Sunk - the commercial aspects of cargo ships when they capsize and sink

It is always sad to see ships collide, break their backs, capsize, and sink, especially if they are so close to port. Here major media make a circus out of what is actually one of the saddest spectacles

The MSC Chitra / Khalija III collision outside Mumbai Harbour once again brings into focus the sheer neglect of maritime matters on the Indian coast by the various organisations responsible.

While details on what actually happened are still sketchy and the rumour mills as well as grapevines work overtime, with the media concentrating on the environmental damage aspect, here is what is known:-
 
The Khalija-III had already been in all sorts of problems with the Indian maritime administration. Why was she allowed to be anchored so close to the arrival and departure channels to and from the Bombay Floating Light Vessel area is still unknown? Yes, ships, especially those in trouble, try to get closer to the harbour-especially during the monsoon. But are we the world's safe haven for junks and rust-buckets just waiting to not just pollute our coast but also shut down our biggest ports? A cursory look will show a few dozen other such ships stuck in the Mumbai port-waiting to add to the list of derelicts and potential wrecks. Karachi Harbour was shut down for months a few years ago because of a similar incident.
 
The MSC Chitra belongs to one of the world's largest shipping companies-Mediterranean Shipping Company-based in Switzerland and with a very strong presence worldwide with cruise lines, container ships and other business interests. How they got there makes for another fascinating tale, one which involves many shades of grey, including some past escapades in the Bombay Port in the early '70s-when the company's owner was still a Master sailing his own ships in these waters. Their safety record is on par with the rest of them. But fact remains, huge container ships and monsoon winds as well as weather conditions require very high levels of ship-handling skills.
 
The MSC Chitra sailed out of the New Mumbai port, with over 2,000 TEU (Container capacity is often expressed in twenty-foot equivalent units, TEU) of containers loaded from this port, and a few thousand more already on board, and was on her way outbound. The current state of congestion at JNPT/Nhava makes for extremely fast turn-arounds, a "load as much as you can" status, with pressure to avoid any "shut-outs", all of which are recipes for disaster. Crew rest, load stability, actual contents as well as weight of containers and cargo - and other issues - are usually thrown to the winds in such conditions; the only parameter up for discussion is how much more can you load, how fast you can get this ship out, and the next one in. Typically, everybody onboard in such conditions would have been working non-stop for many hours before arrival, while in port, and when sailing out. That is 48-72 hours, easy-leaving them not at their brightest and freshest when sailing out.
 
There are a variety of inputs-but the most believable one has to do with this version-the outbound MSC Chitra in a hurry to make the monsoon impacted schedules simply sailed too close to the Khalija-III, and was then pushed by the prevailing winds on to her bows. Basic forces as studied in physics change of inertia and the rest of it did the rest. On cargo ships at sea, this is like a plastic ball full of liquid and marbles being pushed towards a sharp knife - one cut, and the marbles will all tumble out, while the plastic ball will collapse in all sorts of uncertain ways-and the water will behave in further multiple uncertain ways.
 
The various entities operational on VHF Radio in and around Mumbai/JNPT/Nhava/Butcher Island/Pir Pau/ONGC-Panvel and others have still not got their act together on common watch-keeping channels. As a result ships sailing in and out in the same waters using the same ocean channels are often keeping guard and keeping watch on different radio channels-sometimes not even aware of instructions being given to other ships right next to them. Please remember-ships do not have brakes-this business of not being able to coordinate VHF communication in and around Mumbai and its ports/terminals on different VHF radio channels has been going on for as long as this writer can remember-which goes back to the '70s.
 
It is always sad to see ships collide, break their backs, capsize, and sink, especially if they are so close to port. Here major media make a circus out of what is actually one of the saddest spectacles. Something like hanging around a hospital where thousands are cured every day, but the news is in covering the few cases that went bad, for whatever reason.
 
But the real trouble is just about to begin ashore. In commercial terms, this is probably one of the biggest disasters in the history of modern Indian shipping, and one that will have deep impacts on a large number of people. Bluntly put-many people are going to suffer-especially if their documentation after loading was not complete-and chances are that since this collision occurred within a few hours of the ship sailing, documentation was still "in process" for most. Which means many things-most of all, for shippers, it means they are now at the mercy of their agents, the shipping lines, and host of other intermediaries and entities. Many of whom will simply freeze documentation.
 
