Circular 06 2011 – Carriage of Iron Ore Fines (and associated cargoes)

Subject: Carriage of Iron Ore Fines(and associated cargoes)

Circular to Assureds (no 006 2011)

This is the third circular issued by the Club dealing with the carriage of Iron Ore Fines and follows on from our October 2009 (number 005 2009) and July 2010 (number 008 2010) circulars both of which are attached.

Introduction

The purpose of this circular is to:
· Serve as a general reminder to Assureds of the risks associated with iron ore fines particularly bearing in mind the forthcoming monsoon season in India;

· Alert Assureds to the practice of some shippers who erroneously identify iron ore fines cargoes as Class C(Note 1 below) where the IMO have now stated all such cargoes should be considered and treated as Class A;

· Alert Assureds to potential problems concerning “sinter feed” loaded from Brazil.

Iron ore fines update

All Assureds are asked to ensure that they are familiar with the issues that were raised in our previous circulars. The advice provided within those two circulars remains current, including but not limited to, the advice concerning the dangers of carriage of this type of cargo, high risk of liquefaction, unreliable practice of certain shippers in providing inaccurate

1 The IMSBC Code defines Group A and Group C cargoes as follows:
For the purpose of this Code, unless expressly provided otherwise, the following definitions shall apply: (…)
1.7.5 Cargoes which may liquefymeans cargoes which contain a certain proportion of fine particles and a certain amount of moisture. They may liquefy if shipped with a moisture content in excess of their transportable moisture limit. (…)
1.7.12 Group A consists of cargoes which may liquefy if shipped at a moisture content in excess of their transportable moisture limit. (…)
1.7.14 Group C consists of cargoes which are neither liable to liquefy (Group A) nor to possess chemical hazards (Group B).

information to owners and charterers in relation to the suitability for carriage of the intended cargoes and proper testing and requirements for safe carriage as set out in the IMSBC Code, IMO requirements and SOLAS.

Despite a high degree of publicity, and tragically loss of life, owners, charterers and operators are still being exposed to unacceptable pressures from some shippers in relation tocarriage of cargoesthat may liquefy. On occasion, this has involved putting unreasonable pressure (including physical violence and wrongful imprisonment) on independent experts and surveyors, falsifying documents and providing certificates which on subsequent testing and analysis by independent laboratories, have shown to be wholly inaccurate and not representative of the cargoes produced for shipment. In such circumstances it is even more important that the recommendations set out in the previous circulars are followed, and where possible charterers adopt the recommended clause set out below.

The IMSBC Code (the “Code”) which came into force when it was published in 2009 and became mandatory on 1 January 2011 introduced a requirement under the provisions of the SOLAS convention concerning the carriage of iron ore fines type cargo. Although iron ore fines are not listed explicitly in the Code as a material which may liquefy, the Code “defines” cargoes which may liquefy as those which “contain acertainproportion of fine particles and a certain amount of moisture”. Iron ore fines as a cargo meet this description and it is now internationally accepted that such cargoes have a high and significant risk of liquefaction.

IMO circular DSC.1/Circ.63 of 12 October 2010 (attached) highlighted the need to raise awareness of the dangers of liquefaction associated with the carriage of iron orefines, following the work conducted by various P&I Clubs and other reporting casualty services including the Charterers P&I Club. The IMO circular made it quite clear that iron ore fines may liquefy and should be treated in all cases as Group A cargo notwithstanding the practice adopted by some shippers of identifying the cargo as Group C cargo. Accordingly, where it is proposed to ship a cargo with a Moisture Content (MC) in excess of the Transportable Moisture Limit (TML) such cargo should not be accepted for loading.

Bearing in mind the forthcoming monsoon season in India it is extremely important that all parties involved in the contractual carriage take all available precautions to ensure the safety for carriage of the product and are vigilant as to the risks that certification may not accurately describe the condition of the cargo as and when presented. This is especially the case due to the unfortunate but repeated failure of some shippers to meet the requirements of the Code, together with the practical difficulties that are encountered due to the physical nature of the product, the way in which it is mined, transported and stock piled.

Where there is any doubt at all as to the condition of such cargo intended to be presented for loading then as a bare minimum a can test, as described in the Code, should be carried out, and independent advice sought from the Club and their experts.

Brazil

Information is now beginning to come to light which suggests that similar difficulties and dangers as experienced in relation to the carriage of Iron Ore Fines ex Indonesia/India may equally apply to the carriage of Sinter Feed and Sinter Feed Carajas cargoes being presented for loading out of Brazil.

Sinter Feed is specifically listed as a Group A cargo under the Code. However once again there is a significant risk that the cargo maybe misdescribed by shippers as Group C cargo.

Sinter Feed is a grade of iron ore that is too fine for use in a blast furnace and therefore requires agglomeration into larger lumps at destination, in a process known as “sintering”. Some Sinter Feed cargoes are produced by a concentration process, and are therefore a sub-type of Iron Ore Concentrate (itself a Group A cargo listed in the Code), whereas others are unprocessed fines. As such it is a cargo which effectively has the same characteristics as Iron Ore Fines and is subject to the same risksof liquefaction. This being the case the recommendations made in the previous circulars equally apply to the carriage of Sinter Feed.

Another closely related cargo is “Pellet Feed”, which is also listed in the Code as a Group A cargo. It differs from Sinter Feed in the agglomeration process applied at destination prior to use in a blast furnace, but is also a fine-grained grade of iron ore. Some shippers have switched cargo descriptions between both names partway through loading. The above issues with Sinter Feed apply equally to Pellet Feed.

