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ITS Boston 2016: Does the regulatory environment in the USA improve provision of salvage services compared with Europe and other parts of the world?

John Witte, President, International Salvage Union. Author and Speaker

Synopsis

Provision of salvage in the USA differs significantly from Europe and other parts of the world. More than 25 years on, Exxon Valdez still casts its shadow through the requirements of OPA90. It created strict requirements for contingency planning and response to pollution incidents. There is a rigorous liability regime and it requires vessel response plans with named salvage providers. Along with the Jones Act it creates a complex operating environment. How is it different operating within this framework compared with other territories? What are the commercial and operational implications, does it improve or detract from effective response? 

Introduction

Marine casualties occur anywhere in the world where ships operate and every decade produces at least one, sometimes more, iconic marine disasters. Recently the Costa Concordia captured our attention and in the 2000s it was the Erika and Prestige. The 1990s saw the Braer and the Sea Empress. In 1989 the Exxon Valdez ran aground in Prince William Sound, Alaska and the implications of that one event have been profound for all shipping and offshore operations that have a connection with the United States. Estimates vary about how much crude oil was spilled from the Valdez but it is generally agreed it was some 37,000 tonnes. This was considerably less than other major tanker disasters but the reaction in the USA led rapidly to Congress passing the Oil Pollution Act 1990, known as OPA 90. This paper will consider the provisions of OPA 90 in the context of the marine salvage industry and will examine differences with other jurisdictions and explore whether OPA 90 improves operational response to marine incidents.

Scale of the global salvage industry

The marine salvage industry internationally comprises many organisations that are willing to intervene in casualty situations. Such organisations range in scale from major international players operating globally, medium sized regional operators and much smaller firms perhaps focused on a single territory. There is also a mix of corporate ownership models. Some salvage companies are a division of a much larger marine and industrial groups, others are privately owned. There are also marine consultants or “yellow page salvors” who do not have their own equipment but are willing to conduct salvage operations by hiring the necessary resources for the job at hand.

The global trade association for marine salvors is the International Salvage Union (ISU) which acts as the sole voice for the industry in fora such as the International Maritime Organisation. The ISU has some 60 full members who are all marine salvage companies with a proven track record in providing salvage services. ISU also has some 80 Associate and Affiliated members who are typically shipping industry organisations and those offering services in the salvage, shipping and related industries.

Let us consider the scale of the salvage industry. The ISU’s 2014 figures – the latest available – show a substantial industry with total revenues, not profit, of some US$ 775 million, which was very similar to the previous year’s US$ 772 million. The figure is for salvage and wreck removal cases where the income was received in 2014 and that income may be from jobs agreed and, in some cases, concluded in previous years.

ISU members provided 249 salvage services in 2014. There are usually fluctuations year-on-year and the general trend, in line with improvements in ship and operational safety, is a decline in emergency response work. In 2014, ISU members also carried out 91 wreck removals – considerably more than the rolling average. Wreck removal is an increasingly important source of income for salvors and income from this activity was US$ 394 million in 2014.

It should be noted that there are still significant fluctuations in both the totals and within the sources of revenue each year. Further we must keep in mind when considering the scale of the industry that these ISU figures are gross and from which ISU members must pay their sub-contractors and their own costs.

OPA 90

Having established the scale of the global industry we turn to the United States. Still the world’s largest economy and a major focus for seaborne trade. In 1989 it suffered the worst oil spill in its history when the tanker Exxon Valdez ran aground in Prince William Sound, Alaska. It created huge media attention and much public shock and anger. In response, the Governor of Alaska created a commission to consider the causes of the casualty and resulting spill and to make recommendations. The commission made 52 policy change recommendations and the subsequent bill was widely supported in Congress which has sole authority to regulate US navigable waters. 50 of the recommendations were accepted and the Bill was passed into law as the Oil Pollution Act of 1990. It substantially clarified the oil pollution framework in US waters which had previously been governed by the 1977 Clean Water Act and the 1972 Federal Water Pollution Act.

The Act applies to vessels, offshore facilities and mobile offshore facilities (which are treated as tank vessels) and deep water ports. The main provisions of the Act relate to the liability regime; international matters – particularly liaison with neighbouring Canada; measures designed to improve the prevention of spills and clean-up of pollution as well as the penalties associated with the Act. Further, there are sections on research, and the specific requirements of Alaska’s Prince William Sound and the Trans-Alaska Pipeline with which this paper is not concerned. There were also additional numerous related regulations associated with the Act.

