annual berth - an effective rate of EUR 270 a day!).

1. CAPRI (Italy)
Daily fee*: EUR 2,900
Thoughts: Capri, a small, rugged island off the coast of Naples has been a luxury retreat since Roman times. Today, its compact size and steep terrain, which restrict building and expansion, allow it to maintain an air of super-luxury. In the summer it is one of the world's top locations for celeb-spotting as many of the Hollywood A-list visit annually. The harbour, being small and only having enough room for around ten large yachts, is now recognised as being the most expensive in the world.  

2. PORTO CERVO (Italy)
Daily fee: 2,500
Thoughts: A large, modern, high-technology port in a picturesque Italian town on the North Coast of the Italian island of Sardinia. The Costa Smeralda Marina at Porto Cervo has a large, well-renowned yacht club and ship-repair yard, meaning it has all the facilities and space you would find in a blank-canvas, Middle-East marina, but with the old-world European charm as well. As a result, the area attracts some of the world's largest superyachts.

3. PORTOFINO (Italy)
Daily fee: 2,350
Thoughts: Portofino is almost the exact opposite of Porto Cervo (listed above). It is on the Italian mainland, it has relatively few facilities and the fewest spaces for large yachts of any port on this list (just six!), but its charm comes from this seclusion. The small fishing village has no airport and only one access by road, which is closed for much of the year. It became popular as a secluded get-away for British Aristocrats and European millionaires, who built large mansions in the surrounding area; today, its relative inaccessibility by any means other than boat, means that it remains a favourite destination for the superyacht elite.

4. IBIZA MAGNA (Spain)
Daily fee: EUR 2,300
Thoughts: Ibiza is arguably the world's top party town, and for any younger superyacht owner in the mood to celebrate where better than the uber-luxurious Ibiza Magna Marina, right beside the Island's biggest casinos, nightclubs and bars. The marina is not particularly large, but has very modern facilities and visitors have the knowledge that they can sail in at any time of night or day and join in a 24/7 party culture keeps demand for berths well above supply, and the price resultantly high.

5. ST. TROPEZ (France)
Daily fee: EUR 1,300
Thoughts: Far and away the No. 1 superyacht destination in France, St. Tropez lies at the heart of the French Riviera, and is the place in France to show off your megayacht. It has some old-world charm with its winding streets and a smattering of traditional shops, but it is now very much a millionaires' playground, with five star hotels, Michelin-starred restaurants and shops selling diamond-encrusted Rolex watches.

6. PORT HERCULE (Monaco)
Daily fee: EUR 1,200
Thoughts: Monaco is somewhat of a different beast to the other European ports and marinas listed above. It tends to be somewhere where the super wealthy actually live, rather than merely visit. There is no income tax in Monaco. So, if you have a multi-million pound business somewhere in the world and are paying, say, 40% tax on the income you receive from that business, what you do is move to Monaco; then you pay no tax on it. As a result, almost 85% of the population of Monaco are high-net worth foreigners. For this reason, despite the enormous concentration of wealth, there is less need for berths or moorings as the superwealthy in the area are generally staying in their own houses, rather than boats. There are, of course, still super-wealthy visitors, especially during events like the Monaco Grand Prix, and these people ensure the main Port still commands a place in the top-ten.

7. MIAMI BEACH (Florida, USA)
Daily fee: EUR 883
Thoughts: Miami Beach, the No.1 Marina in the US and gloriously American; it's huge (room for almost 500 yachts), super-modern, ultra-luxurious and fully functional 24/7. Almost everything you could ever want is provided at the Marina (including an Olympic sized swimming pool) and anything that is not available on site can be arranged for you by the on-site concierge. Of course there is also the draw of the international-entertainment capital of Miami itself.

8. PORT DE CANNES (France)
Daily fee: EUR 655
Thoughts: Like St.Tropez, Cannes is a top destination for the welathy yacht-owner visiting the French Riviera. The port itself is one of the largest in Europe, with over 2,000 berths. Prices fluctuate throughout the year, but thanks to world-wide attention during events like the Film Festival and various economic and commercial conferences some of the larger berths have been known to have a pre-booking period of over one year in advance.

