Note from the Editor

Thomas H. Belknap, Jr., Editor

It seems that every time I write one of these notes, it is against the backdrop of some new global upheaval—the latest, of course, being the war in Ukraine. I am of a certain generation whose memory of World War II was through our parents, but not so distant that we were not regularly exposed to people with first-hand experiences with the horrors of that war. How many times have we said never again, only to be proved wrong?

The world currently hangs between the terrible tragedy that has already unfolded and the terrifying unknown of just how much worse things could still get. And yet, through this all, I have been repeatedly inspired by our Ukrainian friends who have shown the world the true meaning of the term “soldier on,” both in simultaneously defending their homeland and continuing to work and care for their families and friends. Their experience certainly puts our own “problems” in perspective.

Apart from the human tragedy, this war has imposed new complications and challenges on the global economy and, particularly, in shipping. As with the pandemic, the true impacts of this global disruption will be felt for months and years to come in ways we can only now imagine. And yet, as always, with great disruption comes great opportunity, and we have no doubt that our clients and friends are already hard at work looking for new ways to proactively harness this rapidly changing business environment. In today’s age, it seems, rapid change is “business as usual.”

In this issue of Mainbrace, we address the impact of the war on maritime commerce as well as some of the “business as usual” stories that are always relevant to players in the shipping field. We hope you enjoy these articles. As always, we welcome suggestions for topics for future issues of Mainbrace.

Peace to all.

The Russian-Ukrainian War’s Impact on Maritime Commerce

Keith B. Letourneau

Russia’s unprovoked invasion of Ukraine has triggered significant reactions in the world of maritime commerce. In a matter of days since the beginning of Russia’s main offensive, the price of bunker fuel used for vessel propulsion systems has skyrocketed as have tanker charter-hire rates and war-risk premiums for vessels transiting to or from regions impacted by the conflict, including the Baltic and Black Seas, which have been designated as “listed areas” by the insurance industry’s War Risk Council. The Russian Navy has closed access to the Sea of Azov (the body of water guarded by the Crimean Peninsula that affords maritime access by Ukraine to the Black Sea, along with the port of Odessa farther to the east), and blocked the movement of numerous merchant ships therein and in the Black Sea, stranding their crews who are running low on provisions, and bringing to a halt the export of Ukrainian grain, which will severely impact the world’s grain supply. 

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Agreements to Arbitrate Seaman’s Personal Injury Suits Are Valid and Enforceable

William R. Bennett III

Advanced Wage Agreements offer to pay “advanced wages” to an injured seaman, in addition to the legal obligations to pay maintenance and cure, in exchange for the seaman agreeing to arbitrate his personal injury claim if and when he decides to seek redress for his injury.

Advanced Wage Agreements define advanced wages as “compensation for wages that a seaman has lost as a consequence of his/her injury.” The advanced wages are not a substitute for the federal law requirement to pay all reasonable medical expenses (i.e., cure), or certain other expenses (i.e., maintenance), while the seaman recovers from his injury.

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U.S. DOJ and FMC Increase Focus on Antitrust Enforcement

William E. Lawler III and Kierstan L. Carlson

The Biden administration recently announced a renewed enforcement focus on consolidation and alliances in the maritime industry that may hinder competition and increase prices. While federal agencies historically have worked together to target anti-competitive conduct and shipping companies have been targeted in cases alleging cartel activity (e.g., price fixing, market allocation, and bid rigging), companies should heed the recent warnings and must be vigilant in ensuring compliance with competition laws now more than ever.

Regulation of Competition within the Maritime Industry

The Federal Maritime Commission (“FMC”) and the U.S. Department of Justice’s (“DOJ”) Antitrust Division (the “Division”) share enforcement duties over the maritime transport market.

The FMC monitors the effects of ocean carrier alliances on competition. Under U.S. law, international carriers enjoy a limited exception to some antitrust laws, as they are permitted to meet to discuss and agree on voluntary rate guidelines and can file agreements with the FMC establishing such guidelines. However, the FMC is not required to approve such agreements and can bring civil actions in court to enjoin any agreements likely to reduce competition such that it leads to unreasonable price increases or service reductions, or to substantially lessen competition in purchasing covered services. The FMC also has a Bureau of Enforcement, which investigates potential violations and can impose civil penalties or engage in formal proceedings.

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Developing Issues with Maritime Autonomous Surface Ships

Alan M. Weigel

The development of large autonomous merchant vessels, also known as Maritime Autonomous Surface Ships (“MASS”), has progressed at a significant pace with new vessels entering operation every year. Almost every maritime nation is engaged in developing autonomous vessel technologies, and several countries have designated parts of their national waters as test sites for MASS.