The liability regime imposes strict liability on each responsible party for both the removal and damage caused by the impact of any discharge or threat of discharge into navigable waters, the shoreline or Exclusive Economic Zone of the USA. The Act allows for certain exclusions and defences such as Acts of God and Acts of War and for certain third party liabilities. There are also limits to liability based on the type of vessel or facility involved in the discharge. Any responsible party operating vessels in US waters must be able to demonstrate financial responsibility under the liability regime.

The Act contains lengthy sections on the funding of clean up and the claims procedure for those affected by a spill within the context of the National Contingency Plan. It also encourages an international regime that is at least as effective as that of the US including that there should be encouragement for “appropriate international organisations to establish an international inventory of spill removal equipment and personnel.” The Act also initiated a substantial programme of research into oil spills.

Salvage arrangements under OPA 90 are largely determined by the Act’s Title IV – Prevention and Removal. It includes regulations on vessel traffic management and construction and operational standards including double bottoms for all tankage which carries a petroleum product. Further sections deal with communications, pilotage, escort and training and the creation of a national planning and “tiered” response system with a series of Area Plans. And, importantly for salvage, the adtional Coast Guard regulation 33 CFR Part 155 is especially pertinent and set out in more detail later in the paper. It contains requirements for Vessel Response Plans for both tank and non-tank vessels.

It is interesting to note that, as compared to a number of other nations worldwide, the United States is not a signatory to the 1989 Salvage Convention and therefore salvage matters in the US are solely governed by OPA 90 and other relevant US legislation, regulations and instruments.

Comparison with other major jurisdictions

The scope of this paper does not allow for comparisons with a wide range of other jurisdictions but we shall consider the European Union and Australia.

The European Union (EU) is not a federation of states but a political union of Member States. Policy is formed by a Commission of appointed Commissioners, scrutinised by a Parliament of elected members. The principle of “subsidiarity” means that the national law of the Member States is, in many areas, is subject to directives from the EU and Member States are expected to apply EU Directives in their territories. However there is no single jurisdiction.

Some shipping and transportation matters are subject to Directives others are not. Coastguard activities and emergency response are largely the responsibility of Member States but the European Union has its European Maritime Safety Agency (EMSA) which is well resourced. EMSA focusses on Vessel Traffic Management and oil spill preparedness and response. Approximately half of the EMSA budget is used for the provision of a network of contracted oil spill response vessels which are available to EU Member States in various parts of Europe.

In recent years there has been some reference to the possibility of the creation of an EU-wide Coastguard. But, along with defence provision, that is not something that presently has wide support among Member States. Separately there has been some talk of the creation of an EU-wide spill regime similar to OPA 90, again this has not yet gained traction and without substantial change to the overall structure and legal framework of the EU it is unlikely to work.

Consequently salvage arrangements are not as prescriptive as in the US. Several EU states have state-funded Emergency Towing Vessels available to make interventions but, generally, commercial salvors are relied upon to provide first line emergency response. Some salvors have begun to “pre-contract” with shipowners but as yet that is not the dominant model which remains ad hoc provision always accompanied with the possibility of state intervention if necessary.

The UK, a Member State of the EU, is considered to have a robust regime for managing salvage in which political influence is removed by the delegation of power from the Secretary of State for Transport to a named representative (the so-called, SoSREP) who has sole responsibility for decision making with regard to emergency response and wreck removal operations. SoSREP has wide ranging powers of intervention that exceed the power of the Secretary of State. It may be the case that other states have not adopted such a bold approach because it is difficult to accept the notion of a civil servant having more powers than a government minister.

Likewise, the regime in Australia is considered to be robust but relies on commercial arrangements made by shipowners. One important component of this regime is a tiered provision of emergency towing capability. Intervention and direction is based on the role of the Marine Emergency Response Commander, MERCOM who has a high degree of authority to coordinate and manage serious maritime incidents without political interference. MERCOM is a position, not an individual and the position can be filled by more than one individual and carries similar powers to the UK’s SoSREP.

In short, the US represents a more heavily regulated and controlled environment than those of some members of the EU, such as the UK as well as other parts of the world, such as Australia.

US salvage in practice

In practice, salvage operations in the US under OPA 90 are driven by two factors. First, the requirement for vessel operators to have named, appropriately qualified salvors available to intervene if necessary and second, the command structure during an incident.

