EXXON VALDEZ CHANGES THE WORLD - SEIGO (SHIGEYUKI) SUZUKI 1989-1992

Seigo (Shigeyuki) Suzuki of Japan’s Mitsui O.S.K.Line was elected to succeed Basil Papachristidis as Chairman of INTERTANKO at the Annual Meeting in Madrid in May 1989.

If ever there was a time not to volunteer to take over the post of a chief spokesman for the tanker industry, this must have been it. On March 24 the tanker Exxon Valdez had grounded on laden passage out of Alaska and spilled some 30,000 tons of crude oil into the bay.

American public opinion was outraged. Political opinion, as is so often the case in democracies, followed rather than led. Exxon Valdez was two years old, American flag, manned by American crew and owned and operated by the biggest oil company of them all. Yet despite this the spotlight’s beam wandered off and looked for old, substandard, open-register, third-world crewed tankers as the villains of marine oil pollution.

It was unfortunate that shortly after Exxon Valdez’ accident, three other small, and not in themselves very significant, oil spills occurred around the United States coast, stirring up more publicity than they warranted and giving an impression of an industry irresponsible of its obligations, or out of control at best.

INTERTANKO’s hopes for the ratification of the Protocols to the International Maritime Organization’s oil pollution liability and compensation conventions might be said to have hit rocks at the same time as Exxon’s ship. Senator George Mitchell, a Democrat from coastal Maine and leader of the Senate, had stubbornly opposed ratification in Congress before the Exxon Valdez incident. Now he moved to the attack with a new Senate bill, setting up a uniquely national regime for the United States and expressly not pre-empting the rights of the states to add to the Federal law with their own provisions.

Environmental groups, which had been supporting ratification of the Protocols, saw the chance for more in Mitchell’s bill and switched their support to it. The environmental movement in America at the end of the acquisitive 1980’s was gaining a powerful voice and was identified with the “kinder society” which rejected many of the tenets of the closing decade. Oil is a symbol of economic growth and many greens were, and are, opposed to economic growth, and to oil.

A similar bill to Mitchell’s was introduced in the House of Representatives. INTERTANKO submitted statements at the hearings in Congress on the bills, urging support for the international regimes and ratification of the Protocols, and warning of the risks of no pre-emption.

INTERTANKO’s submissions advanced the benefits of the international regime in three major ways. The first was the ease of making and handling claims under the Conventions. Only one claim need be submitted, no proof of fault was required, and the fund ceiling was high enough to accommodate all reasonable claims. Secondly, the limitation ceilings, set though they were at high levels, were nonetheless insurable and therefore could be funded.

Thirdly, oil pollution risks which were international in nature called for international solutions internationally applied. No “national” solution naturally offers itself to a casualty potentially involving numerous different nationalities, sovereignties and jurisdictions. Consider - as was the case with a later tanker casualty - a Liberian tanker managed in America, with a mixed-nationality crew, sailing with oil belonging to a multinational oil company, loaded in Norway for discharge in Canada, stranding on the British coast.

Both bills passed through their respective houses of Congress in November 1989. In 1990 after further discussions the Oil Pollution Act 1990 was passed by Congress and signed by President George Bush into law. Opposition to the bill as it turned into an Act in the Washington process was led essentially by INTERTANKO and the British government’s team but the forces ranged in favour of the bill were too great. The oil companies also organised against the bill but their interest was limited to exempting themselves from liability under it: a position which was therefore naturally hostile to the tanker owner’s position.

The oil companies largely succeeded in their objective of escaping liability under the Federal law. Concerns about risks to American employment in the domestic refineries - especially in George Mitchell’s state of Maine - led to their exoneration. Tanker owners do not have a big constituency of employees in the United States, tax revenue or American status. Offshore tanker owners stood little chance of obtaining changes. The nationality of Exxon Valdez and its oil company parentage was overlooked by Congress.