In Norway, the YARA BIRKELAND recently began a two-year testing period of the technology that will certify the vessel as an autonomous, all-electric container ship. In Japan, the first tests of the fully autonomous container ships MIKAGE and SUZAKU took place recently in coastal waters of the Sea of Japan and Tokyo Bay. The unmanned ships transited between ports using a system of radar and lidar sensors, cameras, and a satellite compass to navigate and pulled themselves into berths at the end of their journeys.

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Carriage of Cargo on Deck: Carriers Be Aware

Noe S. Hamra

Carriage of cargo on deck has always been problematic for vessel owners and operators. In addition to the typical risks associated with carrying cargo on deck, such as exposure to the elements and lashing and stability issues, carriers are also exposed to uncertainties regarding their potential liability for damages to such cargo. In fact, many carriers believe that cargo carried on deck is carried at the shipper’s risk and that the carrier is not liable for damage to deck cargo, as long as cargo owners agreed to on deck carriage and the bill of lading states this on the front.

Complicating Legal Factors

A complicating factor is that neither the Hague Rules nor the United States Carriage of Goods by Sea Act (hereinafter referred to as “COGSA” or the “Statute”) apply to deck cargo. As for the latter, COGSA expressly defines “goods” as to exclude “cargo which by the contract of carriage is stated as being carried on deck and is so carried.”

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EPA Ramps-Up VGP Inspections and Enforcement

Jeanne M. Grasso and Kierstan L. Carlson

We are just over one year into the Biden administration and environmental enforcement is on the rise. Although enforcement dropped dramatically under the Trump administration, the current administration has been clear about its intent to use environmental enforcement tools to “encourage and incentivize compliance by private sector entities,” quoting Assistant Attorney General Todd Kim, head of the Environment and Natural Resources Division of the Department of Justice. This focus has borne out in several ways, including what seems to be an increase in inspections and enforcement of the U.S. Environmental Protection Agency’s (“EPA”) Vessel General Permit (“VGP”) in several EPA regions around the country. The risk of getting caught in the EPA’s crosshairs for a VGP violation is real and should be front-of-mind for companies across the shipping sector.

History of the VGP and Implementation of the Vessel Incidental Discharge Act

The VGP originated from a lawsuit challenging the EPA’s exemption of discharges “incidental to the normal operation of a vessel” from permitting requirements under the Clean Water Act’s (“CWA”) National Pollutant Discharge Elimination System (“NPDES”), an exemption that had been in place for about 30 years. In 2005, a federal court found that the EPA’s vessel exemption was illegal and required the agency to develop a permitting program for incidental discharges. From there the VGP was born.

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Boffo Offshore Wind Sale Moves Biden Closer to Goal—But Tough Currents Remain

Joan M. Bondareff

This article summarizes the latest developments in the U.S. offshore wind market and then reviews some of the troubling waters ahead.

New Developments

On February 25, 2022, the Bureau of Ocean Energy Management (“BOEM”) announced the results of its mega offshore wind sale of six leases totaling over 488,000 acres in the New York Bight—the first sale in the Biden-Harris administration, which is committed to 30GW of offshore wind by 2030. The results from the auction lasting over three days were over four billion dollars. The provisional winners are:

      1. OCS-A-0537 – Ocean Winds East, LLC – $765M;
      2. OCS-A-0538 – Attentive Energy, LLC – $795M;
      3. OCS-A-0539 – Bight Wind Holdings, LLC – $1.1B;
      4. OCS-A-0541 – Atlantic Shores Offshore Wind Bight, LLC – $780M;
      5. OCS-A-0542 – Invenergy Wind Offshore LLC – $645M; and
      6. OCS-A-0544 – Mid-Atlantic Offshore Wind LLC – $285M.

This sale represents the very serious interest that developers—and states—are taking in offshore wind, gambling that the permitting process will go smoothly.

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What Is the Insured’s Duty under a Marine Insurance Policy? It Depends…

Thomas H. Belknap, Jr.

The law governing marine insurance in the United States has long been a source of considerable confusion. And if there was once a clear set of principles applicable in such cases, the Supreme Court long ago muddied the waters with their infamous ruling in Wilburn Boat Co. v. Fireman’s Fund Ins. Co., 348 U.S. 310 (1955). That case, involving a fire on a houseboat on an inland man-made lake on the Texas-Oklahoma border, established the “litmus test” for when maritime law should govern and when the courts should instead look to state law in interpreting marine insurance contracts.

Faced with the question of whether an insured’s policy should be voided for breach of policy warranties when the insured has made misrepresentations in the application that bear no relationship to the actual risk or claimed loss, the Supreme Court in Wilburn Boat concluded that “[w]hatever the origin of the ‘literal performance’ rule may be, we think it plain that it has not been judicially established as part of the body of federal admiralty law in this country.” Because there was no “established federal admiralty rule” governing such warranties, the Supreme Court ruled that it should instead look to state law, which, as it happens, contained a provision that protected the insured from such “immaterial” breaches of warranty.

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