The Dangers Of Cargo Liquefaction In A Nutshell

North P&I Club has released a new briefing paper exploring the insurance implications when solid cargoes behave like fluids and presenting typical responses to claims arising from cases of cargo liquefaction.

Concept

The paper, written by David Richards, Director (Claims), North P&I Club and published on 25 May 2022. Namely, A Most Dangerous Trade: The Problems of Liquefaction provides insight into the consequences of liquefaction, whereby solid bulk cargo behaves like a fluid, creating a free-surface effect that may, in certain cases, cause the vessel to capsize.

Opening with an overview of the phenomenon in the maritime context, A Most Dangerous Trade describes how liquefaction risk might be overlooked initially and later identified during loading or mid-voyage – despite compliance with the International Maritime Solid Bulk Cargoes (IMSBC) Code. The paper goes on to investigate the insurance implications of liquefaction causing the loss of a ship – presenting typical claims responses from charterers and cargo interests – and outlines the role of P&I providers in covering such incidents.

Wait. What is cargo liquefaction?

What is Liquefaction?

Cargo Liquefaction is the phenomenon where a solid bulk cargo behaves in a manner similar to a fluid.
The following mechanisms can contribute to liquefaction:

Moisture content
Degree of saturation
Pressure within the particle pore spaces
Loss of inter-particle frictional force

Liquefaction can occur slowly over time or instantaneously without warning.

Exposure of the cargo to cumulative stress from ship motions during a voyage triggers the process. Once cargo has started to liquefy or dynamically separate within the ship’s hold, it is irreversible, and the ship’s intact stability may be adversely affected. Depending on the cargo and sea conditions, the vessel may capsize.

Typical cargoes affected by liquefaction include; nickel ore, iron ore fines, bauxite fines, mineral concentrates and some by-products such as ‘red mud’. Note that, many other solid bulk cargoes are susceptible to the risk of liquefaction.

Risks when Loading

To comply with the Code ought to mean that no solid bulk cargo is at risk of liquefaction during a voyage. However, the crew can identify the liquefaction possibility during loading. Particularly, following the complementary test procedure for determining the risk laid down in the Code (known as a “can test”) or due to the involvement of a cargo surveyor. Unexpected splatter on the sides of the hold often gives cause for concern.

Note that, each solid cargo carries a Transportable Moisture Limit (TML). The TML is a figure, 10% in excess of the product’s Flow Moisture Point (FMP). The percentage amount of moisture in the product at which may begin to behave like a liquid. In case the Moisture Content (MC) of the cargo exceeds TML then it is not safe or suitable for shipment.

The reliability of the information on cargo provided by shippers will need justification. Oftenly requiring visits to stockpiles ashore, further sampling and testing. This will lead to delays and increased costs. For instance, documents are obviously unreliable if the testing occured more than 6 months prior to the date of loading.

If the cargo onboard is not safe for shipment, then we can either remove it from the ship or try and remediate the situation. In many cases, there is no way that cargo once onboard a ship, it can be physically removed or legally reimported to the country of origin. Remediation may involve waiting for the cargo to dry (sometimes aided by fans) or introducing safe cargo or a drying agent. The process can take months, often with no guarantee of success.

Nonetheless, if cargo is not safe to carry, it may prejudice Club cover and other forms of insurance. This includes where cover is, not explicitly reserved.

Risks when Sailing

Liquefaction may only become apparent for the first time during a voyage. Then the ship may have to call at a port of refuge. In some cases, however, the ship will have no better option than to continue to the intended destination.

Cargo experts will advise on the level of risk in continuing the passage and on the following steps to minimize the danger. In such emergency situations, the additional expenses incurred by the carrier will in principle be recoverable in General Average. H&M will pay the ship’s share of GA subject to the terms of the hull policy. Collection from other interests will depend on the existence of actionable fault on the part of the carrier leading to the incident. In case of an actionable fault defence then; in principle, P&I will reimburse the unrecoverable GA. Except if the owner knowingly failed to follow the Code or take other prudent precautions to avoid the risk of liquefaction.

Loss of Ship

Certain liabilities falling to a charterer as a result of a total loss caused by liquefaction may in principle be covered by charterers P&I cover or by Damage to Hull insurance. There may be gaps in these covers however, such as for charterer’s own loss of earnings. This will be for the charterer’s account unless specialist insurance has been obtained. Cargo interests may have insurance for the same liabilities under a ‘cargo owners legal liability insurance’ policy or similar.

Overall

The real challenges in the carriage of cargoes prone to liquefaction are practical, including lack of testing facilities; stockpile access; cargo surveyor availability; intimidation of seafarers and surveyors; fraud; and, a lack of understanding of the dangers inherent in carriage of solid bulk cargo by stakeholders.

Charterers and cargo interests ought to appreciate that the costs arising from a serious incident involving liquefaction are likely to fall on them with only a modest discount to reflect the litigation risk in pursuing a recourse action.

Source: North P&I