President Bush signed the Oil Pollution Act, “OPA” as it became known in the industry, into law in August 1990. In pledging the support of his administration to OPA he nonetheless regretted that the Act failed to provide for ratification of the 1984 Protocols. “Our failure to ratify the Protocols,” said President Bush, “may weaken long-standing US leadership in the development of international maritime standards”.

OPA contained a lot more than adjustments to oil spill compensation liability provisions. It was and is a baggage of an Act, including criminal liabilities for mariners and shipowners for oil spills; sections laying down design criteria for future oil tankers - that they be built with double hulls; shipboard alcohol and drug abuse measures (believed to have been a significant factor in the Exxon Valdez grounding); operating measures in Prince William Sound (the scene of the grounding); a moratorium on explorations off the state of North Carolina; and amendments to the operating legislation for the Trans Alaska Pipeline. Not all the measures affected tanker operations.

The vastness of OPA’s scope betokened long and acrimonious discussions about means of implementation, involving many agencies of the American administration. Inevitably in the front line was the United States Coast Guard. INTERTANKO characterised the Act as “a hundred pages of uncertainty”, and established an OPA Committee to control the Association’s response. OPA matters were to dog INTERTANKO for years to come, and are still, as the Association marks its twenty fifth anniversary not all resolved.

INTERTANKO’s main concern was the potential for unlimited liability to fund compensation for oil spill damage in the Act. The Act does provide limitations - and at 1,200 dollars per Gross Register Ton the fund can be less than that available under the international system. However OPA’s provisions for breaching unlimited liability are weaker than those in the international regime and the expectation of the pessimists is that efforts will be devoted in compensation claims by pollution victims and their support teams to demolition of the limits.

The “double hulls” requirement in OPA was another target of INTERTANKO’s objections. The requirement in the Act was, said INTERTANKO, “inflexible and undesirable”. In 1989 INTERTANKO had joined the International Chamber of Shipping and the Oil Companies’ International Maritime Forum, OCIMF, in a study of the issue and presented a paper, “Measures to Prevent Accidental Pollution” to IMO’s Marine Environment Protection Committee. The OPA measure phases out single-hull tankers over a 20 year period but provided that, to be admitted to American waters, all new tankers covered by the Act had to be built with double hulls. INTERTANKO believed that the measure risked “freezing technology” and felt that, unlike IMO measures which often emerged to crystallise existing good practice, mandatory double hulls put too much reliance on a relatively untried technical concept.

Research into alternatives was initiated by INTERTANKO, in particular Philip A. Embiricos, who was author of the INTERTANKO publication “The Quest for the Environmental Ship”. Mid-deck tanks to reduce oil outflow, “rescue tanks”, and methods of achieving hydrostatic balance (the concept that if the oil in the tanker was at the same level as the sea water outside, then no outflow would occur) were included. This was a campaign INTERTANKO was to continue and which caused some divisions of opinion in the Association itself. A number of important tanker owners had committed themselves to building double hull Very Large Crude Carriers, VLCCs, and were irked that INTERTANKO continued to criticise and cast doubt upon the safety of double hull ships and their effectiveness in preventing oil spills.

On signing OPA into law President Bush had said that he was concerned that a consequence of failure to ratify the pollution liability Protocols would be a creation of a situation “in which larger oil shippers seeking to avoid risk are replaced by smaller companies with limited assets and a reduced ability to pay for the cleanup of oil spills”. This appeared to be happening, in 1991. Many reputable tanker owners decided not to trade to the United States. A study in Maine identified 15 companies holding between them 305 ships which were no longer prepared to trade to the United States.

Protection and Indemnity Clubs levied extra charges for trading to America - a cost that was not automatically recoverable by tanker owners from charterers in freight rates. The risk and the cost of trading to the United States were both mounting.

Another collision with the United States government came close in 1989. The American administration proposed a ban on Panama flag ships calling at United States ports, in order to put pressure on the Panamanian President General Noriega, accused of running drugs into the United States. In the event, Noriega was overthrown in an American intervention in Panama and the ban was lifted without being put into effect. However Intertanko was concerned that it gave discouraging signals to world shipping and freedom of navigation.