2000+ containers loaded from this port means, assuming a fair mix of full and part container loads (FCL and LCL), that there would be anything between 3000 and 6000 bills of lading which have suddenly come unstuck. That would also be anything between 15 and 25 thousand tonnes of cargo-these and other details will not emerge for some time, if at all, by which time truth will be the biggest casualty as a variety of interests race to protect themselves, as well as change the rules of the game by moving in all direction vis-à-vis things like insurance, freight, title, and other interesting aspects of trade nobody every worries about as long as things are going the way they should.
 
Therefore, here are some more true facts:-
 
1. Some of the documentation pertaining to cargo shipped on board this ship, especially if the documentation was still being completed, will soon not be worth the paper they are printed on. In commercial terms, issues like mate's receipts, shipped on board certificates, manifests and bills of lading will all be contested. Downstream there will be a move by a variety of entities to protect their interests, as cargo as well as freight deemed earned are both considered lost, without liability on the ship-owner, ship and cargo onboard soon to become part of the maritime ocean floor. Or come afloat on some beach somewhere, at some time - where it is of no value to the shipper or consignee. (Anecdote:- rubber ducks that were loaded in a container that went overboard in the Pacific Ocean during a storm landed up on beaches as far away as Kenya, Scotland, Bering, and the whole Pacific Coast area-for years.)
 
2. Understanding the fine print on "Total Constructive Loss" and "Salvors Rights" will take on deeper meanings, as shipper and consignee end up negotiating with more than just their bankers and insurers. Each case will have its own complications, and unless the terms and conditions of shipment have been fully understood as well as catered for, quite a few shippers will end up taking a big bath-even if they have negotiated their documents basis any of a variety of options. At the very least, the freight paid or not paid is lost-probably with some loaded add-ons-unless somebody remembered to insure the freight. At the other end, somebody will be left holding the damages on possible liability claims - the environment again, remember-again, so much will depend on the fine print in the insurance taken out before shipping the cargo.
 
3. There are shippers who insist on bills of lading directly from the primary shipping line concerned, even for the intermodal segments, as well as segments where the cargo may move on somebody else's ships. At the other end of the spectrum are the vast range of "shipping documents", whose antecedents are usually unknown, and hidden behind third country addresses-sometimes these are insisted on by consignees who seem to know more about the potential issues in such cases. In the middle somewhere are the Government of India authorised NVOCC (non-vessel owning common carrier) documents. This, again, is a very complicated subject and the outcome here will be simple-if the shipper/consignee negotiated only basis "rate", then there appears to be a problem.
 
4. As always, a few insurance frauds will surface-thereby putting a scrutiny on EVERY case pertaining to this incident. Insurance payouts at the best of times will take forever and a month-here it will be even longer. Invariably, containers which were nowhere near the ship and cargo which existed in dreams somewhere will get together and try to prove that they were on this ship. Happens all the time!
 
5. And finally, the worst downside is at the customer end-where shipments are part of somebody's Just in Time scheduling, or specific sub-components and assemblies. The Law of Torts or similar remedies simply do not apply in such cases, and where shipments contained important items whose basic value was far below the consequential losses caused by them not getting there, then there is no compensation.
 
Millions of containers move throughout the world seamlessly, like clockwork, keeping the wheels of commerce turning. The loss of MSC Chitra is like a massive cog thrown into a very smoothly operating machine, with results which are simply not known, and which will be hidden behind the louder noise of the environmental damage. Sad, but true-truth is always in the numbers, and this proves the case again.

User

COMMENTS

Sampathkumar

7 years ago

Dear Veeresh, A very good detailed one, especially on documentation. As you have rightly pointed out, how much the Govt. would get back for the loss of trade remains to be seen.
I am an Insurer and the insurance perspective of cargo and ship is reflected in an article of mine in my blog : http://sampspeak.blogspot.com/2010/08/co.... Request you to visit the blog and provide your feedback.

Andrew Traill

7 years ago

I found your article very interesting, raising a whole raft of issues which no doubt will come as a surprise to many shippers - not just those caught up in the current incident.

Would you be interested in letting me reproduce this on my website, The Shippers' Voice? I think the message should be heard far and wide in order to ensure shippers understand the risks they take, especially if they cut corners or don't understand the business of shipping.

REPLY

V Malik

In Reply to Andrew Traill 7 years ago

Thank you Andrew ji. We generally allow a para summary and a link, but if you need more, please contact the editors directly through the contact us options?

Yes, it is post facto that problems come to the fore, once the hype is over. Especially in commerce.

rgds/VM

RNandakumar

7 years ago

I thank the author of this article for elaborating on the consequences of the recent smash of two titanic ships.
Rail or road or for that matter any public transportation requires careful handling. Alcoholic Pilots or over worked drivers or callous capatains all end up in loss of lives and materials. The administration has to be a top performer if commerce were to succeed.

