Alexeyev V. S.

Oles’ Honchar Dnipropetrovsk National University (Ukraine)

Incorporation of Rules Relating to Transportation of Goods

Ukraine is a major exporter of iron ore concentrate and iron ore fines. Export of those goods to remote foreign countries is performed in bulk through Ukrainian sea ports. In 2008, the International Maritime Organization adopted the new International Maritime Solid Bulk Cargoes Code (IMSBC), in which the rules and peculiarities of the shipping of bulk cargoes were set out. In 2011, amendments to SOLAS 74 Convention were made according to which application of the IMSBC to shipments made by vessels flying the flags of members of the mentioned convention became mandatory. Of course, those changes to the rules on transportation of goods in bulk affected Ukrainian consignors as well. In general, Ukrainian exporters comply with conditions of bulk cargoes loading envisaged by the IMSBC. However, recently the attention was paid to commodities being exported from Ukraine and some purchasers of iron ore products tried to protect themselves from additional claims from ship owners by alteration of export contracts with Ukrainian suppliers.

The reason for such actions is circulars that the International Group of P&I Clubs sent to its members in the beginning of summer 2013. The attention of ship owners was drawn to breaches of the IMSBC in the port of Yuzhny. Those breaches regarded to presentation of iron ore concentrate and iron ore fines for loading with excess of the transportable moisture limit which is directly prohibited by the IMSBC. According to the mentioned circulars, details indicated in cargo declarations submitted to ship masters did not correspond to the actual content of moisture of goods being presented for loading.

In those circumstances, some of buyers desired to obtain additional guarantees from exporters that goods will comply with conditions of transportation set by the IMSBC. So, this article examines some alternatives of incorporation of those guarantees into export contracts. And in this regard it is namely FOB contracts are of particular interest, because in these contracts a seller actually does not have any contractual relations with a ship owner.

But first and foremost it is necessary to consider in more detail rules of the IMSBC which relate to transportation of iron ore concentrate and iron ore fines to determine why compliance with those rules is important.

Transportable moisture limit and other rules of transportation of bulk cargoes under the IMSBC

In accordance with Appendix 1 to the IMSBC, iron ore concentrate is a Group A cargo, that is, it may liquefy if shipped at moisture content in excess of its Transportable moisture limit (TML). TML, in turn, means the maximum moisture content of the cargo which is considered safe for carriage in most ships.

It should be pointed out, that liquefaction of a cargo during a voyage bears serious risks for ships. In 2009 two ships carrying iron ore fines from India sank. Their loss was attributed to excess moisture levels in cargoes. The last disaster took place in 2011 with the bulk carrier Vinalines Queen which shipped more than 54,000 tons of nickel ore from Indonesia to China. The ship had capsized to the left and sank quickly, only one crew member survived. There are strong beliefs that liquefaction of nickel ore led to destabilization of the ship and resulting disaster. That is why ship owners and insurance clubs pay lots of attention attention to issues of liquefaction and try to impose more liability on cargo owners which do not comply with the IMSBC requirements.

Under Para 4.3.2 of Section 4.3 of the IMSBC, when a concentrate or other cargo which may liquefy is carried, the shipper shall provide the ship’s master or his representative with a signed certificate of the TML, and a signed certificate or declaration of the moisture content. The certificate of TML shall contain, or be accompanied by the result of the test for determining the TML. The declaration of moisture content shall contain, or be accompanied by, a statement by the shipper that the moisture content is, to the best of his knowledge and belief, the average moisture content of the cargo at the time the declaration was presented to the master.

The TML may be determined through one of tests, which are contained in Appendix 2 of the IMSBC. The main reason for concerns of International Group of P&I Clubs on cargoes being loaded in Yuzhny was that documents presented to masters contained higher TML than actual figures what was discovered by independent examinations. Under the IMSBC the TML is defined as 90% of the flow moisture point, which is the point where bulk cargoes lose shear strength and begin to move like a liquid.

The IMSBC states that concentrates or other cargoes which may liquefy shall only be accepted for loading when the actual moisture content of the cargo is less than its TML. Cargoes which do not comply with that requirement may be accepted for loading on specially constructed or fitted cargo ships. Features of such specially constructed or fitted ships are contained in Para 7.3.2 of Section 7.3 of the IMSBC.

From the presented brief analysis of the IMSBC rules three basic requirements for parties to a sea carriage contract or a charter party may be outlined: (1) a shipper is obliged to provide a master with appropriate documents proving the TML of a cargo; (2) a cargo may only be carried if its moisture content is less than its TML; or (3) if the moisture content of a cargo is more than its TML it may be carried only by a specially constructed or fitted ship. Those requirements are the basis for balance of liability of parties to a FOB contract, but before moving to assessment of different options of contract parties to include the IMSBC rules into a contract, it is necessary to look at how different maritime organizations struggle to comply with the IMSBC rules.