9. PORT OF GUSTAVIA (St. Barts, Caribbean)
Daily fee: EUR 500
Thoughts: A relatively small but very busy marina in the Capital of St Barts, a French Caribbean island which is dotted with high-end boutiques, luxury hotels and private villas for visiting millionaire boat-owners to rent. The island has a population of less than 3,000 and is renowned as a secluded playground for the rich and famous. During the high seasons, like mid-summer or at Christmas and New Year it is near impossible to find any available space in the marina.

10. YAS MARINA (United Arab Emirates)
Daily fee: EUR 421
Thoughts: The Yas Marina is quintessential 'Abu Dhabi'. It is a showcase of the wealth of the Middle East, growing from nothing on a man-made island, into one of the world's most luxurious marinas; surrounded by newly-built skyscrapers, water parks, 5 star hotels and the Abu Dhabi Formula 1 Race Track. The marina and island on which it stands are still in their nascent stages, but with USD 36 Billion being spent on them it is perhaps no surprise that they will be looking for a reasonable daily contribution from visiting superyacht owners.

* This is average fee, per day, for mooring a superyacht based on information provided by a recent 'Wealth Bulletin' Survey. 

Saturday 10 July 2010

Q: Docked / Berthed / Moored / Anchored?

All these terms refer to a vessel which is secured in a more or less fixed position.

When a vessel is in port to collect/disembark passengers or load/discharge cargo it will be, in a sense, connected to the dock (the functional area of pier) and is therefore 'docked'. A docked ship is typically a large one and will have several crew present on it, even when it is there overnight. Generally a ship is docked for a specific purpose, and when that task is complete the vessel will move on.

A berth, on the other hand, is a bit like the nautical equivalent of a parking space. Typically you buy one or lease one for a long period as somewhere to store your boat. To maximise space, 'berthed' vessels are typically kept perpendicular to (pointed at) the main jetty or pier, rather than a docked ship which is typically parallel to (in line with) the dock.

Any ship which is secured by ropes to a permanent fixture is 'moored' to that fixture. So 'moored' can be quite a broad description, although it is most appropriately used to described a vessel which is being kept at 'moorings'. Moorings are areas of water where boats and yachts can be secured to a fixed object on the seabed, usually a large concrete block with a rope attached and a buoy on the end. They are cheaper than berths to rent and are more secure (people cannot simply walk up to your boat). They tend to be used for the storage of boats or yachts when not in use, so moored vessels tend to have no one on board.

The most independent way to secure a vessel is to drop anchor. So long as the anchor has a certain amount of purchase on the seabed the ship will not move too far from its current location and is therefore described as being 'anchored'. This is the most independent but also the least secure way to station your boat, and as such a ship which is anchored is usually only staying in place for a short time and will almost always have someone on board.

Monday 5 July 2010

GUIDE: Terms for the Size, Weight and Carrying-Capacity of a Vessel?

There are a myriad of terms to describe essentially how big a vessel is, and often these can be confusing. A newcomer to the world of shipping might, for instance, reasonably but erroneously believe that the Tonnage of a vessel had something to with it's weight in Tonnes. 

There are however only really five terms, currently in use (GRT, NRT etc. are now obsolete), that you need to remember, and they are as follows. 

Measurements of the Vessel's Size

G.T. (Gross Tonnage) - This is a measurement of the size of the ship, which calculates the area of all its enclosed spaces. It is nothing to do with the weight of the ship and is used to assess how many staff are needed to run the ship, how much port fees should be charged etc.  

N.T. (Net Tonnage) - This is a measurement of the size of the cargo which can be stored on the ship, which calculates the area of all the space taken up by the cargo aboard the vessel, when the ship is fully loaded. Because the cargo will be smaller than the ship it is on or in this figure is the 'net' one. 

Measurements of the Vessel's Carrying-Capacity

D.W.T. (Deadweight Tonnage) - This is the measurement of how much weight a vessel can carry. It does not include the weight of the vessel itself, but does have to take account of everything which adds weight to the vessel - cargo, passengers, crew, fuel etc.   

T.E.U. (Twenty-foot Equivalent Unit) - This is the most common measurement of how much cargo a container ship can hold. A 'regular' container is twenty foot long, although many are now 'double-sized' (being 40 foot long or similar). A container ship is therfore measured in how many containers it could fit on board if they were all twenty foot long.  

