Wreck removal in China

Wreck removal in China

When a ship has reached the end of its life, the owners are inevitably faced with the decision of how to dispose of it in a manner that is both commercially viable and environmentally sustainable. The controversial practice of beaching vessels in low cost countries has spurred initiatives to tighten regulations on the recycling of ships. In the following pages we look at the current legal framework as well as what is to come.

On 15 March 2012 the “Bareli” ran aground on a reef off Fuqing, China, with about 1,100 tons of bunkers and 1,397 containers on board, of which 101 containers were ­classified to contain dangerous goods. A wreck removal order was issued by the Chinese local maritime authority, the Maritime Safety Administration (the “MSA”).

About two weeks after the grounding a wreck removal contract was entered into between the owners of the vessel and Shanghai Salvage, one of the three leading salvage companies in China. Three months later, at the end of June 2012, the wreck removal operation was completed to the satisfaction of the MSA.

According to the International Group of P&I Clubs, the “Bareli” was ­considered as the most cost-efficient wreck removal operation among the International Group’s top 20 wreck removals from 2001 to 2012 in terms of combined costs of salvage, SCOPIC and wreck removal expenses (The Challenges and Implications of Removing Shipwrecks in the 21st Century, Lloyd’s, March 2013).

Tender process

A wreck removal contract is often entered into based on a ­tender process where an invitation to tender is circulated to a ­number of international and local salvage companies. Based on the ­tenders received, bid clarification meetings are arranged and after ­negotiations the contract is eventually awarded to the salvage company with the most favorable offer in terms of methodology, costs, personnel, craft, equipment and a number of other factors.

In China however none of the international salvage companies are permitted to conduct any maritime salvage or wreck removal operation independently and it is therefore necessary to involve one of the three tiers of local salvors in China in any salvage operation in Chinese waters. Of those three tiers however, only the first-tier salvors, namely Yantai Salvage, Shanghai Salvage and Guangzhou Salvage, are qualified to deal with shipwrecks with displacement tonnage of 1,000 tons or above. All of the three first-tier salvors are state owned. Each of them have their own designated geographical area of ­operation. Yantai Salvage mainly covers the northern coastlines, Shanghai Salvage the eastern and Guangzhou Salvage the southern.

Considering the southeast location of the wreck of the “Bareli”, both Shanghai Salvage and Guangzhou Salvage were permitted to undertake the operation. However, Shanghai

Salvage already had a spread of assets at the wreck location in connection with the salvage operation. They were therefore invited by the ­vessel interests to tender for the contract for the removal of the vessel. Based on negotiations between the ­parties the wreck removal contract was concluded.

Shortly after the casualty the MSA had initiated a ­comprehensive salvage operation where a great number of vessels were involved. When Shanghai Salvage took over the responsibility of the operation pursuant to the wreck removal contract, all the other vessels were demobilised. 

Wreck removal contract

The costs and risks for the owners and insurers in connection with a wreck removal operation can often be significantly reduced by the drafting and negotiating of an appropriately worded wreck removal contract.

The contract entered into for the “Bareli” was based on one of the international standard wreck removal contract forms. It was a BIMCO “Wreckstage” lump sum contract and provided for payment in stages. The scope of services under the contract included removal of oil as well as salvage of containers and the refloating and redelivery of the wreck. Responsibility for obtaining all necessary approvals and permits from the local authorities were placed on the contractor.

The wreck removal operation was ­immediately commenced and was c­arried out swiftly and in accordance with the contract and to the satisfaction of the authorities.