How to select a Vessel

Vessel Selection Criteria

The Terms of Sale (Incoterms for example) determine who (Seller or Buyer) will nominate a vessel. However, notwithstanding the Incoterm to be used, in the Contract of Sale, there should be an agreement that vessels selected fulfil certain norms listed below.

In the case of bulk cargoes, as a trader you will approach a ship broker to select a vessel. If you advise the broker along following lines, the latter will have a clear idea of type of vessel (and documentation) you have in mind.

The ship broker should provide the following information to you:

1. Name of vessel with IMO Number[1]

2. Flag [2]

3. Year of Build [3]

4. Class (to be as per IACS) [4]

5. P&I (to be member of IG of Clubs) [5]

6. Confirmation that vessel has“Owners’ & Charterers’ liability for cargo loss or damage” [6]

7. H&M Insurance details (Name of Insurers, Amount of Insurance) [7]

8. Vessel is a Singleton or one belonging to a fleet? [8]

9. ISM with DOC [9]

10 Name of Owners/Disponent Owners/Managers of vessel (if possible) [10]

11. Detention by Port State Control-details of [11]

12. Previous voyages (say last 6 voyages) made by the vessel with details [12]

Explanatory Notes:

[1]IMO number is important and you must insist on this information from your ship brokers who recommend vessels to you. The IMO number is unique to the vessel and remains with it for life. Often vessel names “sound” familiar but when you check in Lloyd’s database, you don’t find the vessel-IMO number is therefore a must. IMO number is also important as in some cases there are multiple ships carrying the same name, or the vessel name has changed but the various databases are not updated. It also enables your insurer to check vessel details from websites such as Sea Searcher or Equasis. 

2] Flag: To equate all FOC[1] vessels with sub-standard operation is a wrong notion. However some Flags do have a higher share of casualties.  There are flags which are blacklisted by EU. There are

[others who have had a poor record in terms of safety and maintenance. In the case of FOC’s there is also the question of the beneficial Owners and the real Owners of the vessels hiding behind a corporate veil. Some of the FOCs have not ratified important international conventions such as SOLAS.

The top 11 FOCs in terms of percentage of the world fleet in DWT terms are Panama, Liberia, Marshal Islands, Bahamas, Malta, Cyprus, Antigua, Bermuda, St. Vincent, France RS, Cayman and  Islands

[3]Year of Build: This is important as Overage Premium would be higher for older vessels-especially bulk carriers. If you are the buyer and the vessel is selected by your suppliers, then it is sometimes possible to debit the OAP to the suppliers account. Older vessels, particularly old bulk carriers are viewed with concern as these vessels deteriorate rapidly due to stress created by dense bulk cargoes, use of grabs, high speed loading& unloading etc.

Vessels, irrespective of the type, have similar experience during the first 10 years of their lives. However different types of vessels deteriorate at different rates after this. For example, tankers deteriorate in the 15-19 year age group whereas dry bulk carriers do in the 20-24 year age group. It is a fact however that majority of total losses pertain to older the vessels (especially bulk carriers).

[4]Class: The IACS (the International Association of Classification Societies) has currently 13 members (there are several other Classification Societies but a Society which is a member of the IACS gives the cargo Owners/Charterers and their Insurers the necessary comfort)

Also the current edition of the Institute Classification Clause has a limited held cover provision for non IACS societies and therefore while selecting a vessel care should be taken that the vessel is entered with an IACS member’s class or get a specific approval of cargo insurers in writing in case such a vessel is not available.

The IACS members are: 

1	American Bureau of Ships	ABS
2	Bureau Veritas	BV
3	China Classification Society	CCS
4	Croatian Register of Shipping	CRS
5	Det Norske Veritas	DNV
6	Germanischer Lloyd SE	GL
7	Korean Register of Shipping	KR
8	Indian Register of Shipping	IRS
9	Lloyd’s Register of Shipping	LR
10	Nippon Kaiji Kyokai	NK
11	Polski Rejestr Statków	PRS
12	Registro Italiano Navale	RINA
13	Russian Maritime Register of Shipping	RS

[5]The International Group of Clubs (as opposed to Fixed Cost Clubs): there are 13 separate and independent principal Clubs in the International Group. Some Clubs have affiliated and reinsured subsidiary association and these names are given as footnotes below:

              

        i.           

                     i.            American Steamship Owners Mutual Protection and Indemnity Association, Inc

                    ii.            Gard P&I (Bermuda) Ltd[1]

                  iii.            iii Skuld Mutual Protection and Indemnity Association (Bermuda) Ltd[2]

                  iv.            The Britannia Steam Ship Insurance Association Limited

                    v.            The Japan Ship Owners’ Mutual Protection & Indemnity Association

                  vi.            The London Steam Ship Owners’ Mutual Insurance Association Limited

                 vii.            The North of England Protecting & Indemnity Association Limited

               viii.            The ShipOwner’s Mutual Protection & Indemnity Association (Luxembourg)

                  ix.            The Standard Steamship Owners’ Protection & Indemnity Association (Bermuda) Limited[3]

                    x.            The Steamship Mutual Underwriting Association (Bermuda) Limited[4]

                  xi.            The Swedish Club

                 xii.            United Kingdom Mutual Steam Ship Assurance Association (Bermuda) Limited[5]

               xiii.             The west of England ShipOwners Mutual Insurance Association (Luxembourg)

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[1] Assuranceforeningen Gard

[2] Assuranceforeningen Skuld

[3] The Standard Steamship Owners’Protection and Indemnity Association (Europe) Ltd.

