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No rise is COFR costs yet

An almost 60% increase in the size of the financial guarantee that ships need to trade to the US is not triggering any immediate increase in the cost of obtaining Certificates of Financial Responsibility (COFR).

Jim Mulrenan, London   |   5 October 2006

The pollution-response guarantee required by tankers rises from $1,200 to $1,900 per gt from next week but any change in the cost of Cofr appears to be some way off.

It could be 2008 before the higher limits work through to owners' pockets, says Marilyn Feldman, president of Shoreline Mutual, the Bermuda-based club that is one of the two leading providers of Cofr guarantees.

Feldman says the advice Shoreline is getting is that it could be late 2007 before the US Coast Guard publishes its final rules on the new requirement that would trigger a need to buy more reinsurance, with the cost passed on to owners.

The Cofr guarantee required for dry-cargo vessels such as containerships and bulkers went up in July from $600 per gt to $950 per gt a similar percentage as that for tankers.

The guarantee required by the largest tankers will rise by about one-third, from around $395m to about $530m. The overall percentage increase is smaller than the per-gt rise as the size of the largest ultra large crude carriers (ULCCs) has fallen significantly since Cofr became a ticket to trade to the US.

The largest tankers trading to the Louisiana Offshore Oil Port can pay as much as $70,000 per year for their Cofr guarantee, a typical containership or bulker $7,000 annually, with small vessels paying as little as $2,000 for 12 months.

The Cofr requirement was brought in by the US Oil Pollution Act of 1990 and is designed to ensure that adequate funds are available for spill clean-up and compensation.

The guarantees are on top of the pollution insurance that owners buy as part of their protection-and-indemnity (P&I) cover.