Time Charters. Concept of vetting. Last updated 28-Jun-2015

RightShip was set up in 2001. It is a ship approval system maintained by the three major players in the coal and iron ore markets, B.H.P. Billiton, Rio Tinto Shipping and Cargill Ocean Transportation. It is designed as a ship vetting information system. The aim is to identify those vessels that are suitable and safe for the carriage of iron ore or coal cargoes. The clients of the system are said to include owners, charterers, terminal operators, port state control authorities and insurers.
One of the most significant safety initiatives introduced by OCIMF is the Ship Inspection Report Programme (SIRE). This programme was originally launched in 1993 to specifically address concerns about sub-standard shipping. The SIRE Programme is a unique tanker risk assessment tool of value to charterers, ship operators, terminal operators and government bodies concerned with ship safety.
www.ocimf.com: SIRE Introduction

SIRE and RightShip

Concept of vetting or ship approval systems becomes increasingly important nowadays, especially in oil and petroleum trades. It would be correct to generalise that results of inspections under approval schemes significantly affect the vessel’s tradability.On the other hand, notwithstanding that fact that they concerned with the physical condition of the ship for the purpose of sea carriage of nominated cargo, such inspections are outside of scope of either legal readiness or seaworthiness requirements, because, they are not "required by the law of the vessel’s flag or by the laws, regulations or lawful administrative practices of governmental or local authorities at the vessel’s ports of call".

The basic idea of vetting was to screen and detect substandard vessels, thus promulgating higher safety and management standards within shipping industry. For example SIRE (Ship Inspection Report Programme) was originally launched in 1993 to specifically address concerns about sub-standard shipping, RightShip was set up in 2001 by the three major players in the coal and iron ore markets, B.H.P. Billiton, Rio Tinto Shipping and Cargill Ocean Transportation as a ship vetting information system with the aim to identify those vessels that are suitable and safe for the carriage of iron ore or coal cargoes.

Element of advancement of safe standards was, however, deeply undermined by sinking of tanker Erika in December 1999 and tanker Prestige in 2002, both vessels had recent major’s approvals at the moment of disaster. As a result of these incidents all oil majors reviewed their monitoring systems and removed from it any basis for liability under existing legislation. Thus majors’ approval in its original form ceased to exist. Instead oil industry develops a process of screening which includes results not only vetting inspection reports, but port and flag state inspection as well. A final outcome of this process, i.e. a basis of rejection or acceptation of tanker is, however, largely concealed from the owners and charterers since it becomes known on fixture-to-fixture basis and largely influenced by marked conditions. Thus vessel accepted and fixed in January can be rejected for next fixture in February same year. (Oil Major’s Approval Effective cause of major’s rejection). Moreover negative vetting decisions are normally communicated to the party proposing the business without reasons, leaving the owners in the dark what was an effective cause of major’s rejection (read more here).

In tough market conditions no safety considerations but rather economic reasons make provisions related to vetting approvals a useful tool in hands of the charterers to escape hard bargain as Dolphin Tanker Srl v Westport Petroleum Inc (The Savina Caylyn) [2010] EWHC 2617 (Comm) shows.

Legal issues related to oil majors’ approval discussed in details here:

Major’s approval - is a matter of status rather than condition

Meaning of an ‘Oil major’ and Recognised Oil Majors’

Inspection initiated by Charterers ’ nomination

Effective cause of major’s rejection

Conclusion – Majors’ approval and Off-hire

Voyage Charter: Approval Clause

Basically extent of parties’ exposure will depend on:

1. Express language of relevant provisions, see for example decision of Steel J in Seagate Shipping Ltd v Glencore International AG [2008] EWHC 1904 (Comm), where it was found that there was no obligation on owners to obtain Rightship approval and Transpetrol Maritime Services Ltd v SJB (Marine Energy) BV (The Rowan) [2012] EWCA Civ 198, where it was held that the owner were not in breach of the charterparty because there was no any evidence that at the date of the charter the owner knew anything about the vessel that would cause the named oil companies to "disapprove" the vessels or alter the terms of the letters which they had given in relation to the vessel.

2. Factual background and particularly the owners’ knowledge of deficiencies and corrective actions they undertook to regain approval and improve vessel’s tradability.

3. Exact number and specific names of approvals required under charterparty in question.

An oil industry experience shows invocation of off-hire clause for lack of majors’ approval would put the owners in a permanent mercantile limbo, because no approval can be obtained for unemployed vessel. Unfortunately the judge in Dolphin Tanker Srl v Westport Petroleum Inc [2010] EWHC 2617 (Comm) left this issue without consideration.

Additional editor’s notes re: Concept of vetting and bad publicity

I have an advantage to look at the problem form both viewpoints: legal (I got my LLM(Master of Laws degree in 2005) and master mariner’s.

From the first one I see that vetting suddenly became a poisonous weapon in time of falling markets, dis-balancing charter-parties to the level of unpredictability when owners may lose longstanding t/c for few rejections, reasons for which they might never know and accordingly in no position to rectify.

The second point, unsurprisingly, tightly connected to the first one because since lately the matter of vetting became a question of 'death or life' for tanker shipowners. This situation, of course, puts master on the front line of this battle. I have an advantage to see different inspectors making inspection on various types of tankers and I also have a substantial feedback from my seagoing colleagues on this matter.

That vetting is a game of hide-and-seek is opinion of 99% of all masters with whom I communicated and my own. Naturally, the older vessel has less chances to survive in this game and not necessarily because she is not well maintained. Majors are reluctant to charter older tonnage in times when demand is weak and supply is strong, because chances of 'bad publicity' is higher in case something goes wrong.

Objective reason of Erika and Prestige disasters was big tolerance from the majors’ side to these vessels so far as they, majors, made lofty profit on those charters. Both vessels were old, debt-free and owners were in a position to negotiate such attractive freight rates, that majors were only very happy to charter them. The real disaster was not sinking of these vessels but that wake of bad publicity which accompanied it. Thus, basic element which is behind of SIRE is not safety as such, but safety as long as it prevents ‘bad publicity’. Therefore, I can hardly keep my temper, when vetting inspector very seriously explains me how infra-red camera would enhance safety of passage through the ice, or small mistake in recordkeeping affects ISM, or one extra hour of bosun’s overtime subjects the vessel to dire fatigue, etc. At the end of day, as everyone accepts, it is number of observations which really matters. Therefore vetting process is a fight for simple numbers represented in the nice form of devotion to the highest safety standards. If someone like to challenge this opinion I would be very glad to hear his/her view.

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Readers’ comments:

Posted by: Chris Allport, FNI Managing Director at Allport Marine Services, 16 July 2014

[Article has] a mistake in [its] comments regarding ‘the Erica’. I can advise from personal involvement in the follow-up enquiry, that 'Erica'did not have recent oil major approval prior to the incident. There was a misunderstanding by the charterers as to the inspection approval status of the vessel based upon information received from the operators, who themselves misunderstood the inspection status of their own vessel!
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