Category: Mainbrace | Special Offshore Wind Edition (June 2020)

Firm News and Announcements

Chambers USA 2020 Recognizes Blank Rome Attorneys and Practices

Blank Rome’s Maritime practice and attorneys have again been highly ranked by Chambers USA, notably receiving national #1 rankings in the areas of Shipping – Litigation and Shipping – Regulatory. The 2020 edition of Chambers USA recognized Blank Rome in a number of categories across a wide range of practices, and also ranked 69 Blank Rome attorneys as “leaders in their fields.” Read More »

Blank Rome Attorneys and Practices Highly Ranked in The Legal 500 United States 2020

Blank Rome’s Maritime practice and attorneys were again highly ranked and recommended in The Legal 500 United States 2020, notably recognizing Blank Rome as a “Top-Tier Firm” for Shipping – Finance, and Shipping – Litigation and Regulation. Read More »

Blank Rome’s Maritime Industry Team

Our maritime industry team is composed of practice-focused subcommittees from across many of our Firm’s offices, with attorneys who have extensive capabilities and experience in the maritime industry and beyond, effectively complementing Blank Rome Maritime’s client cases and transactions. Read More »

Coronavirus (“COVID-19”) Task Force

The outbreak of the novel coronavirus is impacting businesses and public life around the world. From supply chain disruption, government-ordered closures, and event cancellations to employee safety concerns and social distancing recommendations, every company is facing its own unique challenges in the face of the uncertainties surrounding this global pandemic. Blank Rome’s Coronavirus (“COVID-19”) Task Force is monitoring this ever-changing situation and is here to help.

A Message from Blank Rome’s Leadership

We hope it never becomes normal to share a message denouncing acts of discrimination, harassment, or violence against our communities of color. During these upsetting and anguished times, we reaffirm Blank Rome’s dedication to our core value and founding principle—an unwavering commitment to diversity, equity, and inclusion. Read More »

Protecting the Supply Chain: U.S. Government Studies the Role of Federal Agencies in Ocean Carrier Bankruptcies

Rick Antonoff and Evan Jason Zucker

In December 2018, the Frank LoBiondo Coast Guard Authorization Act (the “LoBiondo Act”) was enacted to, among other things, improve and support the operation and administration of the Coast Guard and update maritime and environmental policy. Section 713 of the LoBiondo Act directs the Comptroller General of the United States to “conduct a study that examines the immediate aftermath of a major ocean carrier bankruptcy and its impact through the supply chain.” In accordance with that mandate, in January 2020, the U.S. Government Accountability Office (“GAO”) published a report on the role of the Federal Maritime Commission (the “FMC”) and Department of Commerce (“Commerce”) in an ocean carrier’s bankruptcy case.

The study was prompted by supply chain disruption at sea and at numerous ports caused by the bankruptcy of Hanjin Shipping Co., Ltd. in August 2016. At the time, Hanjin was one of the world’s largest integrated logistics and container shipping companies transporting cargo to and from ports throughout the world. The GAO concluded that the FMC and Commerce played an important monitoring function in the industry, but did not recommend any changes to either agency’s role in an ocean carrier bankruptcy. This is because the GAO found that industry participants have already taken steps to mitigate the effects of another ocean carrier bankruptcy and current law does not authorize these agencies to have a more active role.

The Ocean Carrier Industry

The maritime transport industry is the backbone of globalized trade and the manufacturing supply chain. According to the United Nations Conference on Trade and Development’s Review of Maritime Transport 2019, more than four-fifths of world merchandise trade by volume is carried by sea. Annually, more than one trillion dollars in U.S. exports and imports are moved by ocean vessels. Prior to the current pandemic, the industry was already coping with low-freight rates, reduced earnings, and oversupply as a result of increased global tariffs, volatility in demand, and new environmental regulations. These market conditions have led to the continued consolidation of ocean carriers. “In February 2019, the [top] 10 deep-sea container-shipping lines represented 90 per cent of deployed capacity and dominated the major East-West trade routes through three alliances.” This consolidation in the industry increases the risk of disruption that the financial instability of any one shipping company can have on the global supply chain.

Scope of the GAO Study

To address the objectives mandated in the LoBiondo Act, the GAO reviewed documents filed in Hanjin’s bankruptcy case and documents provided by the FMC and Commerce. Additionally, the GAO interviewed 15 industry stakeholders representing various roles in the supply chain including representatives from four ports, two ocean carriers, one association representing carriers, one association representing freight forwarders and customs brokers, five associations or companies representing transportation and equipment providers, one association representing retailers, one association representing agricultural cargo owners, and officials with the FMC and Commerce. Continue Reading

Offshore Wind Will Need Support Vessels – What Form Are You Going to Use?

