Tuesday, 24 April 2018 | 09:53
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Unmanned vessels and the carriage of goods – contractual and insurance considerations

Saturday, 13 January 2018 | 00:00

In 2017 Clyde & Co partnered with the Institute of Marine Science, Engineering and Technology (IMarEST) to research the adoption of new technologies in the shipping sector. Our research on unmanned vessels revealed that while the industry is in the early adoptive stages, best practice for regulating, insuring and managing liability need to be clarified before the industry will see wide spread adoption.

The technology for unmanned ships is gathering pace. The legal landscape for the use of such ships, however, remains largely uncharted waters. In June 2017, the Marine Safety Committee of the IMO agreed to include the issue of marine autonomous surface ships on its agenda. This scoping exercise is the first step towards determining how the IMO can promote the safe, secure and environmentally sound operation of autonomous vessels.

The discussion and speculation on the legal aspects of unmanned shipping has largely focused on the regulatory backdrop and particular legal issues, such as collisions involving these ships. However, use of such ships will impact on every single legal and insurance aspect of shipping, not least the carriage of goods by sea.

Reviewing any standard charterparty, it is striking how many of the rights and obligations concern operations or matters which involve the Master or crew. The contractual framework for carriage of goods will need to change to be fit for the purpose of carriage in unmanned vessels. Relevant insurances will develop and respond accordingly. This paper looks at some of the issues which may arise in this area in relation to risk and insurance.

Contractual risk

The shipping industry is still some years away from the first unmanned ship undertaking an international voyage. The YARA BIRKLAND, which is due to come into service in 2020, will reportedly be the world’s first fully electric and autonomous container ship. She is being built to sail within the coastal waters of Norway.

Some clues as to the design, specifications and operational capabilities of future unmanned vessels can be gleaned from the YARA BIRKLAND, but there will inevitably be significant differences between an unmanned 80m coastal container ship and, for example, a VLCC.

Understanding the design and operation of these ships is key to assessing how they will operate within a contractual context. For example, many of the concerns around automation relate to unmanned ships undertaking cargo operations within congested ports, as opposed to them sailing on the high seas. Nevertheless, the YARA BIRKLAND is designed for loading and discharging to be done automatically using electric cranes and equipment. The ship will also be equipped with an automatic mooring system; berthing and unberthing will be done without human intervention.

Whether or not an unmanned vessel is to undertake automatic cargo operations makes a significant difference to the terms in the contract of carriage regarding these operations. Currently it is common for charterers to take the contractual risk of cargo operations. If these are to be done automatically by the ship, the contractual risk of these operations might logically transfer to owners. At first glance, this seems to increase the risk burden on owners. Removing the human element, however, might significantly reduce the risk of error during cargo operations, for example cargo loss or damage caused by stevedores, and thus the overall risk burden of cargo operations.

It is anticipated that in many respects the rights and obligations within a contract of carriage will remain the same. There will still be the requirement, for example, for seaworthiness obligations on owners and safe port warranties from charterers. However, the scope of these obligations and warranties may change.

In a seaworthiness context, it is likely that the new hardware onboard will be covered and also that updating the software and maintaining a cyber risk management system will be included in owners’ obligation. Owners will be expected to implement protocols to ensure that all relevant staff are properly trained and operationally competent in the new technology.

As regards the safe port warranty, what constitutes safety may be different for an unmanned vessel. From a physical perspective, the draft, safe mooring and fendering requirements of such vessels is likely to be different. If particular hardware is required at the port for the vessel to safely berth (for example sensors at the berth which interact with sensors onboard), a port might be unsafe if such hardware is not available. However, it seems likely that, to the extent such technological requirements exist, these ships will trade only between ports running compatible systems.

The industry also recognises technical differences between completely autonomous vessels and those controlled remotely from the shore. These differences may feed into the contractual regime that springs up to govern carriage of goods onboard these distinct classes of unmanned ships.

With so many unknowns on the technical side, any evaluation of the future contractual response is necessarily speculative. An unmanned shipping revolution might also form part of a more fundamental change in the shipping industry as part of the logistics supply chain. If, for example, cargo owners or logistics companies move more comprehensively into ownership of unmanned vessels, the need for contracts of carriage between counterparties at least in some trades might disappear.

