Dustin Eno

Including reputation loss as part of general average

The reputations of all parties in a maritime incident benefit when the shipowner leads a media response / By Dustin Eno

The reputations of all parties involved in a maritime incident benefit when the shipowner leads a media and social media response. However, such a response comes with costs, and some potential risks. It may never be practical to include reputation value (lost or saved) in general average (GA) calculations, but our industry should start thinking in these terms.

When invoked, GA requires the shipowner and cargo interests to share in the costs, including any sacrifices, of saving the ship and cargo. In the modern world, for many cargo brands, the value of the cargo is small when compared with the potential loss of brand value.

For risk we can chart the financial implications (see chart) so that the pool of all tangible risk is represented by the grey oval. We can add the reputational risk with the purple line. The risk consultancy Riskope describes this line as “Pinocchio’s nose” because “the more you lie the longer it grows.”

A company’s reputation impacts all areas of its operations, but the extent of the impact depends on the company’s sector. Cargo interests generally have much more valuable brands than shipping companies.

Let’s use car carriers as an example. Vehicle brands have massive value; indeed 12 of Forbes’ top 100 brands in 2018 were automotive companies.

A car carrier incident threatens the brands of cargo interests onboard. The media may speculate:

  • Will the cargo be scrapped? If not, could “damaged” cars be sold to consumers?
  • Are there toxic materials in the cars that could leach into the sea? Once the question is asked, then what about if I buy this type of car?
  • Did the automotive company choose an unsafe shipper? Could this reflect the company’s overall approach to safety?

GA is intended to encourage parties to make sacrifices/expenditures to benefit the common property interests. Could GA apply to reputation? Roughly speaking, there are four criteria and reputation qualifies.

  1. The situation is extraordinary and to protect the value of both the cargo (by protecting the brand) and the ship (again by protecting the brand) expenditures and/or sacrifices will be required.
  2. Any crisis communications actions will be intentional and reasonable.
  3. The goal will be to protect the common interests of all parties.
  4. Managing the media will protect property value (if we include brand value) from peril.

Thinking in terms of GA is especially important when the reputational interests of two parties may not align and it is helpful for one to make a sacrifice.

In our car carrier example, two things are crucial for protecting the shipping company’s reputation;

  1. Show that action is being taken,
  2. Demonstrate that the situation is minor.

Releasing pictures of undamaged cars being removed from the vessel would help demonstrate both points. However, the automotive company will strongly object as the pictures will raise fears that the cars which have been through the incident may be sold as “new” and it will further associate the automotive brand with the incident. The automotive brand is worth far more than the shipping company’s brand, so if looked at collectively, withholding the photos to protect the automotive brand will help retain common brand value, but potentially at some reputational expense for the shipping company.

Reputation losses may not be included in GA, but cargo interests and shipping companies alike should remember that reputation losses from an incident are potentially much greater than the total value of the vessel and cargo combined. Working together will achieve the best result.

Email: dustin.eno@navigateresponse.com

Twitter: @dustineno

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