REPLY

V Malik

In Reply to RNandakumar 7 years ago

Thank you, Nanda Kumar, for your kind words.

rgds/Veeresh

rajesh

7 years ago

very educative AND interestingly written article
surprsised u missed one of goa goernments pathetic failures ... the towing away of the river princess which is slowly butsurely destroying the lovely candolim sinquerim beaches

REPLY

V Malik

In Reply to rajesh 7 years ago

Dear Rajesh ji, thank you for your note. Yes, the Indian coast is dotted with recent wrecks, and the RIVER PRINCESS is one of the more visible ones, these issues should be escalated. On the media level, you are correct, they lose flavour of the day soon. On the governance level, they bounce around from departmeent to department, and get stuck in the mess.

Maybe the MSC CHITRA / KHALIJIA III case will wake people up, then again, maybe not.

My job to keep writing and stirring.

thanks again/vm

sobserve

7 years ago

Excellent. Very detailed and informed!
Thanks

REPLY

V Malik

In Reply to sobserve 7 years ago

Thank you - you are very kind with your words.

rgds/vm

mavalvenk

7 years ago

YOU HAVE WRITTEN A GREAT ARTICLE...

REPLY

V Malik

In Reply to mavalvenk 7 years ago

Thank you, Mavalenk, for your kind words.

A few months ago, the COSCO BUSAN, a similar container ship (bigger and newer, though) struck the Bay Bridge in Oakland, CA/USA, spilling about 200 tonnes of oil.

Total environmental damages exceeded 70 million USD, while damages to ship and bridge were estimated at around 4 milion USD. Penalties and fines, on the other hand, exceeded 2 billion USD, as well as jail terms for the port pilot.

Let us see how much the Indian Government claims for an incident that is much worse?

rgds/vm

sanjay doshi

7 years ago

Collision and spilling of oil is one thing. MSC is in one big soup. they will have to pay heavy international fine along with fines from Coast guard,fisheries Board of India , Pollution Control Board of India and the many legal cases that will be filed against it.

REPLY

V Malik

In Reply to sanjay doshi 7 years ago

Thank you for writing in Mr. Doshi. Certainly there will be claims and cross claims as well as fixing of blame which will involve many parameters. Many of these aspects are covered by international conventions, treaties, laws - and a lot will depend on how the administration approaches the issue. In the past the approach, to say the least, has been strange to say the least - as in the case of Bhopal/Union Carbide. Days are different now - and public scrutiny is higher, as well as awareness. Let us see how things progress.

The chances of individual corruption are very high in such events - and entities can be compromised as well as persuaded to dilute the claims.

Thanks again/brgds/VM

Bikash Chaudhury

7 years ago

On U Tube yesterday saw Channel X only talking about MSC Chitra and how the ship was detained in 2008 by AMSA. AMSA detention feel was out of context in the present case.
Wonder why no mention of the other ship though

REPLY

V Malik

In Reply to Bikash Chaudhury 7 years ago

The beneficial ownership of KHALIJIA-III is indeed very "interesting", and that may be one reason why it is being soft-pedalled, while the MSC CHITRA gets all the attention. Yes, the AMSA (and also NZ) detentions were not really in current timeline, but fact remains, are we the destination for all the overage ships in the world?

Have got a lot more information this morning.

Let us see how the authorities process this case, and whether we have another diluted Bhopal/UC type approach, or a strong COSCO BUSAN type approach?

rgds/VM

Power ministry for allocation of gas to ADAG power project

New Delhi: The power ministry has recommended allocation of natural gas from Reliance Industries' (RIL) fields to four power projects including the Anil Dhirubhai Ambani Group (ADAG)-run Reliance Power's (R-Power) Samalkot expansion unit in Andhra Pradesh.

The ministry, at the last meeting of Empowered Group of Minister (EGoM) on 27th July, sought 14.5 million standard cubic meters per day (mmscmd) of gas from RIL's KG-D6 fields for the four projects totalling 4,136 MW.

The request was made on the grounds that these projects have most approvals and would be commissioned by 31 March, 2012, sources in the know of the development said.

It recommended allocation of 8 mmscmd gas for the 2,400 MW expansion project planned by R-Power at Samalkot, saying the project had environmental clearance besides "land, water and all other infrastructure facilities." Also, it has executed and EPC contract on 21 July, 2010.

