Mainbrace | March 2024 Archives

Note from the Editor

What an amazing news cycle for shipping during the past two years, starting with the March 2021 EVER GIVEN grounding in the Suez Canal and running through the ongoing disruptions in shipping resulting from the Houthi attacks on vessels transiting the Red Sea. Add in sanctions, the dark fleet, cruise ship mishaps…well you get the picture. The point is the general public certainly has—or should have—become more aware of the impact global international shipping has on their daily lives.

But is that really the story of today’s global shipping industry? In the short term, yes, but in the long term, no. The story of today’s global shipping industry is what the maritime industry is presently doing that goes unnoticed by the public but will certainly shape the maritime industry in the future. For the foreseeable future, fossil fuels will continue to be the primary source of vessel propulsion. Nevertheless, significant investment of money and human capital is being made on issues involving the use of alternative fuels and the design of future vessels, sustainability, carbon reduction, wind as a vessel propulsion source, and offshore wind as a viable alternative source of energy (at least for the United States). And, although not every alternative fuel currently being considered for vessel propulsion will become a cost-effective and efficient workable solution, and while the full-scale installation of offshore wind along the U.S. East Coast may still be a few years away, the maritime industry has proven it is open to investing in solutions leading to “clean propulsion” and “clean energy.” Consequently—being the eternal optimist—finding an alternative fuel that is a cost-effective and efficient source of vessel propulsion is not a matter of “if” but a matter of “when.”

MARPOL SOS—It’s Time for the U.S. Coast Guard to Protect Seafarers

Kierstan L. Carlson, Jeanne M. Grasso, and Gregory F. Linsin ●

The Act to Prevent Pollution from Ships (“APPS”) is the U.S. law that implements the International Convention for the Prevention of Pollution from Ships (“MARPOL”). Since a policy shift in 2010, the U.S. Coast Guard’s (“USCG”) approach to enforcing APPS has trapped hundreds of foreign seafarers in a legal limbo in the United States that has deprived them of their liberty, commonly for a year or more; impaired their maritime careers; and exacted serious emotional and psychological tolls on the seafarers and their families. The USCG should urgently remedy this situation by limiting in “Agreements on Security” how long seafarers can be detained in the United States in connection with MARPOL investigations.

Legal Framework

APPS defines the conduct that would constitute a violation of the law by most commercial vessels and provides for criminal and civil penalties. It also includes several key provisions to facilitate investigations of potential violations, including in rem liability, as well as a provision that allows the USCG to request U.S. Customs and Border Protection (“CBP”) to withhold customs clearance for a vessel if reasonable cause exists to believe that the vessel, its owner, or the operator violated APPS. The USCG determines whether such reasonable cause exists, and, if so, whether to refer the matter to the U.S. Department of Justice (“DOJ”) for possible criminal enforcement.

The USCG also has authority under APPS to require the “filing of a bond or other surety satisfactory” before the vessel can continue trading. If these requirements are met, the USCG will request that CBP grant the vessel clearance to depart.

The Legacy of the Oil Pollution Act of 1990

Keith B. Letourneau ●

In 1989, the tanker Exxon Valdez grounded on Bligh Reef, Alaska resulting in the spill of more than 11 million gallons of oil into Prince William Sound. The resulting ecological disaster galvanized Congress to enact the Oil Pollution Act the next year. This legislation has had far-reaching implications for the carriage of oil by ship, enforcement actions against responsible parties, funding to respond to spills nationwide, and the protection of the U.S. marine environment.

Before OPA, single-hulled tankers carried oil to, from and between U.S. ports. OPA phased in the transition to double-hull tankers, which have become the norm worldwide. In 1992, the International Maritime Organization (“IMO”) modified the International Convention for the Prevention of Pollution by Ships (“MARPOL”) to phase in and extend the double-hull requirement globally. Studies show that depending on the impact speed, double hulls can reduce the likelihood of a pollution incident by more than 60 percent compared to single-hull tankers. While double-hull tankers are not a panacea to stop oil discharges at sea, they provide greater protection from pollution incidents caused by groundings, or low-speed/low-impact collisions. By way of example, in 2009, the double-hull tanker SKS Satilla allided with a submerged oil rig in the Gulf of Mexico creating a huge gash in the vessel’s outer hull, but no oil spilled. In 2021, a tug collided with the tanker Polar Endeavor in Valdez, Alaska tearing a four-foot hole in the outer hull, but no oil spilled; the inner hull remained intact. On the downside, double-hulled tankers are more expensive to build and maintain and may be less stable due to a higher center of gravity and greater free-surface effect in the ballast tanks.