The certification requirements and associated sampling and testing issues identified in previous circulars on Iron Ore Fines equally apply to cargoes of Sinter Feed and Pellet Feed.

Assureds should be aware that Sinter Feed, Pellet Feed and Iron Ore Fines are cargoes also regularly shipped from not just Brazilian ports but also from Venezuela, Mexico, Australia, South Africa and other countries in addition to India and Indonesia. The issues raised in this and previous circulars equally apply to these cargoes regardless of the country of origin.

Suggested Charterparty Clause(s)

We have drafted the following protective clauses that charterers may insert into charterparties with their owners or disponent owners if possible; the following clause is designed for Assuredswho are notthe shippers of the cargo:

Iron Ore Fines and Similar Cargo Clause

“Notwithstanding any provision contained in this charterparty, owners acknowledge and fully understand the risks associated with the carriage of Iron Ore Fines, Sinter Feed and other similar cargoes and hereby undertake to exercise their best endeavours to ensure strict compliance by Shippers with the requirements of the International Maritime Solid Bulk Cargoes Code (IMSBC) (the “Code”) including but not limited to testing and cargo clearance requirements. Owners will remain ultimately responsible in respect of any claim and/or loss and/or expense which may arise as a result of a failure by Shippers or other third parties to adhere to the Code, including but not limited to loss of time/delay/required remedial measures.”

The following is designed for use by Assureds who are also (whether directly or indirectly) the shippers of such cargoes; Assureds who are also the shippers are expected to comply strictly with the provisions of the Code, as any failure to comply may prejudice their cover with the Club:

“Notwithstanding any contrary provision contained in this charterparty, Owners, hereby warrant that both they, their Masters and crews understand fully the risks associated with the carriage of Iron Ore Fines and similar unprocessed ores and are conversant with all of the requirements of the International Maritime Solid Bulk Cargoes Code (the “IMSBC Code”) and SOLAS including but not limited to sampling, testing and cargo clearance requirements. Owners undertake only to load cargoes that are safe for carriage by complying strictly with the requirements of the IMSBC Code and SOLAS. All time spent by Owners satisfying themselves of the safety of the cargo as aforesaid shall count as half laytime or, if the vessel is on demurrage, as half demurrage. Owners will remain ultimately responsible in respect of any claim and/or loss (including loss of time or delay) and/or expense which may arise as a result of their failure to comply with this Clause.”

Iron Ore Fines/Sinter Feed Hotline

The Charterers P&I Club has entered into an arrangement with:
· A firm of UK based cargo expertswho will provide guidelines in relation to practical issues and advice concerning the properties and carriage of Iron Ore Fines/Sinter Feed and similar cargoes;
· A firm of London solicitors who will provide general guidance in relation to issues concerning the carriage of Iron Ore Fines/Sinter Feed and similar cargoes and can recommend charterparty wordings.

Recommendations/Conditions

Cargo liquefaction at sea could result in the loss of the ship, the cargo and her crew. In view of the potential human cost of such a tragedy all parties concerned should ensure that the cargo is safe to carry. Clearly shippers should properly test, describe and certify the cargo and it is also incumbent on charterers and owners independently to verify that the cargo is indeed safe to carry. There are obvious practical constraints as in many ports there is a severe shortage of expertise and independent contractors available to provide such services. We would not recommend any Assured to engage in the carriage of cargoes prone to liquefaction unless they have a high degree of experience in this sector.

In addition to the advice provided in our previous circulars, we would recommend that when an Assured is chartering a ship to carry iron ore fines, concentrates or any other form or derivative of Iron Ore -for example sinter feed-the following protocols must be observed:

· It is a condition of cover that all such cargoes are certified and presented for loading as being Class A cargo;

· The Assured verifies that the Master has the requisite experience of carrying this type of the cargo;

· That wherever possible the Assured agrees with the owner to the joint appointment of a surveyor nominated and instructed by the owner, with the cost being shared 50/50 between owner and charterer;

· That in the absence of being able to obtain the owners agreement to a joint survey as above, the Assured will take all reasonable steps to instruct their own independent expert to verify the condition of the cargo. This could, for example, include the cost of flying in an expert from overseas if the requisite expertise is not available locally.

Assureds are hereby put on notice that in circumstances where Underwriters consider that an Assured has fundamentally ignored the advice of the Club in this or any previous circulars and, in particular, where it is clear to Underwriters that the Assured has not taken adequate precautions to verify the condition of the cargo prior to shipment; then Club cover may well be prejudiced. For the avoidance of doubt, Underwriters are of the view that if an Assured simply seeks to passively rely on representations/certification provided by the shippers without being proactively involved, wholly or jointly, in independently testing the cargo prior to loading; then Underwriters are very likely to determine that cover has been breached.

Charterers carrying sinter feed from Brazil should be aware of the potential for disputes because Owners and their P&I Clubs are becoming very alive to this problem and significant delays and costs that can be expected whilst it is determined whether or not the cargo is safe to transport. It is critical that the financial exposure to such delay and the cost of independent testing is factored in when considering the economic benefit of chartering a ship to carry such cargo.

Further Guidance

In the first instance all enquiries should be addressed to your usual contact at the Club who will be able to refer appropriate queries to the hotline service and if necessary appoint an independent surveyorat the load port.

Michael Else and Company Limited, as Managers E&O.E Dated London 28 May 2011