Who Should Bear The Financial Loss For Cargo Quantity Shortages Occurred Due To Moisture Drainage In The Sea Carriage Of Coal, Iron Ore Fines And Mineral Concentrates

The In-Transit Loss Resulting From Moisture Drainage From Coal Cargoes

The total moisture of a coal cargo is usually in the range of 8-10%¹. Of this, the inherent moisture is 2-3% and the balance is free moisture. The inherent moisture is bound to the coal but the free moisture is not and may drain from the cargo² into the hold bilges.
Therefore, the bilges must be sounded daily to check the volume of water accumulated into the bilges and when they are sounded full, the free water resulted from the moisture drainage must be pumped out of the vessel to prevent the flooding of cargo holds and corrosion of the ship`s steel structures<sup>3</sup>.
The statistical data collected over the last decades indicate that in case of moisture content of 10% or more and a voyage of 40 days or more involving significant climatic changes, the coal moisture drainage can be in the order of 1% of the shipped weight<sup>4</sup>. In case of moisture content of 6% or 7% and a voyage of 15-20 days with similar climatic conditions from loading to discharge port, the statistical data indicate that the coal moisture drainage is within the limit of 0.5% of the shipped weight<sup>5</sup>.
These figures are usually accepted in the coal importing countries as inherent losses in the sea carriage of coal cargoes<sup>6</sup> but the shipowners and charterers should give instructions to the Master to record the soundings of hold bilges and the quantities of water pumped out of the bilges.
The UN-ECE Draught Survey Code recommends that the quantity of bilge water discharged to be recorded in the ship`s log to justify the cargo quantity difference at destination⁷. Furthermore, the UN-ECE Draught Survey Code stipulates that any differences between the shipped weight figure stated in the Bills of Lading and the out-turn weight figure should be equal to the quantity of bilge water discharged recorded in the ship`s log and the quantity difference resulted from the comparison of moisture content level of cargo samples taken at loading and the moisture content level of cargo samples taken at the time of discharge⁸.

The In-Transit Loss Resulting From Moisture Drainage From Iron Ore Fines And Iron Concentrate Cargoes

Some of the Brazilian iron ore fines have characteristics that allow moisture to drain from the top layer of the cargo to the bottom layer of the cargo⁹. The free water resulted from the moisture drainage goes by gravity down to the bilges wherefrom it must be pumped out of the vessel to prevent the flooding of cargo holds.
The bilge pumping data collected for Brazilian iron ore fines cargoes showed that the quantity of water pumped out of the bilges during a voyage is in the range of 0.1 to 1% of the cargo moisture content¹⁰.
The Brazilian shippers` cargo declaration state that their cargoes are likely to exude free water and contain instructions for pumping off the bilges and recording the water discharged in the ship`s log¹¹.
Canadian and Brazilian sinter feed (iron concentrate) cargoes have similar characteristics to the Brazilian iron ore fines. They too lose part of their moisture content when carried in bulk carriers across long distances. The 2015 booklet "Notice To Ships Boud For Sept-Iles" published by Iron Ore Company of Canada contains the following instructions:

"Iron Ore Concentrate contains an average moisture content from 2.5% to 4.5%. The character of this ore is SELF DRAINING. It will retain moisture up to about 2.5%, but all moisture over and above that will drain on compaction of the material, also, if the ore is left for long periods in stockpile or in the hold of the ship, this drainage of moisture could generate water accumulation in the hold of the ship, and could cause some inconvenience when discharging the cargo. For this reason, all bilge Wells should be sounded regularly and pumped out at regular intervals, so as to minimise possible water accumulation between vessel`s tank top & the cargo¹²."

