To Mingle or not to Mingle - the Risks of Co-Mingling/Blending Cargoes
Steamship Mutual
Published: April 05, 2011
September 2010
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Firstly, though, it is necessary to distinguish between blending and co-mingling operations. In the event of a liability, or loss or damage to the cargo as a result of a request to blend cargo on board the vessel, Club cover could be prejudiced. Co-mingling, however, does not necessarily create the same issues if the same product from separate shore tanks is consolidated as one cargo on board. This is because Club cover is in respect of the Member’s obligations as carrier by sea to properly, load, stow, carry, keep, care for and discharge and deliver the cargo to the holder of the bill of lading rather than the performance of some other function. While, arguably, as a matter of language the two operations are essentially the same, blending involves additional activity beyond merely loading the same cargo in the same cargo spaces.
The risk to the shipowner of blending is that that operation will in some way “go wrong”, either because of some failure on the part of the shipowner while blending the cargoes or because the blended cargoes do not produce the intended end-product, as described in the bill of lading. As a result, not only will the bill of lading issued after blending fail to describe properly the blended cargo on board, there are also likely to be significant claims for misrepresentation, the risk of possible rejection of the entire consignment, and /or damages. And because the loss does not flow from the cargo’s carriage, that liability will not covered.
Additionally, if the resultant blended cargo is of a different specification to that declared to customs authorities, the vessel could be in breach of import/export regulations and thus a shipowner could also be exposed to the risk of significant customs fines or other sanctions.
There are a number of steps that a shipowner can take to protect himself if he is prepared to agree to carry out blending on board. A suitable clause may be included into a charterparty, for example, INTERTANKO’s blending clause which also provides an indemnity in owner’s favour against “any liability, or loss or damage of whatsoever nature” as a consequence of blending.
The INTERTANKO clause also addresses the important question of bills of lading and requires all superseded bills of lading to be delivered up to the vessel owner. While in practice it might be that the pre-blending bill(s) of lading are in the possession and control of the charterer, and thus capable of being surrendered, until they have been, there is always the risk of multiple original bills of lading being in circulation with the consequent potential for mis-delivery of the cargo. There is no “as of right” Club cover for liabilities arising from delivery of cargo other than against production of the relevant bill of lading.
There is also no Club cover “as of right” if the bills of lading issued fail to describe properly the cargo loaded on board, or the condition or quantity of the cargo. While this may not necessarily reinstate cover, it is for this reason that clausing along the following lines is recommended:
“This shipment is part of a number of parcels of ………….. loaded at …………on ……. and ……….on ……..._with no segregation taking place as between those parcels and blended on board to produce ……(weight/vol) .. of ……………………….."
Moreover, if there is no contractual indemnity under the charterparty an appropriate Letter of Indemnity should also be agreed before the vessel owner consents to blend. A Letter of Indemnity may offer some measure of reassurance, its value ultimately depends on security of the party providing the indemnity.
Club cover is not prejudiced provided that the bills of lading properly describe the quantity and type of cargo that has been loaded into the vessel’s tanks and the origin of these parcels without making any assertions that a different end-product has been created.
Finally, if the shipment is of the same cargo, even if loaded from different shore tanks but so long as loaded at the same port and by the same shipper, there is no co-mingling per se.
In other circumstances, separate bills of lading ought to be issued but (i) if one consolidated bill of lading is issued subsequently this will need to reflect the different quantities and dates of loading i.e. similar to the clausing above or (ii) if bills of lading are issued to reflect the sale of individual parcels of the cargo these must reflect the quantities sold and dates and place of loading.
In any event, as discussed briefly above, there are Club cover issues if more than one set of bills of lading are in circulation at the same time.
Article by Darren Heppel ([email protected])
