Volatile Ship Values and their Effect on Salvage / General Average
The impact of the global credit crisis on the shipping industry is substantially reducing ship values and thereby increasing the proportion of Salvage and GA costs allocated to cargo insurers. We anticipate that this will continue for at least the next 18 months.
Contributions towards Salvage services are calculated pro rata to salved values. Similarly, contributions towards General Average loss are calculated pro rata to sound arrived values at the port(s) of destination. Over the last two decades, cargo values have (on average) steadily increased and therefore Cargo Insurers are bearing an increasing share of these expenses.
Ship values have also increased on average, particularly specialised vessels and ever larger container vessels. However, the ship market is more volatile than the cargo market and is therefore subject to greater fluctuations. The global financial crisis has, over the last months, seriously affected ship values. They have deteriorated considerably. We are aware, for example, of one container vessel whose value has decreased from c. USD 40 million to c. USD 27 million in three weeks.
This huge reduction in ship values means that Cargo Insurers will be bearing a much higher percentage of any Salvage expenses and/or General Average losses. The situation is unlikely to change, in our view, for at least 18 months.
It is therefore vital that Cargo Insurers act very promptly (even more swiftly than usual) should they be involved in any Salavge and/or General Average casualty. To best protect your interests, early advice is crucial and prompt investigation is more important than ever.
Source: a message from W K Webster & Co Ltd. – Information Department
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