Keith B. Letourneau and Douglas J. Shoemaker

As the United States develops offshore wind capacity, the need for vessels to support the industry for installation and maintenance will rapidly expand. While it may seem perfectly logical for the industry to adopt the BIMCO WINDTIME form, the SUPPLYTIME 2005 form is more common and generally known to the U.S. service and supply-vessel industry. In any case, we wholly expect that there will be a good deal of modifications to any form or perhaps use of bespoke agreements as the work comes online. We review here the various forms available and look at particular terms and issues we expect to be the subject of specific negotiation and modification.

SUPPLYTIME: Then and Now

The SUPPLYTIME form was first developed in 1975 to meet the rising demand for specialty vessels to support offshore oil and gas exploration and production. This form and its progeny became the leading time-charter terms for offshore-support vessels, and its use has spread beyond the oil and gas industry to include cable and pipe laying, seismic work, anchor handling, surveying, ROV and dive support, and other offshore and near-shore construction work. While there is a 2017 version of the SUPPLYTIME, it hasn’t been widely adopted in the United States, particularly since it came out after the substantial decrease in offshore oil and gas activity. (Interestingly, the drafting committee that developed the WINDTIME form differed from the SUPPLYTIME 2017 committee, and the difference is noticeable.) As for the U.S. offshore marine service and support industry, it appears that the SUPPLYTIME 2005 version remains prevalent at this time. (Obviously, any SUPPLYTIME form used with respect to the offshore wind industry would need to be logically amended to change oil and gas industry references to the appropriate wind-industry terms. For example, the term “offshore unit” in the SUPPLYTIME 2017 form is defined as “any vessel, offshore installation, structure and/or mobile unit used in offshore exploration, construction, pipe-laying or repair, exploitation or production.” There are also repeated reference to the defined term “well”.)

At the heart of the SUPPLYTIME form since the 1989 version came into play is a “knock-for-knock” indemnity provision, allocating liability regardless of fault with each party indemnifying the other for the injury or death of its personnel and for the loss of or damage to its property—without recourse. Initially, this was a difficult concept to accept in the United States—the idea that a party must indemnify another for a loss even though the loss was caused solely by the fault of the other party was a hard pill to swallow. However, in practice, the industry found it far more efficient for the parties to provide insurance for their own people and their own property and simply name the other party as an additional assured, rather than litigate every loss with each party claiming the other was at least partially to blame. The knock-for-knock indemnity concept is particularly efficient where a project involves a number of offshore contractors and all the parties agree to the same allocation of liability.

SUPPLYTIME vs. WINDTIME

The WINDTIME form, introduced in 2013, was primarily intended for offshore wind farm personnel transfer and support vessel services and was largely adopted from the SUPPPLYTIME 2005. Key differences from the SUPPLYTIME 2005 include:

  • the WINDTIME form expressly encompasses an indemnitee’s gross negligence, as well as simple negligence in the knock-for-knock indemnity obligations, but excludes intentional or willful misconduct, while the SUPPLTIME 2005 form only expressly addresses the indemnitee’s negligence;
  • the SUPPLYTIME 2005 form is more owner-friendly concerning cancellation with no provision for the recovery of damages; and
  • the WINDTIME form includes a broader waiver of consequential damages encompassing subcontractors.

It has been reported that the committee drafting the WINDTIME form initially considered, but quickly abandoned, the idea of including contract terms appropriate for installation vessels. We understand that industry practices for installation vessels were considered too varied and complex to reach consensus. Thus, the better option for installation vessels may be a SUPPLYTIME 2005 particularly modified to allocate liabilities and responsibilities, or a bespoke contract. Continue Reading

Implications of Jones Act Changes to the Offshore Energy Industry

Jonathan K. Waldron and Stefanos N. Roulakis

Vessels are the backbone of any offshore construction project, and the Jones Act, which celebrated its centennial this month, regulates their operations in U.S. waters on the Outer Continental Shelf. Originally promulgated as a transportation statute, the Jones Act has governed vessels engaging in offshore construction for nearly four decades. While offshore oil and gas construction operations have been conducted in compliance with the Jones Act for decades, with the burgeoning offshore wind sector there is renewed interest on how the Jones Act will be applied to such projects. Indeed, planning for Jones Act compliance is a major component of successful wind farm installation operations, as has been the case for years with oil and gas-related work. Interestingly, despite the fact that the Jones Act is now a century old, there have been recent significant regulatory and legal developments in its interpretation.