In 1990, war started again in the Middle East Gulf with the invasion by Iraq of Kuwait. The invasion was swiftly accomplished. Kuwait’s oil exports ceased and a United Nations ban on oil purchases from Iraq stopped Iraqi oil shipment. The effect on tanker shipping was secondary, with oil lifting patterns changing so replacement oil was supplied to customers relying on Kuwaiti and Iraqi oil. Outside the immediate theatre of war along the Iraqi and Kuwaiti coast no attacks on commercial shipping occurred.

By the end of February 1991 Kuwait had been liberated. The parting act of the Iraqi invasion forces was to set fire to Kuwaiti oil fields and to set off the largest man-made oil pollution of the sea yet by opening the taps at the oil loading terminals. A major containment, clean-up, fire extinguishing and repair operation got under way with teams from many countries and by the end of 1991, oil production had resumed in Kuwait at levels of 400,000 barrels per day.

1991 also marked the collapse of the Soviet Union. As with Kuwait, the effect on tanker shipping was indirect. Questions arose - still unresolved - over the future role of the new former Soviet Union states as oil producers, industrial consumers, ship owners, and tanker charterers.

The tanker market in 1989 was worse for big crude ships than 1988 but better for smaller more flexible tankers. Chartering volumes increased with a big rise in period chartering, though from a rather low base. 33 million deadweight tons of tankers were timechartered in 1989. The fleet size increased as scrapping was at a very low level. INTERTANKO’s survey expressed concern about declining availability of scrapping facilities. A huge and growing gap in prices developed between yard contract prices for new ships and second hand prices. The result was a continuing rise in second hand tanker prices, tankers being bought variously for speculation and to carry out life extension works. However, current freight earnings still failed to justify the purchase investment.

Rates rose more in 1990 with increasing demand - some of it for strategic security stockpiling. VLCC rates hit consistent levels over 20,000 dollars a day - the highest consistent levels since 1974 - but still well below the necessary reward level to show an immediate return on a new building investment. Only 7 VLCCs were recorded as being in lay-up. In 1991 VLCC rates rose further, to approach 25,000 dollars a day. However, uncertainties depressed the value of older VLCCs. Uncertainty about OPA, rising repair costs, changes in tax incentives, and tighter bank finance availability pushed the second hand price of a 15 year old VLCC down from 35 million dollars in 1989 to 26 million in 1990. Still well above scrap prices though.

The straight tanker tonnage supply-demand balance still showed a tanker surplus but a number of factors combined to reduce the surplus. Particularly featured were longer turnaround time in repairs, attributed variously to ships getting old, and higher standards being imposed (with works needed to keep these standards up). The Kuwait emergency had increased tankers storing oil, and many ships were slow steaming: bunker prices rose in 1990.

INTERTANKO expressed concern about the slowdown in scrapping, believing that more ships should be removed from the market - “not that age itself is the sole criterion for unsafe vessels” as the Annual Report for 1990 quickly noted. A growing number of observers believed that declining standards of ship building, lower specifications and lighter supervision, such as one might expect when budgets were squeezed tight, meant that many of the ships built in the 1980’s were in fact in much worse condition than those built in the 1970’s. High-tension steel, widely used in the 1980’s, was stronger than ordinary mild steel. However as a result it was used in thinner plates: and as it corrodes just as fast as mild steel, so it would reach critical thicknesses quicker than mild steel.

The replacement cost of a good-quality VLCC built to current standards in 1992 were estimated by INTERTANKO at 125 million dollars. To provide a reasonable return on capital - 12 percent - over 15 years required a daily timecharter income of 55,000 dollars - some twice the best prevailing levels over recent years. These figures seemed quite extraordinary, yet still some people invested in construction of new VLCCs.

