Could ship finance help resolve crew abandonment?

Could ship finance help resolve crew abandonment?

David Galea, a partner at Ince & Co, based in Dubai, has this contribution on how to solve ‘one of the most stark and shameful realities of our industry’ with the creation of a crew abandonment benevolent fund.

For the past seven years we have seen double-digit instances of crew abandonment. Those numbers spiked in 2017. The International Labour Organisation’s Database on Reported Incidents of Abandonment of Seafarers puts the number of reported incidents in 2017 at 61. As I write this piece, in mid-June 2018, there are already 16 incidents reported in that database.

The MLC amendments in 2017 have been a welcome addition to the options available to the crew in trying to make the best of a bad situation. Is the industry doing enough? I think we can honestly say that the answer is “no”. There is more we can and should do to deal with one of the most stark and shameful realities of our industry.

The human cost of crew abandonment should be measured not only by the suffering of the crew onboard. They go through hell, suffering from lack of food, water and other basic amenities. But the reality is that the suffering is compounded for them by the knowledge that they do not suffer alone. Their families at home suffer with them. How many of us (and our families) could profess to being able to survive for months on end without income? From my (admittedly limited) experience dealing first hand with this issue, it wasn’t the physical suffering which led the crew to the edge, it was the mental anguish of not being able to support their families, financially and emotionally. That medical treatment that the family can no longer afford, those school fee payments that are looming, rent or the mortgage. Payments that we often take for granted when the monthly paycheck comes in, but which become the source of endless anxiety and worry when those funds stop flowing.

It is precisely on this aspect that the industry is not doing enough and this is where, I believe, bankers and lawyers can come to the rescue (admittedly, not a phrase you will often hear!).

So what am I suggesting?

A crew abandonment benevolent fund can be another weapon in our arsenal to decrease the human cost of crew abandonment. A non-profit fund (possibly set up under the aegis of the seafarer charities who already do incredible work), dedicated to taking on the claims of abandoned crew.

How would it work?

Depending on the jurisdiction of the abandonment, the fund would take over the crew’s claims against the owners/vessel either by way of assignment or novation and run the claim (either in the fund’s name or on behalf of the crew). The fund would continue to pay the crew’s monthly salaries throughout this exercise and (again, subject to jurisdiction and the priority of the claim) victual the crew throughout this period, working with the vessel’s insurers, other creditors and other institutions active in this space. Once the arrested vessel is sold, the fund would recover its outlay (salaries, victualing costs and legal costs) as a priority debt and would get to keep any accrued default interest on the claim (which interest would be used to make the fund self-sustaining).

Why should the industry bother – we’ve got MLC?

While the MLC amendments go some way to reducing the gravity of these issues, the harsh reality is that some abandoned crew will be stuck oboard these vessels for much longer than the four months provided for under the MLC. Once those four months are over and the crew is unable to leave the vessel, what then?

Where would you get the money from?

The industry as a whole has a (charitable) contribution to make here. Owners, managers, bankers, lawyers, insurers all stand to benefit from contributing. Such a fund would not be expensive to set up, not be expensive to run, and the monetary size of a crew claim is often not particularly prohibitive. The fund’s mandate would be to recover the money it spent, so in itself, it could be a self-sustaining enterprise without the need for a constant inflow of cash if the fund size were sufficient to satisfy the ‘demand’ for it.

Why now?

Innovation is not only about technology and improving processes. It is not always about reinventing the wheel. Most innovation is about small incremental improvements, the adoption of existing concepts in new fields or looking at a problem from a different angle. A comprehensive solution which eradicates crew abandonment is a while off. Plenty can be done to reduce its impact and disincentivise owners from abandoning crew but in the short term, while crew abandonment remains a reality, we need to do more to reduce its impact on the lives and families of its victims. We owe it to them and we owe it to our industry.

What next?

There are several organisations that should have a vested interest in progressing the above concept: the IMO, the ITF, seafarers’ charities (to name the most obvious ones). A discussion on the technicalities of creating, structuring and running such a fund together with strategies for fundraising would be obvious next steps. I, for one, would be very interested in progressing such discussions and I have a distinct feeling I may not be alone.

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3 Comments

  1. Avatar
    jim walsh
    June 21, 2018 at 6:10 pm

    Interesting. In a market place where contracts are honored and the parties work in good faith mutual aid is admirable. IN 2010 and again in 2014/15 abandoned crews in UAE waters prompted discussions on how best to manage the issue. Our Emirati colleagues suggested a fund along the lines of General Average. The owners saw the fund as responsible operators subsidizing the irresponsible. Regulators were concerned that once knowledge of a fund became known irresponsible owners would abandon their in ships in UAE waters in the dead of night. The idea that had the most support was requiring all ships/agents to provide proof of repatriation insurance or funds as a prerequisite for entry. The Marine Division of the Federal Transport Authority was active in the discussions. Hope springs eternal.

  2. Avatar
    Efthymis
    June 21, 2018 at 10:08 pm

    Keeping active men who want to work onboard an abandoned vsl is not solving the problem. Better off repatriate everyone immediately and make sure monies will be paid as soon as problem is resolved, ie vsl sold.

    One has to take into consideration that Crew is reluctant to leave distressed ships in fear of losing their only chance of getting paid. Hence, a fund covering repatriation expenses is one part of the solution. Securing compensation is another, and I believe Registry of the vsl and country of origin of these seamen, through their manning agencies, should take a more active role. Furthermore, insurance companies can offer a cover for such unfortunate situations, where the seaman will secure allotments paid for a certain period against a very small monthly fee (so small it wont affect his salary, which afterall is the prime reason why he/she parted with family).

  3. Avatar
    David Galea
    June 24, 2018 at 2:20 pm

    Abandoning crew in the dead of night will often happen whether a fund exists or not. Saying we are funding the irresponsible owners again disregards the true victims of crew abandonment which is the crew. What changes for the owners between having the fund and not having the fund? In practice, nothing? What changes for the crew? Quite a lot.

    Also, repatriating crew is very often not possible and crew are left on board for months on end.

    If you set up a fund, on a non-profit basis, this does not become a pure charitable endeavour. The fund, just like any other fund which plays in the distressed debt space (which is ultimately what this is), would take aggressive action to seek recovery of its dues. Just like any other fund it would have a credit committee and it would invest in “buying” or “taking on claims” such that recovery can be assured and costs recovered. What you have is a fund whose agenda is to resolve the matter quickly, pushing for a speedy resolution in local courts and avoiding the crew suffering in the interim. The fund would seek to raise funds from within the shipping community and then do its best to be self-sustaining … essentially living off the default interest that would be made from these claims at the time of recovery.

    You have the potential to set up a distressed debt/litigation funding organisation which instead of buying claims at a discount or taking huge percentages of recovery, is acting in a public policy, non-profit role that doesn’t exploit the crew.

    There is no single solution to the problem. There are multiple solutions that together and as a whole would act as a comprehensive toolkit to reduce the occurrence and the impact of these incidents. This could be one.