CAN TANKERS BE GREEN? - ANDREAS K.L. UGLAND 1992-1994
- 12 January 2001 11:30
- 01 September 2011 11:37
Battling with the poor public image of tanker owners and the tanker industry was a major priority of Andreas Ugland’s term of office.
The drawn-out litigation in the United States following the Exxon Valdez grounding and oil spill kept the flow of adverse publicity about tankers at an almost constant level. This negative - criminal - image no doubt contributed to the regulatory process being carried forward in America to implement the Oil Pollution Act (OPA), and the relative inflexibility of the American authorities in its application.
Oil pollution causes at sea were being attributed, grossly unfairly in INTERTANKO’s view, entirely to the operations of tanker owners. The principle of “the polluter pays” was being applied by OPA directly on tankers. This rule, seemingly reasonable, in fact produced major anomalies. If another ship ran down an innocent oil tanker which then spilled oil, should the tanker be held responsible for the oil spill damage? No doubt the tanker was “the polluter” - and indeed, under the International Maritime Organization’s oil spill compensation conventions, would call upon the tanker owner’s contribution in this case. But under OPA, with the risk of unlimited liability being applied, was this fair or tolerable?
Regulatory processes continued. INTERTANKO took a continued active part in the drafting of provisions for “vessel response plans” - onboard planning for actions to be taken in case of an oil spill risk. INTERTANKO was one of only two non-American bodies consistently involved in these discussions from the launch of OPA. Whilst vigorously opposing some of the more extreme - as INTERTANKO perceived them - of the proposed rules, nonetheless INTERTANKO was also active in giving assistance to its members who had, under the new rules, to submit their plans by February 1993 for every ship calling to the United States.
INTERTANKO took up the battle of pressing for charterer liability for oil spill compensation, jointly and severally with tanker owners, in line with the international system. This was another difficult issue, because Congress had removed charter liability from OPA following representations principally by smaller American refiners. “Big oil” had sat on the sidelines on this issue, partly because “big oil” also ran tanker fleets but also because the seed-corn of OPA, Exxon Valdez, was one of “big oil”’s ships.
Non-participation by charterers in the liability round, INTERTANKO felt, made a negative contribution to pollution prevention in America. Oil importers into America would have no incentive other than the freight rate by which to choose a ship to carry oil, and the concern was that substandard ships offered the lowest freight rates and would increase their share in the American trade. More effort might be expended in ingenious methods of avoiding liability risks under OPA by company restructuring, than in paying proper attention to improving the quality of the fleet. Well-known owners operating valuable ships would be likely to avoid American risks by seeking employment opportunities elsewhere.
Alarm was also sounded about one of OPA’s most wide-ranging sections - a provision admitting measures of compensation for damage to natural resources, where no identifiable “owner” loss could be adduced. The United States National Oceanic and Atmospheric Administration, NOAA, submitted a proposal, described by INTERTANKO as “a potential time bomb for shipowners”, for calculation of “non-use values”, or compensation for natural resources damage.
NOAA’s proposals were based on what was called “contingent valuation methodology”. This method of calculation required questioning respondents about their willingness to pay for the undamaged natural resource, to produce an assessment of its value and thus of the damage done and to be redressed. The random and emotive nature of these responses and consequent calculations of sums to be paid by tanker owners - alone - were seen by INTERTANKO as making for rough justice.
A survey by the Los Angeles Times used NOAA’s “contingent valuation methodology” to calculate the natural resource damage penalty which would have been applied to Exxon after the Exxon Valdez incident. Figures ranging from 3,000 million to 14,000 million dollars were produced for the damage to the South Alaskan coastline. Yet the total donations to American environmental charities - land and marine - in 1991 was 2,500 million dollars - lower than the Los Angeles Times’ survey’s lowest figure. Retribution, rather than compensation, appeared to be driving the respondents.
INTERTANKO now began an active outreach to the environmentalist community. This project was very much a personal objective of Andreas Ugland. A result of this had been the renaming of the Safety and Technical Committee as the Safety, Technical and Environmental Committee. However, more concrete measures were now taken including direct contact with “green” groups.