A Measurement of the Vessel's Weight

L.W.T. (Lightweight Tonnage) - This is how heavy the actual ship itself is. This measurement is almost never seen in shipping, because the weight on dry land of a ship is not a figure which has any importance in terms of operating the vessel, deciding how many crew it should have or how much of a port fee it should pay. However, the term is important at the beginng and end of a ship's life; when being launched and when being scrapped.

- o - 

Example Vessel Details:

GT : 170,974
NT : 55,396
DWT : 156,907
TEU : 14,770
LWT : Unknown

Sunday 4 July 2010

GUIDE: P&I Cover

P&I cover is a type of insurance shipowners can take out for claims made against them by third parties. It would cover, for instance, claims for damage to cargo, for injury to passengers or crew and for damage to other ships in collisions. The cover is provided through mutual insurance orgnaisations known as P&I Clubs. They are ‘mutuals’ in so far as they do not set out to make a profit, but merely to ‘pool’ or ‘spread’ the risks of all their clients.

The world of P&I has its own unique terminology. Risks are not underwritten but ‘covered’. There is not an insurer but a ‘Club’. There are not clients or assured, but ‘Members’. Vessels are not insured by the Club but ‘entered’ with it. There is not an insurance policy, but a ‘certificate’. There is not a policy excess but a ‘deductible’. There are not premiums but ‘Calls’.

General Facts
Usually P&I cover pays the full third party liability claim less the deductible. However, in respect of collision claims the Club only typically pays 1/4 of the claim, providing an extra deterrent for the Member to avoid collisions. Although today many Clubs will cover full liability (known as 'four fourths') for an extra fee.

As P&I Clubs are only generally concerned with third party liabilities they are not concerned with covering damage to the Member’s own vessel. This damage will be covered under a separate ‘Hull’ or ‘Hull & Machinery’ policy.

The 'Pay to be Paid' Rule
As the Clubs are indemnity organisations, they generally compensate the Member for claims they have had to pay to third parties for liabilities incurred in the operations of the vessel. For that reason the Member will usually have to pay a claim and then ask the Club to compensate them for the amount of that payment; they cannot just ask the Club to pay the claim directly. One exception is in personal injury claims where the Club will often agree to pay the claim without the Member having first paid it.

FD&D  Cover
Many of the Clubs now provide FD&D Cover as an optional extra. This stands for Freight, Demurrage & Defence. Essentially it means the Club will represent the Member in respect of extra elements of legal claims not typically covered by general P&I insurance.

The International Group
There is an International Group of P&I Clubs who have agreed to pool their very high value losses (in excess of USD 8 Million) to provide yet further security to their Members. They also work together for the benefit of their Members as a whole. There are currently 13 Clubs who are members of the group; with The Shipowners' Club being the largest in terms of number of vessels entered and GARD being the largest in terms of Gross Tonnage of vessels entered.

Sometimes it can be quite confusing to an outsider to understand all the Club's referred to in the market, as all have a 'management company' which runs the day to day business on behalf of the Club; it will underwrite business and pay claims and the surplus is held for the Club to cover catastrophic losses or years when a very high level of claims are made. Technically, or at least theoretically, the Clubs (being the Members acting as a group) could withdraw or fail to renew their management contract and appoint a new management company, but the relatively small size of the market and shortness of relevant skills amongst the workforce as a whole mean that such an event would be extremely rare. 

Many of the management companies share similar names to their insurer accordingly, but some do not. As a brief guide the Members of the group with significantly different management company names and some nicknames are therefore as follows:

- The American Club
- Brittannia
- Japan Club
- Gard
- The London Club - Managed by Bilbrough
- The North of England (North, NEPIA)
- Skuld
- The Shipowners' Club (Shipowners, SOP, SMP)
- The Standard Club - Managed by Charles Taylor
- Steamship Mutual
- The Swedish Club
- UK Club - Managed by Thomas Miller
- The West of England (the West)

Further Details
Each Club has its own set of Club Rules, which act like a copy of the insurance policy would if the risk were underwritten by a commercial insurer. Typically the certificate will merely state that the Member is entered with the Club subject to the Club Rules and confirm any variances, exclusions or additions, i.e. rather than recite those rules in full. 

All of the Clubs publish a copy of their own rules on their website but the International Group clubs, due to their pooling arrangements must have essentially common insurance cover in their standard Rules (in other words, despite using their own wording, the same risks are overall covered, and the same items are excluded or limited within that cover). 