The ministry sought 4.48 mmscmd gas for the 1,200 MW project Torrent Power is setting up at Dahej SEZ in Gujarat, 0.4 mmscmd for 100 MW unit of Pandurang Energy Systems at West Godavari District in Andhra Pradesh and 1.62 mmscmd for 436 MW plant of RVK Energy at East Godavari District, also in Andhra Pradesh.

All the four projects, according to the power ministry, would be commissioned during the current Eleventh Five Year Plan period (2007 to 2012).

Sources said the EGoM did not make any allocation to any plant as RIL had informed that it cannot produce more than 60 mmscmd gas from KG-D6. All of the current output of 60 mmscmd from KG-D6 has already been allocated to urea manufacturing units, power plants, LPG units, city gas projects, steel plants and refineries.

More gas from KG-D6 would flow when RIL completes drilling additional wells in the eastern offshore field.

The EGoM decided that "subject to availability of gas, necessary allocation from KG-D6 fields will be made to the projects in pipeline as and when such projects are ready to commence production."

Sources said besides the four projects, GMR is also in queue for 3.88 mmscmd for its 2x284 MW Vemagiri project that it says has obtained all clearances including from ministry of environment and forests and is at very advanced stage of completion.

The company also entered into a Gas Transportation Agreement with GAIL for transportation of gas, which the project will need from April 2011.

Also, Lanco has sought 3.5 mmscmd for 742 MW stage-III expansion of its Kondapalli power project that will be commissioned by June 2011. The project has requisite statutory approvals and clearances, including environmental clearance in place and also having adequate evacuation systems for the power to be generated out of it, they said.
 
Sources said the power ministry stated that Torrent had land and water for its Dahej project and non-EPC work, including area grading, and civil work was being executed in full swing.

Torrent had signed Turnkey EPC contract with Siemens AG of Germany and Siemens for engineering, procurement and commissioning (EPC) of three units of 400 MW each on 2 July, 2010.

Pandurang Energy Systems Pvt Ltd's 2x50 MW project in Annadevarapeta village in West Godavari District had land and water and all other infrastructure facilities while RVK Energy's 436 MW unit at Jagurupadu village in East Godavari districted had placed purchase orders for the equipment with GE and Wartsila.

User

AMFI to insist on in-person verification of new distributors

SEBI’s latest proposal for biometrics based know your distributor (KYD) norms for independent financial advisors is being reworked and the final guidelines could be expected by 15th  August

The Association of Mutual Funds in India (AMFI) is taking another look at its know your distributor (KYD) guidelines that were expected to be implemented by 1 August, 2010. We learn that a circular listing the new rules had even been issued and quickly withdrawn in the past few days.

Although KYD rules are largely supported by the industry, two issues are rankling many insiders- firstly, who would set it up and secondly the onus for verification on fund houses. Sources say that AMFI is reviewing its stand on the issue. When asked, AMFI's chief executive officer, HN Sinor said, "We are working on it.  Around 15th August".

A top official from a fund house told us that the Securities and Exchange Board of India (SEBI) wanted the National Securities Depository Ltd (NSDL) to create a subsidiary to implement the 'background checker' model with biometrics-based identification (as was done for the database of IT company employees) for mutual fund distributors. There was also a condition that funds would be responsible for physical verification of addresses and other details.

According to sources, some senior AMFI office bearers pointed out that CDSL Ventures, a subsidiary of Central Depository Services of India Ltd (CDSL) had already worked with the mutual fund industry on an investor database. Further, Karvy and Computer Age Management Services (CAMS), with over 350 offices together across the country, have also been handling registration and transfer issues and had also created excellent software for online and offline tracking of portfolios. AMFI sources say, it makes much more sense to build on existing relationships rather than go to NSDL for a new database.

The market regulator essentially wanted the new guidelines for two reasons-to ensure that details about fund distributors are known to the industry and also to ensure that persons appearing for mutual fund certification examinations are genuine. Fund houses were given six months to verify their existing distributors' lists. After implementation of the KYD norms, there will be an 'in-person' verification of each distributor at the time of empanelment. "This process was not followed so far, but the guidelines will make it mandatory for every asset management company (AMC) to follow it," added the official. The need for verification is evident and distributors too support the idea.

Rajesh Krishnamurthy, managing director of iFAST Financial India Pvt Ltd, has this to say, "KYD is a welcome move. This will bring in complete authenticity of the person(s) dealing with the end client. With a few recent instances of mutual fund agent related fraud coming up in the media, there is also a need to demonstrate pro-consumer and pro-industry measures-for the consumer, for his protection, and for the industry-to avoid being broadbased as fraudsters. KYD will be a step in the right direction".