Enforcing Foreign Arbitral Awards in the United States

Thomas H. Belknap, Jr. ●

Sometimes, once an arbitration award is issued, the losing party accepts its lumps and pays the award, promptly and in full. At times, however, it is not so simple. The losing party may consider that the award is unfair or wrongly decided, or it may simply refuse or be unable to pay. In such cases, each party has decisions to make. For the prevailing party, the question is where and how to attempt to turn the arbitration award into money.

The Federal Arbitration Act (the “FAA”)^[1] consists of three chapters. Chapter 1, “General Provisions,” applies generally except where there is a conflict with a provision of one of the other applicable chapters. Chapter 2, “Convention on the Recognition and Enforcement of Foreign Arbitral Awards,” is the implementing legislation for the international treaty of the same name (also called the “New York Convention”), to which the United States is a party. Chapter 3, “Inter-American Convention on International Commercial Arbitration,” is the implementing legislation for that convention.

Chapter 1 of the FAA expressly defines “maritime transactions” to mean “charter parties, bills of lading of water carriers, agreements relating to wharfage, supplies, furnished vessels or repairs to vessels, collisions, or any other matters in foreign commerce which, if the subject of controversy, would be embraced within admiralty jurisdiction.” Section 2 of the FAA makes it applicable with respect to all maritime transactions, and this Section has been widely construed as preempting otherwise applicable state laws relating to enforcement and challenge of arbitration awards where the dispute involves a maritime transaction.

This is not the end of the analysis, however, because an arbitral agreement or award governed by Section 2 of the FAA also “falls under the Convention,” unless it arises out of a relationship which is “entirely between citizens of the United States,” except that even then, it will nevertheless fall under the Convention if the relationship between U.S. parties “involves property located abroad, envisages performance or enforcement abroad, or has some other reasonable relation with one or more foreign states.”

EPA Issues Supplemental Notice of Proposed Ruling to Implement the Vessel Incidental Discharge Act—Finally!

Jeanne M. Grasso and Dana S. Merkel ●

The U.S. Environmental Protection Agency (“EPA”) published a Supplemental Notice of Proposed Rulemaking (“SNPR”) on October 18, 2023, modifying its initial proposed rule from three years ago on performance standards for vessel incidental discharges. 2023-22879.pdf (govinfo.gov) The SNPR addressed only three limited areas—ballast water, hulls and associated niche areas, and graywater—and did not make any sweeping changes to the October 26, 2020, proposal. 2020-22385.pdf (govinfo.gov) This action lays the groundwork for the finalization of EPA’s final standards for the incidental discharges from vessels—finally.

Background

In December 2018, the Vessel Incidental Discharge Act (“VIDA”) was signed into law. VIDA amended the Clean Water Act (“CWA”) and was intended to replace the EPA’s 2013 Vessel General Permit (“VGP”), which has now been in place for more than 10 years. The goal was to bring uniformity, consistency, and certainty to the regulation of incidental discharges from U.S. and foreign-flag vessels. VIDA required EPA to finalize uniform performance standards for each type of incidental discharge by December 2020 (a deadline missed by more than three years), and requires the United States Coast Guard (“USCG”) to implement EPA’s final standards within two years thereafter.

In October 2020, EPA published a proposed rule titled Vessel Incidental Discharge National Standards of Performance to implement VIDA, but the proposal languished with the change from the Trump Administration to the Biden Administration. EPA’s delay in finalizing its performance standards prompted the Center for Biological Diversity and Friends of the Earth to file a lawsuit in February 2023 to force EPA to finalize its performance standards. Center for Biological Diversity, et al., v. Regan, et al., No. 3:23-cv-535 (N.D. Cal. 2023). The premise of the environmental groups’ complaint was that EPA’s inaction harmed aquatic ecosystems, with the principal allegations focused on ballast water discharges. The parties thereafter negotiated a Consent Decree that requires EPA to finalize its performance standards by September 23, 2024.