Notwithstanding the uncertainty as to how these technological developments will play out in practice, we are unlikely to see the complete eradication of the traditional owner/charterer/cargo owner relationship from all trades. The development of unmanned shipping trades is bound to impact on the contractual rights and obligations between these parties and thus the risk and insurance position. Whilst risk apportionment will require amendment as a result of the changes in the way ships operate, many of the changes will be “around the edges” and the fundamental scheme of operation of charterparties and bills of lading may look fairly similar to existing forms.

Claims

It has been mooted that claims in respect of unmanned vessels are less likely to arise because of the removal of human error as a cause of incidents. This is equally true for cargo and charterparty claims as it is for collisions. However, this does not necessarily mean that the number or value of overall claims will go down. It may simply be the nature of claims that changes.

For example, although there may be fewer cargo loss claims as a result of human error during the loading process (failure to properly monitor stevedores, errors in sampling and so on), there may be more delay or other claims arising from issues with technology or cyber security. It is also the case that, taking people off the ships does not entirely remove people from the process. Some margin for human error, either in the remote control room or inputting data into the relevant software, is likely to remain.

What we may find, though, is claims resolving at an earlier stage because of the quality of evidence available in the wake of an incident. It is likely that there will be a digital record of everything that happens onboard which should not be open to human manipulation. If this is the case then, whenever a cargo claim is made, the logs for the relevant systems would be automatically generated and may well provide the parties with a complete answer to the cause of the loss or damage. If liability is easier to establish then this will cut down management time and legal costs in fighting claims.

Owners and their insurers may also have scope for progressing indemnity claims, to the extent that cargo claims are caused or contributed to by the relevant technology. This will depend very much on the warranty periods and arrangements for onboard hardware and a continuing contractual relationship with software providers and this might improve the prospects of successful indemnity claims.

Insurance

The insurance response to unmanned vessels will largely be governed by how safe and secure they are when they come into service. To the extent that unmanned vessels achieve good penetration into the shipping market, because they transpire to be more efficient, greener and more cost effective, their owners are certain to find insurers comfortable to insure their liabilities (as well as the ships themselves).

In terms of the risk profile for the insurer of the ship being unmanned, some current risks will be reduced or removed by virtue of the lack of human involvement onboard the vessel. Other risks will increase, such as the amount of highly technical hardware onboard which could malfunction or be open to cyber attack.

The amount of data available from these ships is likely to improve transparency from an underwriting perspective. As with blackbox insurance currently available in the automotive sector, if a shipowner can provide data and metrics showing how safely the ship operates, this may be more compelling even than loss record in reducing premiums.

The current position being adopted by international group P&I Clubs to cyber risks may be an early indicator of how the industry will approach unmanned ships. Cyber risks are defined as any risk of accidents, incidents, financial loss, business disruption or damage to the reputation of an organisation through failure of its electronic systems or by the persons using those systems. IG poolable club cover does not exclude losses or liabilities arising as a result of cyber risks so members benefit from the same level of P&I cover should a claim arise due to a cyber risk, as they would from such a claim arising from a traditional risk. This is the case unless the cyber risk in question constitutes an excluded war risk, such as terrorism. Third party liability caused by a failure of the navigation software onboard an unmanned ship would constitute a cyber risk and would not be excluded from IG P&I cover.

It is also worth noting that separate cyber risks policies are available from commercial insurers covering data breaches and business interruption. Top up cyber cover is expected to become routine to respond to risks particular to increased reliance on technology.

Summary

The shipping industry is just beginning to explore the potential of unmanned vessels. If unmanned vessels are the future of shipping, the legal and insurance position will need to respond to the precise way in which the technology operates. In a carriage of goods context, the key contractual considerations are likely to remain broadly the same. Goods will still move from A to B onboard vessels. Parties will still own ships and buy, sell and finance cargoes onboard those ships. The operational and legal world of carriage of goods will continue to turn. However, in order for the industry to really capitalise on the opportunities that these developments may bring, the regulatory framework, contractual and insurance aspects of the vessels and their operations must keep pace with the rapidly developing technology.
Source: Clyde & Co.

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