May 31, 2017 at 8:17 AM
What is distressed cargo and when does it occur?
As those in the shipping industry are aware and those who are new to the industry may be experiencing or those who are not in the industry may have realised, shipping and freight industry is a crucible of many different jargons, abbreviations and trite phrases to say the least.
Distressed cargo is a term used more in bulk trades.
A cargo is termed distressed cargo for a few reasons:-
- A buyer defaults on a contract due to a drop in commodity prices. Say for example, if a buyer entered into a spot contract for the purchase of coal and after loading, if the commodity prices have fallen around $10/tonne, on a Capesize, a client could lose as much as $1.6 million. and rather than lose so much money due to this drop in price, the buyer defaults on the contract.
- There are cases where a vessel may be in distress (say engine failure or other forms of distress) and she may be forced to call at a port other than the one she is scheduled to call. In such cases where the safety of the cargo may be compromised, it may be necessary to offload the cargo at this way port till further arrangements can be made for an alternate ship.
- When a seller or buyer has left it too late for execution of the trade under the normal vessel and product scheduling time frames.
- A ship is unable to offload a cargo at a specified port due to bad weather and have to sail from that port within a specified time frame to honour their other employments which mean they have to classify the cargo as distressed cargo and try to get rid of it before they reach their next port.
To avoid cases like buyers reneging on contracts, shippers need to safeguard against shipping and freight fraud such as insisting on the full price being paid in advance before loading of cargo commences etc.
Shippers should also ensure that they are suitably covered by insurance for such incidents. Institute Cargo Clauses B & C cover the discharge of cargo at a port of distress.
So is it the end for the distressed cargo whether offloaded or on board?
Well, it depends on the condition of the cargo. Cargo interests will generally arrange experts who can survey the cargo for its condition and offer the best possible solution to the cargo owners, shipowners and the relevant insurance companies in order to try and maximize the value of the recoverable cargo.
This could also end up to be a costly affair as this salvage might require cargo repacking, cargo and ship cleaning, re-labelling, decontamination and safe and responsible disposal of Hazardous and Non-Hazardous Cargo.
You can read a live case of Distressed Sugar Cargoes from Santos.
Apart from distressed cargo, there is also the possibility of “distressed freight” which happens when a ship arrives at a berth to load cargo, only to find that the cargo supplied by the Shipper does not meet the expectation/specification of the owner’s or charterers.
Due to time constraints, the owner’s or charterer’s may not be able to secure enough cargo at the normal freight rates to fill the ship and may have to book cargo at very low rates also known as distress rates.