The Standard Steamship Owners’Protection and Indemnity Association (London) Ltd.

The Standard Steamship Owners’Protection and Indemnity Association (Asia) Ltd.
- A reinsured subsidiary association

[4] he Steamship Mutual Underwriting Association Ltd

[5] United Kingdom Mutual Steam ShipAssurance Association (Europe) Ltd.

These 13 Clubs of the International Group of P&I Clubs between them provide liability cover (cargo loss and damage, injury to crew, third party liability, wreck removal etc besides providing a wide range of services to their members on claims, legal issues, loss prevention and play a key role in the management of casualties) for approx. 90% of the world’s ocean going tonnage.

Note on Fixed Cost Clubs:

A P&I Club which is a member of the International Group is better than the so called fixed-cost Club:

1. Recently some ports did not recognise a Fixed Club including Mumbai port.

2. Approach to claims is far better in the case of International Group of Clubs

3. Fixed Cost Clubs often do not provide Guarantees etc when a vessel is arrested.

4. The IGC members have an Omnibus Clause under which even if there is no liability, sometimes they pay claims-somewhat like a general insurers' ex gratia settlement.

5. Even though Clubs cover 1/4th liability and H&M 3/4ths, Clubs take the lead in collision cases. They will not hesitate to send assistance in case of collision cases by deputing their Master Mariners or those with legal background in such cases. Here again IGC members score over fixed Cost Clubs.

Some Fixed Cost Clubs have a good track record and a reference to the Insurer should be made in such cases.

[6]A vessel entered with P&I Club with insurance for Owners’/Charterers’ liability for cargo loss or damage enhances the chances of recovery for a loss or damage during sea carriage. It also enables the cargo Owner to seek Letter of Indemnity from the Club. Sometimes a vessel has to be arrested to force the Club to give a LOI to cargo interests. See the comments in [10] where it has been recommended that the P& I details of intermediate Owners/Charterers are also obtained.[7]

[7]A vessels’ H&M Insurance is also an important source of information to verify the quality of the vessel and its Owners. A good H&M Insurer gives comfort to the cargo Owners of properly maintained vessel. Sometimes as part of recovery proceedings, a Mareva Injunction (freezing the H&M claim pay out following a total loss or a serious casualty to the ship) can be brought through the court. This injunction can be vacated if a Bank Guarantee or a Club LOI is forthcoming

 [8]A vessel having sistership i.e., belonging to a fleet (as opposed to be a singleton) is a better security

[9]ISM and ISPS compliance avoids the risk of detention of vessel at intermediate ports by Port State Control which are increasingly getting strict.

[10] Owners/ Disponent Owners/ Managers

The names of the registered Owners, Disponent Owners/ Managers/Operators are usually available in Equasis website (one has to subscribe to it) but it is a good idea to ask the ship brokers to provide you with this information. The identity of the P&I Clubs of the intermediate Owners/Charterers should also be sought. Disponent Owner details are a good idea as well, since there may well be claims against them in the future and it is useful to know who they are.

[11]A vessel’s past history of detention  (including the cause of such detentions) is also gives an indication of the maintenance standard of the ship in question

[12] Previous Voyages made by the vessel: A vessel which had made several recent voyages without any incident is also a pointer to its quality.

Equasis provides some of these details (this is free of charge but you need to register). Sea Searcher and other providers of vessel information provide a password to their data-base but at a fee.

Often cargo Owners/Charterers go for older vessels to save on freight. However considering the high values of bulk cargoes, is such a saving worth it? In some routes/cargoes, younger tonnages are not available. Some insurers in such cases may ask for a survey of the ship at cargo Owner’s cost-again a couple of thousand of dollars for survey could save millions of dollar worth of claims

On a general note, if the vessel is old or does not have an IG Club cover or an IACS class, money spent on a survey of the ship would be money well spent.

Finally, I would remind cargo Owners of the importance of disclosing these facts to insurers when obtaining coverage for the shipment.

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[1] FOC Countries The following 32 countries have been declared

Antigua and Barbuda Bahamas Barbados Belize Bermuda (UK) Bolivia Burma Cambodia Cayman Islands Comoros Cyprus Equatorial Guinea French International Ship Register (FIS) German International Ship Register (GIS) Georgia

Gibraltar (UK) Honduras Jamaica Lebanon Liberia Malta Marshall Islands (USA) Mauritius Mongolia Netherlands Antilles North Korea Panama Sao Tome and Príncipe St Vincent Sri Lanka Tonga Vanuatu

[7] You can have Head Owners– A, Time Charterer– B, Sub Time Charterer – C and Sub Sub Time or Voyage Charterer – D. The Club cover for C and D should also be obtained , if possible

B is the Charterer and will also be A’s disponent Owners. Same is the case with C.