Growing attention was being paid at this time to charterers’ policies in tanker selection. Was enough attention being paid by cargo owners, customers for the tankers, to the quality of the tankers being chartered? INTERTANKO highlighted charterers’ responsibility to use quality tonnage. Seigo Suzuki said that “if the market does not distinguish between good and bad quality ships, poor or superior management, then the current unsatisfactory situation will persist. The tanker market will reflect what the “rust bucket” operator is prepared to accept, and those shipowners who are not more quality conscious will not be rewarded, and will find it increasingly difficult to finance the higher costs necessarily incurred for quality. Charterers have the power to root out poor quality shipping by not chartering such vessels”.

An advertisement by INTERTANKO in Lloyd's List reflected the same message. Headlined “Reward Quality Tankers - Take a Realistic Approach to International Regulation”, it urged a proper freight rate for quality ships, criticised the unilateral action of the United States in passing OPA, and urged IMO to resist following along similar paths.

In fact, IMO was debating construction standards for new tankers and conversion requirements for existing ships to form an amendment to the Marine Pollution Convention, MARPOL 73-78. INTERTANKO was concerned to avoid “sudden death” provisions for existing tankers on reaching certain ages. The result, felt the Association, would be minimum spending on such ships as they approached the appointed age, and a greatly increased danger during that twilight period in the ship’s life.

At IMO’s Marine Environment Protection Committee meeting at Rapallo, Italy, INTERTANKO proposed instead the adoption of tougher Classification Society surveys, and methods to make it easier to police the condition of ships, like keeping survey records in a file kept onboard ship, available for reference.

America having gone off on a voyage of its own on oil pollution compensation, new discussions took place to relaunch the 1984 Protocols in a form likely to be brought into effect. As drafted they stood little chance of coming into force without ratification by the United States, the world’s largest oil importer. Proposals were tabled to amend the 1984 Protocols and they were re-presented with a lower entry-into-force threshold. They were adopted in 1992 but ratification of these 1992 Protocols was still to take some time.

INTERTANKO took part in discussions leading up to the Salvage Convention at the IMO Legal Committee. The Convention, adopted in 1989, replaced a 1910 Convention. Its main change, so far as the tanker industry was concerned, was to provide some reward for protection of the environment. Widespread concern had been expressed at the drop in salvage capacity world-wide due to the poor rewards - alongside the falling number of occasions on which salvage was called for.

INTERTANKO’s Bunker Information Pool launched the “White List” in 1990. This monthly publication aims to rate bunker suppliers on the basis of accurate quantity delivery of bunker fuel. Incorrect measurements, temperature and density calculations and other causes often led to inaccurate deliveries - sometimes including overdelivery but the errors tended more in the opposite direction. A progressive improvement in correct adherence by suppliers to contract delivery figures was noted.

By 1991 the hard work of OPA implementation was under way. OPA called for ships to adopt “Vessel Response Plans” - contingency plans for response to tanker accidents producing or risking oil spills. The United States Coast Guard’s complicated process of making rules started work, with the publication of an Advanced Notice of Proposed Rulemaking for contingency onboard response.

A Notice of Proposed Rulemaking on Financial Responsibility was also published by the Coast Guard in 1991, detailing the guarantees tankers were required to show that the owner had sufficient funds to fulfil his OPA liability. The proposed rule envisaged direct access against the tanker’s insurers, the P.& I.Clubs. P.& I.Clubs, accustomed to acting as indemnity guarantors, refused to accept primary liability in this way. INTERTANKO’s submission to the Coast Guard expressed concern that without P.& I.Club support the industry would be unable to comply with the proposed rule.

In April 1992 INTERTANKO was presented by Edward Heath, former British Prime Minister, with a Seatrade Award for Achievement for the innovative work on rescue tanks of its Safety Technical and Environmental Committee under the Committee’s Chairman Philip Embiricos.

Seigo Suzuki finished his term of office in 1992 and at that year’s Annual Meeting he was succeeded by Andreas Ugland from Grimstad, Norway.

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