GUIDE: Contracts of Affreightment

There are two basic types of contract of affreightment:
1)      Bills of Lading; and
2       Charterparties.
~  o  ~


A document issued by a carrier, to a shipper, acknowledging that goods have been shipped on board for conveyance to a specified party and place.”

A Bill of Lading has three main purposes:
a)     1. It acts as a receipt for the goods, showing the carrier took possession of them,
b)     2. It is evidence of a contract of carriage,
c)      3. It is a document of transfer, being freely transferable.

Common Types of Bill

Straight Bill – This is a non-negotiable Bill, stating clearly the consignee’s name. It can be endorsed over, but it is risky as if the carrier had for instance a maritime lien over the goods, the endorsee is bound by it in the same way the

Sea-Waybill – This is simply a receipt for cargo, and not a document of title. It is not transferable or negotiable. It is commonly used today when a company is shipping goods between branches in different countries, or where the cargo will arrive with the consignee before the original documents do.

Through / Multimodal / Combined Bill – Cargo carried under this type of Bill of Lading will go right through to destination, in other words by sea then by rail, or road or airfreight.

House Bill – The covering Bill to the real Ocean or Master Bill, issued by a freight forwarder.

Liner Bill – A Bill of Lading issued by a carrier that provides a regular service on a specified route. 

The Process
* Generally, once cargo has been shipped (or sometimes before) three original Bills of Lading are drawn up by the carrier, and one is given to the shipper. The information is usually just that supplied by the shipper.
* Sometimes the shipper draws it up and the carrier merely signs it, but this is unusual.
* They should not bear a date that is earlier than the date on which the cargo was fully loaded on board (The Wilomi Tanana [1993]).

Identifying the Carrier from the Bill of Lading
* The court will look at the logo printer on the Bill, the signature and wording of the signature box, and the terms on the back; specifically whether there is an IOC (Identity of Carrier) Clause.

“This is a contract between a shipowner and someone who wishes to hire o let their ship, for a period of time or for a particular voyage.”

Types of Charterparty

Time Charterparty – This is where you hire the ship for a set period of time. The owner remains in charge of it but you can take it where you like, transporting what you like. You pay a fee plus the fuel you use and port charges you incur. 

Demise / Bareboat Charterparty – This is a sub-type of Time Chartering, where a ship is hired for a long period (years) and the charterer provides crew, insurance, maintenance themselves. Often the charterer obtains ownership after a set period of payments, and the Charterparty therefore acts as a form of finance (like HP on a car) for the sale of the ship.

Voyage Charterparty – This is where a cargo interest just charters a ship for one particular job (moving a bulk pig iron purchase from Rio to Beijing for instance). No crew costs, fuel costs or port charges are passed on by the owner, there is usually only one catch-all fee (but the charterer pays the stevedores). A miniature version is a Slot Charter Agreement, where a carrier agrees to give a charterer a certain number of container slots on a voyage from x to y.


Bunker Clause (Fuel Clause) – The charterer agrees to pay owners for all fuel on the vessel at the time of taking it over (delivery) - at the market rate at the port of delivery. The owner agrees to do the same to the charterer with any fuel left at the port where the vessel is returned to owners (port of redelivery).

Ship Clause – The owner of the ship warrants that the ship will be seaworthy in every respect at the point of delivery or beginning of the voyage.

Ice clause – Inserted when the ship is headed for a port which may be closed due to ice.

Lighterage Clause – Usually spells out that vessel can deliver goods near the port (for onwards transit by lighter) instead of exactly at it if necessary. Sometimes also declares that the delivery can be at any port in a certain range – Thamesport, Tilbury or Felixstowre for example.

Negligence Clause – Typically excludes shipowner’s liability for loss or damage to the goods during transit, save for a lack of due diligence by them.

Ready Berth Clause – Essntially says that shipowners have completed their job once they have arrived at the delivery port, and not once berthed , as in many ports they may have to wait for a berth and they will not pay the costs of this, and indeed the ship will charge for any laydays spent waiting for such a berth.


Because of the complex nature of charterparty agreements and the number of clauses and safeguards that need to be built in to satisfy each party generally a charterparty agreement is entered into on a standard industry wording, such as a Gencon, Heavycon, Barecon etc., as appropriate. Sometimes the satandard wording is used, but more commonly an amended form of that wording is agreed, with some clauses removed, added and / or amended.