Some environmental groups already had consultative status at IMO - the same membership status as INTERTANKO. In particular, Friends of the Earth International, represented by Dr Gerard Peet of Rotterdam, had a good record, in INTERTANKO’s eyes, of putting up well-thought-out proposals to IMO which INTERTANKO was happy to endorse. Friends of the Earth International did not limit themselves to involvement in IMO: the organisation made powerful statements critical of “opportunistic environmentalism” - over-reaction to oil spills by certain groups which sought to advance their own separate agendas in the wake of a casualty.
A meeting in Washington in 1993 between INTERTANKO and American environmental groups produced large measures of agreement. However the American green groups were not, in the long term, willing to soften their line of piling maximum liability on to tanker owners. They did at least though recognise the logic in drawing cargo owners into the liability to compensate for the damage done by their oil when it spilled. Not that this tentative alliance between “greens” and tanker owners brought the prospect of oil importer liability nearer in Federal law.
Oil importers were however exposed to liability under legislation the drafting or revision of which now started by State legislatures in America. Some states - Florida for example - already had measures dating back over many years. More legislatively active states, like California, Texas and Washington now started considerations of extra localised measures. This was the anticipated consequence of the non-pre-emption provision of OPA. INTERTANKO feared a race between the States to impose harsher and harsher provisions. An INTERTANKO working party toured these coastal states to enter discussions about proposed measures and gather information to advise the members.
Another high-profile tanker casualty occurred in January 1993 when the ship Braer suffered an engine breakdown and stranded on rocks on the coast of the Shetland Islands, Britain. Once again, this casualty came amidst a run of accidents - fire onboard Aegean Sea off Coruña, Spain, and a collision between the Very Large Crude Carrier Mærsk Navigator and Sanko Honour in the Malacca Straits. The Braer casualty, because of its location, attracted the largest publicity, the attention of the media, and the environmentalists.
In the event, high winds and violent seas dispersed the light North Sea oil and dire predictions of a major ecological disaster proved unfounded. The reaction of the British government contrasted sharply with that of the Americans and an enquiry was set up under Lord Donaldson to examine measures to reduce the risk of shipping accidents and improve coastal protection from oil spills. INTERTANKO submitted written evidence to the enquiry and attended the enquiry to give verbal evidence.
INTERTANKO reached out to European environmental groups as well as the Americans. A number of contacts with Dr Peet were initiated and constructive views were exchanged. Greenpeace - a more “radical” group - was also contacted and the tanker owner’s case was put to them, and received a reasonable hearing and understanding. Lord Clinton-Davis, a former European Union Commissioner and Chairman of the distinguished group the Advisory Committee on the Prevention of Pollution of the Seas, ACOPS, addressed a Council meeting of INTERTANKO.
INTERTANKO had for many years provided speakers to marine and industry conferences but in May 1993 broke new ground by speaking at an expressly environmental conference in Rotterdam of the ‘North Sea Working Group’. The circle of environmental and wildlife contacts was expanded further with exchanges with the World-wide Fund for Nature, WWF, including sharing a platform at a Conference. “Green” groups were now regular participants at shipping conferences.
It was therefore a logical extension of these contacts that INTERTANKO should under Andreas Ugland begin to develop measures to improve the public image of the industry. INTERTANKO adopted a slogan for itself, of “Safe Transport, Cleaner Seas and Free Competition”. The slogan gave the Association an important rallying-point for policy actions.
A modest brochure explaining the working of the tanker industry which had been published in 1992 was reinforced by a new, colourful, and more extrovert brochure in 1993. This brochure listed the measures tanker owners had taken to improve safety and pollution prevention, while showing how the tanker industry’s income had fallen as costs rose. The brochure achieved the largest circulation of any INTERTANKO publication to date - it was circulated with a number of industry newspapers and magazines. It was translated into Swedish and delivered to shareholders in publicly-quoted tanker companies.
A Public Relations Committee was formed to discuss other measures which could be taken to promote positive images of the tanker industry. Higher profile publicity and written articles appeared in the trade press and from time to time in wider-circulation general publications like the Wall Street Journal and the American magazine National Review.