Red Sea Readiness: Navigating Risk Mitigation Measures for Safe Passage

William R. Bennett, III and Holli B. Packer ●

Since late 2023, the Yemen-based, Iran-backed Houthi rebel group has attacked dozens of commercial ships in the Red Sea, with no signs of slowing down. The unrest in the region threatens to impact supply chains and increase consumer prices. As activities in the Red Sea develop, appropriate precautions should be made to anticipate the instability in the region.

Ship Owner and Charterparty Considerations

Charterparty issues can arise for both Owners and Charterers. Resolution of such issues can be avoided by a careful inspection of charterparty terms. Questions as to whether Owners can refuse Charterers’ instructions to transit the Red Sea and whether Charterers can place the vessel off-hire or claim damages if Owners deviate the vessel via alternative routes requires individual analysis.

Since standard clauses are often amended, it is impossible to provide a “one-size-fits- all” answer to the main issues that arise from charterparties requiring transit through the Red Sea. Clearly, the specific wording of any force majeure clause will have a significant impact on the analysis in any given case. Generally, however, the test for determining whether Owners should or can refuse to proceed, is based on whether an area is dangerous. Owners must provide evidence that an area may be dangerous, or can become dangerous to the vessel, cargo, or crew. Owners, in order to establish that a decision has been made in the “reasonable judgment” of the Master or Owner, must carry out individual and contemporaneous risk assessments ahead of making a decision to invoke charterparty provisions, refuse to follow Charterers’ orders, cancel a charter, or deviate. Every charterparty must also be assessed for Charterers’ and Owners’ rights and responsibilities when “war risks” occur. As potential disputes arise, an assessment of outcome should also consider vessel ownership, trading patterns, security risks at the relevant time, and commercial considerations.

Summary of Impact of the Hong Kong International Convention for the Safe and Environmentally Sound Recycling of Ships

R. Anthony Salgado and Natalie M. Radabaugh ●

Many Mainbrace readers are likely aware that the Hong Kong International Convention for the Safe and Environmentally Sound Recycling of Ships, 2009 (the “HKC”), is set to enter into force on June 26, 2025, following its ratification by Liberia and Bangladesh last June. Since then, Pakistan, a major ship recycler, and the Marshall Islands, a major flag state, have also ratified the HKC, thereby amplifying its importance to the shipping industry.

However, not all of our readers may be aware of what the HKC requires or who it may impact within the shipping industry. Accordingly, this article summarizes some of the key provisions of the HKC and discusses certain potential impacts and considerations for various entities within the industry. (National laws applicable to ship recycling that are not based on the HKC are beyond the scope of this article.)

A Tale of Two Canals

Keith B. Letourneau ●

Ordinarily, over 36,000 merchant ships pass through the Suez and Panama Canals each year representing about 30 percent of the world’s merchant fleet tonnage. This year, both canals face extraordinary events beyond their control, which are affecting vessel transits and arrivals across the globe. Following Hamas’ attack on Israeli citizens and Israel’s retaliatory response, Houthi rebels in Yemen funded by Iran have launched missile and drone attacks on merchant ships in the Gulf of Aden (“Gulf”) as they enter and depart the Red Sea. In response to these attacks, numerous major container carriers, as well as major oil and gas tanker operators and car carriers have suspended transits through the Gulf, and the United States is spearheading a multinational task force (Operation Prosperity Guardian) now heading toward the Gulf to protect the world’s merchant fleet. Meanwhile, the Panama Canal’s Lake Gatun is suffering from an unprecedented drought causing significant delays for vessels transiting between the Gulf of Mexico and Pacific Ocean. Currently, traffic flow is about 75 percent of normal capacity. Water levels have plunged due to El Niño, a variant of the El Niño/Southern Oscillation (“ENSO”) that generates above-average water temperatures across the eastern equatorial Pacific Ocean every two to seven years.

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