GUIDE: Marine Cargo Insurance

Marine Cargo Insurance basically insures the owners of cargo for loss of, or damage to, it during a voyage either wholly or partly over water.

Because these insurance policies are relatively complicated and need to offer different levels of cover to different assureds, but they often need to be generated and agreed quickly for urgent shipments, sets of 'standard wordings' are often used by underwriters writing this kind of business.

The most common wordings are those of the 'Institute of London Underwriters'*, known as:
1) Institute Cargo Clauses A (provides the broadest cover, but also the most expensive)
2) Institute Cargo Clauses B (less cover, less expensive)
3) Institute Cargo Clauses C (least cover, least expensive)

There are also standard wordings for these additional risks:
1) War Clauses

2) Strike Clauses

Incoterms (International Commercial Terms)

Incoterms basically give legal clarity of the meaning of terms frequently used in iternational commercial conrtracts. The full descriptions are available here, but essentially they describe who is responsible for cargo and insuring it at varisou stages of transit. There used to be many categories, but now only three remain D, E and F.

Many exporters sell their cargo on a CIF (Cost, Insurance and Freight) basis, so the seller promises to arrange the cargo insurance. If a seller sells goods on an FOB, Ex Works or similar basis, then the buyer arranges his own cargo insurance. This can be risky, because usually the goods are not paid for until after delivery. If the goods arrive in a damaged condition, or an allegedly damaged condition, the buyer may simply refuse to pay for them. In this case, as the exporter has not taken out the cargo insurance, they have no one to appeal to for compensation. Special, relatively cheap, cargo cover has developed to cover only this situation, it is known as 'Contingency (seller's interest)' insurance. 

Common Types of Cargo Cover

Open Cover – This is the most common type. It covers a type of movement for either a set number of movements or over a set period of time. Each individual movement need not be notified to the insurer (for example, if you owned a factory in China exporting rubber ducks to the USA, and sent 10 shipments of one container each a month you could take out open cover for moving rubber ducks from China to the US by container and all your shipments would be automatically  insured).

Specific ('Voyage') Policy – This is cover for an individual shipment, usually high value or an unusual one for the exporter (sending a set of generators to Iraq, where you usually only ship to Europe and the USA for example).

Contingency (Seller's Interest) Policy – As described above, this is the cheapest insurance available. It specifically covers the situation where a seller is sending cargo overseas and the buyer arranges the cargo insurance. If the cargo arrives damaged the buyer may not pay for it and fail to make a cargo insurance claim, or make such a claim but fail to then compensate the seller or pay for the goods. 

Export Credit / Trade Credit - This type of insurance covers sellers exporting goods to customers in a new market. It repays the seller for the cost of the goods where they are shipped to a foreign country and then not paid for due to a fraud or because the buyer has gone bankrupt.


Cargo premium is generally calculated on the following basis:
1)  The value of goods insured (possibly with an increase to insured value to account for lost profit)
2) The type of goods (highly valuable, dangerous, toxic etc.)
3) The dangers faced by the goods (modes of transit, area, length of journey etc.)

Related Terms

General Average – All cargo must pay a portion of the damaged cargo on the basis that it was sacrificed to save the remaining cargo. Good examples include: cargo wet damaged when sprayed with water in a fire fighting action onboard. Generally the carrier will not release safe-landed cargo in a GA situation until a contribution to the damaged cargo is paid. If insured the insurer will pay this or post a bond for it to allow the cargo to be released.

Particular Average – A situation where the loss or damage to a cargo is borne only by the owner of that cargo, usually the shipper. 

Both-to-Blame Collision Clause – In the event of two ships colliding at sea where both are at fault, all vessels and cargo (by way of their hull or cargo policies) shall proportionately pay their share of the total losses based on the value of their cargo.

Sue and Labour Clause - A standard clause in a maritime insurance policy which allows the insured to recover from the insurer any reasonable expenses incurred by the insured in order to minimise or avert a loss to the insured property, for which loss the insurer would have been liable under the policy.

Facts to Note

Cargo which is insured against "All Risks" is not insured against "all losses", only losses caused by a "fortuity" in transit.

* The Institute of London Underwriters (ILU) recently merged with a re-insurers organisation (LIRMA) to create the International Underwriting Association of London (IUA).

  © Blogger template 'Isolation' by 2008

Back to TOP