In Britannia Steam Ship Insurance Association`s publication "RISK WATCH" Volume 22, No. 3/December 2015<sup>13</sup>, it is presented a case with a sinter feed cargo transported in a bulk carrier from the port of Sept-Îles, in Canada to China. The charterers gave instructions to the Master to sound the bilges daily and send regular reports about the quantities of water pumped out of the vessel. The bilges were sounded twice daily and indeed significant quantities of water were found. The quantities of water pumped overboard were recorded in a "water drainage log".
At the port of discharge, a discrepancy of about 2.5% was found between the Bill of Lading weight figure and delivered weight figure. The water drainage log summary prepared by the Master and Chief Officer showed that the quantity difference corresponded exactly to the amount of water pumped from the hold bilge wells during the voyage.
In Assuranceforeningen Gard publication "INSIGHT" from 24 July 2015, it was presented a case with a sinter feed cargo of 166,379 WMT shipped from Brazil to China on board a bulk carrier. The cargo`s moisture content was stated in two certificates: in the quality certificate provided to the buyers the cargo`s moisture content was stated to be 7.3%, while in the certificate given to the Master the cargo`s moisture content was stated to be 7.82%.
At the port of discharge, CIQ found a weight of 164,633 WMT and a moisture content of 7.37%.
The value of gross quantity difference was 1,746 WMT. The quantity of free water pumped off the bilges recorded in the ship`s bilge pumping log was 1,753.20 WMT.
The cargo insurer sought to recover the value of the net quantity difference, 1,618.542 DMT (1746 WMT less 7.3% moisture content. The Shanghai Higher People`s Court held that since the quantity of free water recorded in the ship`s bilge pumping log was almost equal to the gross quantity difference, there was no cargo shortage.
In these two cases, the cargo insurers sought to recover the value of quantity difference from the shipowners bringing claims in Chinese Courts. The claim for Brazilian cargo was dismissed, but the claim for Canadian cargo had to be settled out of Court due to the fact that the Chinese judge expressed doubts about the veracity of the bilge sounding records that showed the same quantity in each bilge well of all nine holds.

Who Should Bear The Loss Resulting From Moisture Drainage

The question who should bear the loss resulted from moisture drainage should be addressed in the charter party and sale contract.
The buyers procuring the commodities on FOB terms can avoid the financial loss due to moisture drainage by negotiating with shipowners to settle the freight based on the delivered weight figure.
The FOB prices are calculated by deducting the ocean freight adjusted for moisture content from the market price on the shipment date, typically Platts index price "IODEX 62% Fe CFR China" which is quoted in dry metric tonnes.
When the commodities are bought on CFR terms, the Bill of Lading weight figure used for the calculation of freight and CFR price should be adjusted to compensate the buyer for the amount of freight corresponding to the amount of moisture drained from the cargo that the CFR buyer has to pay under the sale contract, unless the settlement of final payment is based on the delivered dry quantity.

by Vlad Cioarec, International Trade Consultant

This article has been published in Commoditylaw`s Coal Trade Review Edition No. 2.

Endnotes:

1. Higher in Indonesian Thermal Coal.
2. Particularly in case of coal cargoes with high proportions of fines.
3. The free moisture that drains from the high-sulphur coal cargoes may contain corrosive impurities leached from the coal, such as chlorine and pyritic sulphur. The cargo hold`s tank top plating and bilges are the most exposed to the risk of corrosion in case of accumulation of free water drained from the coal cargo. The IMSBC Code provides that the ships carrying coal cargoes should have on board instruments to measure the pH value (a measure of acidity) of bilge water samples. A higher pH value reading indicates the likelihood of increased corrosion.
4. See page 14 of UN Code of Uniform Standards And Procedures For The Performance Of Draught Surveys Of Coal Cargoes – UN-ECE Draught Survey Code.
5. See page 14 of UN Code of Uniform Standards And Procedures For The Performance Of Draught Surveys Of Coal Cargoes – UN-ECE Draught Survey Code.
6. See UK P&I Club`s LP Bulletin 741/02/11 – Trade allowances – Italy.
7. See page 13 of UN Code of Uniform Standards And Procedures For The Performance Of Draught Surveys Of Coal Cargoes – UN-ECE Draught Survey Code.
8. See page 13 of UN Code of Uniform Standards And Procedures For The Performance Of Draught Surveys Of Coal Cargoes – UN-ECE Draught Survey Code.
9. See page 11 of Annex to the IMO document DSC 18/6/14 at IMODOCS.
10. See The Marine Report submitted in April 2013 to the IMO by the Iron Ore Technical Working Group.
11. See IMO documents DSC 16/INF.4 and DSC 17/INF.11 at IMODOCS.
12. See Section VIII of the booklet at www.ironore.ca
13. See the article "Bilges again: proper monitoring is essential" in the publication "Risk Watch" Volume 22, Number 3/December 2015 published by The Britannia Steam Ship Insurance Association Limited on their web site britanniapandi.com