Specifically, after years of debate within the offshore industry, on December 19, 2019, U.S. Customs and Border Protection (“CBP”) issued its decision in its Customs Bulletin, “Modification and Revocation of Ruling Letters Relating to CBP’s Application of the Jones Act to the Transportation of Certain Merchandise and Equipment Between Coastwise Points” (the “Decision”). The Decision became effective on February 17, 2020. Offshore developers, vessel operators, and other stakeholders must now face the question: How does the Decision affect offshore activities?

Further, the Decision currently faces challenges both in Congress and the courts. Some members of Congress who are not pleased with CBP’s actions have been focused on legislating in this area and modifying the Jones Act to include restrictions on lifting operations undertaken by installation vessels. This would effectively overrule parts of the Decision. Stakeholders in the offshore wind, ocean renewable energy, and offshore oil and gas sectors should pay attention to these developments as they will intimately impact offshore construction activities.

Background on the CPB Decision

In both 2009 and 2017, CBP published notices to revoke or modify various rulings, which potentially could have overturned decades of precedent with regard to a sweeping range of offshore operations that have never been subject to the Jones Act. To be frank, CBP did not fully understand how the offshore industry operated offshore, and the proposals were potentially overbroad without CBP understanding the economic impacts on the various types of offshore operations these proposals would have adversely affected. As a result of strong industry backlash on both occasions, the proposals were withdrawn for reconsideration.  Finally, following the 2017 withdrawal, CBP undertook an intensive exchange of information with all facets of industry to fully understand how industry actually operates offshore and to fine-tune and focus its 2019 proposal on vessel equipment issues and lifting operations, which resulted in a decision that took into account comments and input from all stakeholders.

As far as substance, the Decision eliminates previous erroneous decisions that permitted non-coastwise-qualified vessels to transport items that should have been considered merchandise under the Jones Act. The Decision also clarifies that lifting operations may be conducted by non-Jones Act vessels. Specifically, as discussed in more detail below, the Decision 1) broadens the definition of merchandise to make it clear that non-Jones Act vessels can no longer carry out certain offshore activities that they have performed for years under a misguided and overly broad “mission of the vessel” theory, and 2) establishes a new interpretation of “Lifting Operations” to specify the movements that a non-Jones Act vessel can perform when conducting installation or decommissioning operations, which will not be considered “transportation” within the meaning of the Jones Act.

Should the Decision be overturned either in court or through legislation, it will have a significant impact on the market for offshore construction, whether for renewable energy or fossil fuel production. Currently, there are few or no Jones Act-qualified vessels that can perform the necessary lifting operations needed to undertake the multitude of varying construction projects offshore, depending on the crane capacity and vessel and stability characteristics required for a particular lifting operation. Continue Reading

Offshore Wind: Driving Factors and Recent Impediments

Joan M. Bondareff and Dana S. Merkel

This article contains a brief review of the latest developments in offshore wind, including state laws and policies, federal laws and permitting practices, and the impact of COVID-19. The main issue we are now watching is the Department of the Interior’s supplemental environmental review of the proposed Vineyard Wind project, discussed below. Until a final environmental review is completed, we are unable to predict with certainty how many offshore wind construction plans will be approved this year by the Bureau of Ocean and Energy Management (“BOEM”) in the Department of the Interior.

States Are Driving the Offshore Wind Process along the Atlantic Coast

We have reviewed state laws and policies before (see our article in the April 2019 edition of Mainbrace). Although developments offshore California and Hawaii are still being considered, they have been hampered by objections from the Department of Defense to siting wind farms near adjacent military bases. Meanwhile, development along the mid-Atlantic and New England coasts remains strong.

We conclude, as we have before, that the governors are taking the lead in promoting offshore wind by adopting new laws and/or executive orders and promoting renewable energy, including offshore wind. Their goal is to bring in some of the more than 40,000 new offshore wind jobs predicted by 2030. Continue Reading

 

The Emerging U.S. Offshore Wind Industry in a Post-COVID-19 World

Thomas H. Belknap Jr. and Lauren B. Wilgus

Just when it was looking like the offshore wind industry was finally about to take off in the United States, the COVID-19 pandemic has introduced one more significant layer of uncertainty upon an already very complicated playing field. There are currently 15 active offshore wind projects in the planning stages that, if completed, could add approximately 25 gigawatts of electricity to the power grid.

