Hurricanes and Their Cost on the Maritime Industry
Aside from the destruction that flows from it, how does a hurricane along the Gulf Coast affect the maritime industry that operates hundreds of terminals and moves thousands of ocean-going ships and inland tows along its waterways?
With the approach of a hurricane, the U.S. Coast Guard Captain of the Port will begin setting various port conditions advising the public and industry of the storm’s anticipated landfall. Once the port condition reaches category Zulu, no further vessel movements are permitted within the port. By that time, marine terminal operators will have shut down operations and ordered vessels to depart their berths, and ocean-going vessels will have left the port to evade or ride out the storm because such vessels are safer underway than they are moored or anchored. Inland towboats and barges will also move to alternative safe harbors via the intracoastal waterway or inland rivers if time permits. Those that remain hunker down at barge fleeting areas, where extra tiedowns are employed and tugboats often standby to provide extra power to keep the barge fleets intact.
Yet events like Hurricane Ida in Louisiana lay waste to the best-laid plans. Hundreds of barges broke loose along the Mississippi River during that storm and actually floated upriver causing extensive damage to riverside docks and facilities. While acts of God can serve to excuse the legal ramifications of nature’s wrath, if statutory or regulatory requirements designed to prevent marine casualties are violated, the violator may face a difficult evidentiary hurdle to overcome. The Supreme Court’s 1873 decision in The S.S. Pennsylvania v. Troop creates a presumption that such a violation requires the violator to prove not only that the violation did not cause but could not have caused the ensuing marine casualty. Barge fleeting operators may wish to consider closely examining their U.S. Army Corps of Engineers’ permit for the construction of their facilities to ensure that no unpermitted changes have occurred to the securing structures and mooring arrangements and the number of barges moored does not exceed that authorized by the permit.
As you might expect, hurricanes create delays in vessel movements and time is money. Who pays for the delays encountered? Vessel “owners” earn income through the payment of charter hire (for vessels on time charter) and freight (for vessels on voyage charters). Generally, under a time charter, owners continue to earn charter hire for every day of the charter, unless otherwise excused by the charter agreement. The SHELLTIME 4 charter form, for instance, provides an exception whereby the charterer is not liable for any delays or damages resulting from an act of God, among other events. Time charterers often subcharter the vessel as a “disponent owner” to a voyage charterer, who is obligated to pay freight to transport goods from one or more loading ports to one or more destinations. When the vessel is delayed beyond laytime (that is, the time authorized under the charter to allow the charterer to load and discharge the cargo), the voyage charterer is obligated to pay demurrage.
Voyage charters also include exclusions to the payment of freight. The ExxonMobil Voy 2005 charter form, for example, includes an exclusion for any loss or delay caused by an act of God, among other exclusions, but importantly, carves out demurrage, which means that if the vessel is on demurrage, that is, laytime has expired and demurrage is accruing, an act of God does not excuse the charterer from the obligation to pay demurrage to the disponent owner/time charterer. For example, if a vessel under both a SHELLTIME 4 time charter and an ExxonMobil Voy 2005 voyage charter is moored at a terminal in Port Arthur loading cargo and laytime has elapsed such that demurrage is accruing and a hurricane forces the vessel to leave the berth, the time charterer is not obligated to pay charter hire to the head owner for the delays caused by the hurricane, but the voyage charterer would be obligated to pay the disponent owner/time charterer demurrage at the rate set forth in the voyage charter. Of course, in each case where a contract is implicated, reviewing the specific contract language implicated is necessary to assess how it applies.
If as a result of a hurricane a vessel or vessels block a channel for an extended period, whether parties upstream can pursue a claim for business disruption damages depends upon whether the blockage results from an oil spill or some other cause. If an oil spill, the Oil Pollution Act of 1990 permits parties to recover economic losses caused by the spill even if they have not suffered physical damage to property in which they hold a proprietary interest. Otherwise, the Supreme Court’s 1927 Robins Dry Dock decision bars the recovery of economic damages unless the upstream party suffers such physical damage. Given the prevalence of hurricane strikes along the Gulf Coast, companies that depend upon open waterways for their revenue stream would be wise to add business-interruption insurance to their insurance coverage portfolios.
Where a shipowner faces physical damage claims arising from a hurricane, the Fifth Circuit has held that the shipowner can rely upon a force-majeure defense by proving that it “took reasonable precautions under the circumstances as known or reasonably to be anticipated.” The burden of proof rests “heavily” upon the shipowner. Liability turns upon whether the vessel causing the damage “ought ever to have been in that predicament.” Courts will closely scrutinize activities in the days leading to the storm to determine whether the vessel could have relocated, or if not, whether its mooring system was adequate under the known or reasonably anticipated circumstances.
In a hurricane’s aftermath, industry efforts turn to getting back up and running as quickly and safely as possible, damages are assessed and remedial works begins in earnest, parties either commercially resolve their claims against each other or seek legal intervention for assistance, and commerce resumes in short order. The storm’s fury rolls out and the economic powerhouse that is the maritime industry flips the lights back on.
“Hurricanes and Their Cost on the Maritime Industry,” by Keith Letourneau, was published in Texas Lawyer on July 2, 2024.
Reprinted with permission from the July 2, 2024, edition of the Texas Lawyer © 2024 ALM Media Properties, LLC. All rights reserved. Further duplication without permission is prohibited.