Some important messages were now being conveyed by INTERTANKO. World dependence on the tanker industry - 60 percent of crude oil reaches its destination by sea: the good record of the industry - both accidental and operational oil pollution from tankers had fallen sharply over the years: putting oil pollution from tankers into perspective - more oil entered the marine environment from draining car sumps into the town drain. INTERTANKO members and industry observers welcomed these developments.
The success of the new brochure was followed up by other fresh publications promoting the good environmental record of tankers and the essential service they provided. For the 1994 Annual Meeting in Washington some leaflets focusing INTERTANKO’s concerns about OPA and its effects were produced. The custom of Chairman Andreas Ugland of discussing his speeches beforehand with his Executive Committee gave presentations made by INTERTANKO a more consistent message.
Whilst it is difficult to attribute reasons for such events, the higher public profile INTERTANKO adopted on behalf of the tanker industry did coincide with decisions in the European Union and in Australia not to follow the American legislative example and develop a “new OPA”. The Europeans were looking at the aftermath of oil spills from tankers. The Australians were provoked into studying the issue following the casualty of the Kirki, a tanker whose bow fell off and was found to have been seriously corroded. However the main target for their concern was the bulk ore carrier, some 47 of which had sunk near Australia or on passage to or from Australia.
With the risk of a chain reaction of unilateral oil pollution legislation abating, INTERTANKO resumed pressure on countries to ratify the new 1992 Protocols to the oil pollution compensation Conventions. The 1992 Protocols replaced those agreed in 1984 which had themselves increased the level and scope of compensation available to victims of oil pollution from ships.
This had been first promulgated in the Civil Liability Convention 1969 and the Fund Convention 1971, which taken together made a tiered provision of compensation from tanker owner and cargo owner. The 1992 Protocols would once ratified and brought into effect make available a maximum compensation of some 275 million dollars per incident. The major difference between the 1992 Protocols and the 1984 ones was a lower operative threshold, a recognition that ratification by the United States was at best now postponed.
The demise of the 1984 Protocols had a certain irony. They had in the first place been proposed by the United States and vigorously negotiated by the United States Coast Guard. However, largely from pressure by the American oil companies concerned at the higher limits, the United States had held back from ratifying, and of course had taken a different line with OPA, which let the oil companies off the hook. The further irony is that the maximum levels of compensation available under OPA’s limited-liability calculations is below that available under the 1984 (and 1992) Protocols.
The ratification process remained slow, and INTERTANKO continually pressed for more speed in adoption of outstanding IMO Conventions. Presentations to meetings of European Union officials in Brussels and Ambassadors in Oslo showed even leading European nations to be deficient in their ratification record of basic Conventions. The world-wide record on ratification of the Marine Pollution convention, MARPOL 73/78, remained disappointing even ten years after it came into force. Inadequate provision of waste oil reception facilities was still top of the list of problems.
The market backdrop to these activities was not encouraging to tanker owners. The global recession of 1992 was the worst since the Second World War. Whilst tanker demand increased slightly, INTERTANKO noted that “the market has not generated enough income to cover even daily operational and voyage costs”. The average age of the tanker fleet was at its highest level since the 1939-45 War (the average age of the United States tanker fleet was 25 years) and there was a widespread belief that many tankers were no longer fit to trade. However, noted INTERTANKO, “low freight rates have prevailed world-wide irrespective of the condition of the tanker or the quality of the operation. The need for fleet renewal becomes pressing.”
Whilst freights remained flat, repair and maintenance costs rose sharply as stricter rules called for more works. Scrapping increased in 1992 to 13.14 million deadweight tons - over half sold to China. Second-hand values of VLCCs fell to near scrap levels. However the fleet grew slightly as 16.92 million deadweight tons of new ships were delivered. New building prices were falling as was the cost of borrowing money - the base index for calculating interest rate on shipping loans, the London Inter Bank Offering Rate (LIBOR) had fallen from 9 percent in 1988 to 4 percent in 1993.
Similar figures applied to fleet developments in 1993, with 12.28 million tons of ships scrapped and 17.23 millions delivered. However because more efficient new ships replaced old ones which had higher levels of time out of service for breakdowns and repairs, the effect on the tanker surplus was greater than the small growth figures alone indicated. An INTERTANKO estimate suggested that the surplus in VLCCs still amounted to some 40 ships.