The State of Play

Things were hard enough already. Cape Wind, the United States’ first—and very ambitious—130-turbine offshore wind project, died under its own weight after years-long delays and caused its energy providers to end power supply contracts for the project in 2015. Indeed, just one project—the five-turbine (30 megawatt) Deepwater Wind farm off Block Island—is up and running so far. But, there are a slew of other projects in the pipeline. The two-turbine (12 megawatt) Coastal Virginia Offshore Wind facility—a “test” construction in advance of the planned 2,640-megawatt Dominion Energy Wind Farm—has already started construction and reportedly remains largely on schedule.

Several other large projects are in the pipeline to start construction within the next two to three years. The 800-megawatt Vineyard Wind 1 project in Massachusetts was initially scheduled to commence last year until federal regulators determined that they needed more time to analyze environmental impacts before they would issue the necessary permit. Recently, the Department of Energy’s Bureau of Ocean Management has indicated that it will issue its findings by December 2020, setting that project back at least a couple of years from their initial projections. Since the new analysis will require a consideration of the potential “cumulative” environmental impact if other offshore windfarms are built, this delay is likely to cascade to other projects.

Revolution Wind, a 704-megawatt project off the coast of Connecticut and Rhode Island targeted for completion by 2023, has announced delays of their own, also due to permitting issues and effects of the COVID-19 pandemic. Other large projects are facing similar delays.

Among other problems, the delays have jeopardized the projects’ access to federal tax credit and investment tax credits. Originally expiring in 2019, the credits were extended for one year to include facilities that begin construction within 2020. The credits can be claimed where a project is placed into service within four years of starting construction—a timetable that may be increasingly challenging due to COVID-19-related delays. Recently, the Treasury Department has signaled to Congress that they will be looking at possible modifications to this rule.

So what does all this mean for the maritime sector? Offshore wind has been tantalizing the industry for years now, and it’s no wonder why. The American Wind Energy Association (“AWEA”) predicts that the offshore wind projects could create up to 83,000 jobs and $25 billion in annual economic output by 2030. Already, the AWEA reports, companies have announced well over a billion dollars in port-related infrastructure, transmission infrastructure, manufacturing facilities, and supply chain development.

Meanwhile, in other parts of the world, offshore wind development and infrastructure is already well developed, particularly in places like northern Europe where the first offshore wind farm was erected in 1991. Unsurprisingly, many companies from those markets are looking closely at the United States as a major new opportunity—and not just for the installations, but also for design, fabrication, consulting, service and maintenance, and every other aspect of this specialized work. And they are right to do so, for there remains a shortage of expertise in the United States when it comes to offshore wind projects, and experienced companies will have much to offer in this new market. Continue Reading

This article was first published in the June 2020 edition of Maritime Reporter & Engineering News. Reprinted with permission.

Note from the Editor

Thomas H. Belknap Jr.

It is a safe bet that few people reading this note have been entirely unimpacted by the coronavirus pandemic. It is truly an event of worldwide scale that has, virtually overnight, fundamentally changed the way we work and live. The virus’ global effects will be felt long after a vaccine or cure is found, and in ways we can hardly imagine. One interesting anecdote has to do with energy consumption. As the United States rapidly shut down its economy in April to try to stem the spread of the virus, our national energy consumption dropped dramatically. Because of its relative cost, coal power plants were the first to be idled, with the result that by mid-May, America’s renewable energy sources—primarily wind, solar, and hydroelectric—had produced more electricity than by coal on 90 separate days in 2020. By comparison, in 2019, that occurred on only 38 days over the entire year. This trend will only continue as the incremental cost of solar and wind generation drops further in the coming years.

Meanwhile, the United States is on the cusp of an explosion of offshore wind projects that have been more than a decade in the making—particularly on the east coast, where the first offshore wind farm began operation in 2016 and many more are in various advanced stages of development. Blank Rome has been busy for several years now in advising clients—both domestic and international—on all aspects of these developing projects, from regulatory issues such as Jones Act and work-visa requirements, to environmental and permitting issues, chartering, contracting, corporate assistance, and beyond.

With all of this in mind, we decided to focus this special issue of Mainbrace primarily on the emerging U.S. offshore wind industry, providing critical analysis into U.S. Customs and Border Protection and Jones Act developments; a detailed overview of state and federal legislation and project development updates; comparative analysis of SUPPLYTIME and WINDTIME charterparty contracts; and insights into the potential post-COVID-19 implications on the offshore wind market. And while not offshore wind-related, we also provide a discussion on the dramatic Hanjin bankruptcy and the role to be played by the Federal Maritime Commission and Department of Commerce in case of future such bankruptcies.

We hope that you enjoy this Special Offshore Wind edition of Mainbrace and that you stay safe and healthy.

EDITOR, Mainbrace
THOMAS H. BELKNAP JR.
Partner
212.885.5270
tbelknap@blankrome.com

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