 "As a private limited company, we are already confirming with similar requirements for directors - for example: A Director Identification Number (DIN). Plus, we go one step forward and file various papers with the ministry of corporate affairs by affixing the director's digital signature. To make it successful, there is a need to have points of presence for KYD in all locations where we have AMFI/NISM (National Institute of Securities Markets) registered distributors without which the biometric requirement will become a bigger challenge in itself," he said.

Moneylife, too, had exposed the case of a fraudulent, Jabalpur-based mutual fund distributor on 7 July 2010 (http://www.moneylife.in/article/81/6918.html ). However, many distributors find the requirement for biometric-based verification rather excessive and invasive of their privacy. The other irritant is the flood of new rules and operating guidelines that the regulator seems to issue almost everyday; source say that they spend most of their time on figuring out the compliance and implementation of each new change directed by SEBI. Meanwhile, assets under management (AUM) have been dwindling at an alarming rate and continue unabated every month since August 2009, when upfront commissions were abolished.

 "I don't know why they come up with new rules every week. It is going to be difficult for all distributors to follow the all the rules. They (regulators) want people who have large AUM to be in the industry since complying with all their guidelines and rules have costs involved," said a Mumbai-based financial planner.

"People who wish to do business in a straightforward way will not hesitate to give KYC details. The biometric issue needs to be reconsidered," said Ramesh Bhatt, an advisor. A Mumbai-based planner says, "Investor education is still lacking. I don't know how biometric will curb the intention of mis-selling. I am not averse to KYD but they should come up with simple and practical solutions."

User

COMMENTS

P L MAHINDROO

7 years ago

I think lot of restrictions on the investors and lot many requirements to be met discorrage the investers to go in for MF's,particularaly when the distributers are almost eliminated and there is no one to give correct advise to the investors. Now you know how impotent the distributer is?

jignesh n vyas

7 years ago

I agree to mr. roopsing view. Mr bhave ko pagel kutta kat gaya hai. First mr bhave desclose his verififcation and what salery recieve .

Krish

7 years ago

AMFI IS SO CUNNING!

IT HAS NOT EVEN PROVIDED AN E-MAIL ADDRESS TO WRITE TO IN ITS WEBSITE!

DO THEY EXPECT ANYBODY TO WRITE TO THEM BY POST IN TODAY'S TIMES?

WILL U ENSURE THAT THEY DO? AND THAT THEY REPLY TO MAILS WRITTEN TO THEM?

WHO WILL REGULATE SUCH BODIES WHO ARE GLOATED OF THEIR OWN WEIGHT ADDING INSULT TO INJURY TO MILLIONS OF INVESTORS?

ON TOP OF THAT THEY DO DADAGIRI ON EVERYBODY - investors & agents alike EXCEPT THE GREEDY AMCs!

U

7 years ago

I PERFECTLY AGREE with Mr. Roopsingh's view. Mr. Bhave does NOT AT ALL know how any business is run. He is living in a THEORETICAL WORLD. That is why he was SLAPPED by Finance Ministry in case of ULIP issue bybringing ai an ordinance. WHAT HAS Mr. BHAVE done in case of Multiple BENAMI DEMAT A/Cs opened by NSDL? He & NSDL were culprits alongwith Karvy & HDFC Bank. Bhave & NDSL got away without any punishment. This show that Bhave does not have any integrity & he is a CHATACTERLESS person OBSESSED WITH KILLING MF Industry & IFAs.

Roopsingh

7 years ago

Has Mr Bhave submitted his own bio-metric verififcation?has he asked his all employees and also asked to all exchange brokers to get bio-metric verification of all people working in stock market?
This is ridiculous step showing the cunningness of regulator to stop MF business by any hook and crook

jignesh n vyas

7 years ago

AMFI issue arn card. our all ditles are there.KYD not prevent miss selling. I told amfi and sebi first stop third party chq for all investment.

Keshav B Bhat

7 years ago

Dear All,
Along with SEBI now it is the turn of AMFI coming out with funny regulations everyday.
There is no problem in having KYD but What is the use of kyd done by AMCs, AFI issues ARN ID cards for what? just to collect fee from the IFAs?. Why cant they have the what ever veryfication while issuing ARN?
How does KYD will prevent misselling or frauds?
People who want to missell or fraud will always find a way for their shortcuts. It is up to investors to keep away from such people.
Regards
Keshav B Bhat

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