Commentators on tanker safety had been looking at the rising age of the tanker fleet as the key indicator of declining safety standards. Should maximum age limitys be applied with an age “cut-off” for trading ships? INTERTANKO argued against this and believed that the problem was the maintenance and upkeep of the fleet, not its age.
The initiative INTERTANKO had taken in IMO at the Marine Environment Protection Committee meeting in Rapallo developed at this time into the “Enhanced Survey” programme adopted by Classification Societies. More detailed structural surveys of ships were to be carried out periodically by the Societies, coupled with greater sharing of the information that the surveys yielded, including INTERTANKO’s recommendation for onboard files of survey history. The Classification Societies had come in for criticism for having let safety and inspection standards slip: the Kirki’s lost bow, and other dramatic casualties like the Katina P which broke in half off East Africa were cited as examples of poor quality supervision.
Concern about the condition of ships had in some quarters been viewed by INTERTANKO as provoking over-reaction. Instead of concentrating on exchange of shared information, increasing numbers of bodies interested in the safety of shipping began to organise their own inspection regimes. The result was that a ship might be visited by any one of over a dozen different bodies seeking to “vet” the ship with superficial inspections, and cases of up to eight different surveying organisations being onboard at the same time were not uncommon. INTERTANKO formed a Ship Vetting Inspection Committee and, jointly with the International Chamber of Shipping and SIGTTO the Society of International Gas Tanker and Terminal Operators, published a “Code of Practice for Organising and Conducting Ship Inspections” to get these random vetting visits under control, and urged organisations to share results more readily.
Inside the INTERTANKO associations some strains began to develop. Some American members had quit in the wake of OPA, concerned about anti-trust implications of INTERTANKO’s agenda - involving possible anti-competitive behaviour. Major independent tanker owner Worldwide of Hong Kong quit in 1992 believing that INTERTANKO was not aggressive enough on commercial issues. Clearly INTERTANKO had not achieved any relief for tanker owners from the American legislative measures, although whether another approach might have brought better results is not self evident.
A number of members believed that INTERTANKO’s Oslo location was a disadvantage, keeping INTERTANKO on the sidelines, and recommended that the Association relocate to London. At an Executive Committee Meeting in Washington in February 1993 it was proposed that Tormod Rafgård retire after 25 years as secretary general and managing director, and a search began in 1992 for his successor. The Secretariat circulated a long and detailed questionnaire to INTERTANKO members, the results of which revealed overwhelming support for the administration and general satisfaction with INTERTANKO’s policies and services. But the opinion on relocation to London showed a big majority in favour of staying in Oslo.
INTERTANKO has always been an association with different purposes for different members. Members with smaller fleets and organisations value INTERTANKO’s information services like the Ports and Terminals Office, legal briefings on charterparty disputes and interpretations, technical guidance and compliance help like that provided to comply with the United States’ new rules under OPA. Bigger companies which have many of these services already available in house do not need INTERTANKO’s services so much - indeed they may well be net providers of information to INTERTANKO - but can benefit from the “political” clout that an Association representing some 80 percent of its constituency can bring. Even the largest independent owner can only claim four percent of the independent fleet.
Some press commentaries criticised INTERTANKO’s poor performance particularly over the OPA debates and attributed the failures they alleged to the Secretariat being out of touch, in Oslo. A particularly vitriolic attack by a columnist in Lloyd's List drew a robust reply which Lloyd’s List ran in full, running to three quarters of a page. In 1994 large and long-standing member A.P.Møller of Denmark - another company which had provided a past Chairman - quit. However whereas comments following Worldwide’s resignation had largely been critical of INTERTANKO, this time the press generally supported INTERTANKO and expressed puzzlement at A.P.Møller’s action. Møller had been critical of a number of areas of INTERTANKO developments over recent years: alternative policies they had proposed had been rejected by INTERTANKO’s Council and INTERTANKO lost a valued active member.
Shortly after A.P.Møller quit, INTERTANKO’s books were balanced somewhat as the American owners who had left INTERTANKO rejoined the Association.