The requirements are set out in detail in the document Coast Guard 33 CFR Part 155 and are detailed and prescriptive. The vessel response plan (VRP) must contain details of the resource providers who must be able to provide salvage and firefighting services consisting of: survey and assessment; stabilisation; specialised salvage services; fire assessment and fire suppression within set timeframes which are demanding. The requirements on the resource provider to demonstrate competence and experience are also demanding.

Only a small number of operators have chosen to meet the requirements as salvage and firefighting resource providers and they must have personnel and equipment on permanent notice to move to an incident as required.

The regulations require oil spill response organisations (OSROs – not necessarily salvors) to conduct an annual exercise to test the deployment of equipment and quarterly training exercises. The full VRP is to exercised every three years – however the plan may be broken into sections to be drilled separately over the course of three years.

The command structure flows from the US Coast Guard under the Captain of the Port Zones. The USCG maintains control and may direct operations with a Federal On-Scene Coordinator in almost all circumstances. The Incident Commander will work alongside the Qualified Individual who acts on behalf of the vessel operator from within a Unified Command structure. This system is designed to ensure all parties are working cooperatively to the same plan but cedes operational decision making and approvals to the Coast Guard. Additionally, and importantly in the 24 hour news environment, all communications activity – Coast Guard, vessel operator and others – operates from a Joint Information Centre to ensure consistency of public messages.

Under the regime there is little scope for salvors to make money from being a named responder. Competition for the work means that pre-arranged response services are typically offered by US salvors at low, or no cost.

When required to actually perform salvage services the Lloyd’s Open Form is available however it is more common for salvors to contract on a “time and materials” basis. It is a not a generous commercial regime and, as with many other parts of the world, the reduction in the number of casualties and decrease of emergency response work has a significant commercial impact. Operators tend to have diverse income streams in addition to pure salvage in an effort to remain financially viable.

There are considerable barriers to entering the US salvage market. Chiefly it comes from the provisions of the Jones Act under which vessels operating from or between US ports in US waters must be owned in the US, built in the US, registered in the US and operated by US crews. It would not be possible under this regime, for example, for a substantial, but regional, European-based salvor to undertake salvage work in the US without major changes to their operating model – which would include a US-based subsidiary.

One of the outcomes of OPA 90 is the enhanced level of oil spill response preparedness. Training, drills, inventories of stockpiled equipment and specialist providers of response and clean up services mean that the US is undoubtedly a leader in this field. US practitioners have created some momentum towards an internationally recognised oil spill response contract with the possibility of the development of a standard form under the auspices of BIMCO.

Conclusions

The regime for salvage in the US is largely determined by the provisions of the OPA 90 and the associated Coast Guard regulations. It is a demanding and prescriptive regime which has its advantages and disadvantages.

It is a rigorous regime with high standards and with the possibility of civil and criminal ramifications but it has driven up the quality of vessels and the standard of their operation in US waters. It puts environmental protection at the heart of the regime and is absolutely clear about responsibility and liability for the cost of any clean up or damage that is caused. It promotes and facilitates swift intervention when necessary and attempts to ensure the quality and capability of responders. There is no doubt that the US is thoroughly well-prepared for the possibility of a marine disaster and it ranks among the best in the world if not the best in this regard.

However it could be argued that the system lacks flexibility and the command and control model is not as streamlined as in, for example, the UK. Intervention in Europe and Australia, by comparison with the US is more reliant on commercial arrangements between shipowners and responders at the time of an incident, backed by a strong powers of intervention and direction vested in non-political public servants.

Commercial opportunities for salvage within the US framework are limited and there are considerable barriers to entry for non-US operators and other new entrants. Statutory provision of response services is itself not a viable income stream on its own given the investment in infrastructure, equipment, personnel and training that is required to be an approved contractor.

However the commercial reality is that emergency response work is in decline globally and few operators can these days afford to base their business solely on the expectation of income from emergency response.

To conclude whether the US environment improves salvage provision depends on the perspective from which it is viewed. For protection of the environment and the coastline it would be hard to argue that the regime is deficient. For enabling a market-driven provision of salvage services and the meaningful economic returns to ensure investment and development it may be seen as too restrictive. In practice there have been few major casualties in the years since the requirement for both tank and non-tan vessels to operate under VRPs and it is not possible to make anything other than a subjective judgement on anecdotal examples about the quality of operational response provided in real cases.