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Locking the spirit and concept of Salvage Management in form of an
exhaustive definition in my opinion would not be a good idea. So, as
per practice and experience, Salvage Management may be known on an
inclusive basis, as the process of taking an account of salvage after
a loss has taken place by the way of salvage identification,
quantitative and qualitative inventorization & segregation,
salvage protection and salvage valuation with an intent to
get an optimum salvage realization through disposal in open
market or through retention by the Insured / owner of salvage.
Let us examine all the components of salvage management as under:
1. Salvage
identification:
When a loss takes place, the salvage manager visits the site of loss
and inspects the damaged material. Let us understand the concept with
an example. Suppose a fire takes place in a godown storing cotton.
Now, after fire, the salvage manager during his visit shall have to
identify the cotton that is actually salvageable. Cotton that has
already got converted into ash might not have any practical salvage
value, so it would not be salvageable. On the other hand, cotton that
has suffered 20% burns might have a good salvage value. In another
example, suppose a building collapses and salvage manager visits the
site of loss. While inspecting the debris, she would determine and pay
attention towards the salvageable parts of building such as steel,
wood, etc. On the other hand, remains of cement, plaster etc. might
not be having any practical salvage value. So, as a first step, the
salvage manager would identify the salvageable merchandise at the site
of loss.
2.
Quantitative and Qualitative Inventorization & Segregation:
A loss may be due to one or more of various perils and the degree and
extent of loss suffered by the material may vary. For example, taking
an example of water damage to 1000 bags of cement, 10% of material (i.e,
100 bags) may be suffering minor damages like packing damaged, 30%
(300 bags) may be partially set, 20% (200 bags) may be fully set and
rest 40% may have suffered no damages at all. So, the salvage
manager’s duty shall be to take an account and distinguish between
various categories of loss as per nature and extent of damage suffered
by the salvaged merchandise, which may range between 0% to 100% loss.
This accounting for salvage on the basis of degree and nature of
damage suffered is called ‘Segregation’.
Segregation of salvageable goods may be done as per quantity and/or
quality. Suppose, there is a flood in a chemist shop, in that case,
the salvage manager shall prepare inventory both quantity wise and
quality wise, mentioning the nature of medicine, its make,
manufacturing and expiry date etc. and at the same time taking into
account the quantity of each type of medicine.
This activity is usually done jointly by the salvage manager in the
presence of Insured / owner of goods.
3. Salvage
Protection:
Once the salvage manager identifies the salvageable material and takes
an account of salvaged merchandise, next step is to ensure proper
protection of that salvage. This protection can be of various types.
For example, saving water affected fabric by getting it dried or
saving chemical from getting contaminated or evaporated by exposure to
air. Sometimes, getting a salvage disposed of as early as possible in
itself becomes salvage protection like in the case of perishable
goods. Making the salvage presentable for prospective buyers is also a
part of salvage protection.
4. Salvage
Valuation:
After the salvage is protected and / or made presentable, next step is
to determine its possible market value through a series of
calculations. This exercise gives an approximate idea as to what
should be the market value of the salvage. Various factors that may
determine the market value of salvage are the demand of salvaged
commodity in market, nature and extent of damage suffered by the
material, local market for salvaged merchandise and so on.
5. Salvage
Value Optimization:
Salvage Value Optimization is a part of salvage management process and
refers to the effort of salvage manager to ensure maximization of
salvage disposal proceeds through salvage marketing, creation of
competition among buyers and so on. This can be implemented through
various techniques of competition generation and marketing such as
publicly or privately auctioning the salvaged merchandise, calling for
tenders, giving newspaper advertisement and so on. Any method that may
increase the demand of particular salvage merchandise in the market
and at the same time is fair and transparent to all the parties
involved may be used for optimizing the salvage realization.
Conclusion:
1.
A Salvage Manager has broadly got two roles to play:
(i) As Salvors (salvage identification, quantitative and qualitative
inventorization & segregation, salvage protection); and
(ii) Salvage Valuation and Optimization of sale proceeds (Salvage
marketing, creation of competition among buyers and ensuring smooth
disposal of salvage).
2.
Salvage Management is not just about maximizing salvage realization
but salvage value optimization is only a small part of salvage
management.
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