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Friday, May 6, 2011

Some Maritime Terms Explained – Part 2

By Marilyn Raia
marilyn.raia@bullivant.com

This second part of a multi-part series continues the review of some words and phrases commonly found in maritime contracts and marine insurance policies but perhaps not in other contexts.

Force Majeure
Force majeure is a French phrase meaning “superior force”. A force majeure clause is commonly found in maritime contracts. It relieves the parties to the contract of their obligations and liabilities when circumstances beyond their control prevent them from performing under the contract. Examples of circumstances that might constitute a force majeure are war, strike, riot and Act of God. A force majeure clause does not, however, excuse a party from its negligence or failure to perform under conditions that are ordinary or expected, such as a storm that is forecast.


General Average
General average is an equitable principle by which a voluntary loss suffered by one party to a maritime venture is shared proportionately by all parties to the venture, the venture most commonly being the transportation of goods.

In the early days of shipping, merchants or guards would travel with the goods to assure they would not be stolen or thrown overboard. If the vessel encountered a peril requiring the jettison of cargo, the master would designate the shipment(s) to be sacrificed to enable the vessel and the cargo to be saved from the peril. Disputes arose between the masters and shippers who did not want to lose their goods for the benefit of others. A system was developed to compensate the owner of goods that were sacrificed. Those who benefited from the sacrifice contributed proportionately to the party whose goods had been sacrificed. That system is called general average and can be traced to the sixth century. It pre-dates marine insurance.

In more modern times, there are two types of “sacrifices” that give rise to a declaration of general average: 1) the physical loss of a part of the vessel or her cargo to stabilize the vessel during the peril; and 2) an extraordinary expense incurred for the joint benefit of the vessel and cargo such as charges for towing a disabled vessel. When the sacrifice is made or an extraordinary expense is incurred, a general average may be declared triggering the obligations of those who benefited to make a contribution toward the amount of the sacrifice or expense.

Not all sacrifices or extraordinary expenses are a proper basis for the declaration of general average. A vessel that is required to make a sacrifice or incur an extraordinary expense because of unseaworthiness is not entitled to recover from the other parties in general average.

A general average adjuster determines the amount of the contribution to be made by each party benefiting from the sacrifice. The general average adjuster prepares a general average adjustment and bases the contribution amount for each party on the saved value of that party’s property, including the vessel itself and cargo.

When preparing the general average adjustment, the general average adjuster is guided by certain rules. In 1864, an international maritime conference was held in York, England to codify the rules that would apply to general average adjustments. A second conference was held in 1877 in Antwerp, Belgium, after which the first set of York-Antwerp Rules was adopted. The rules have been revised several times since then, most recently in 2004. The preparation of a general average adjustment can take several years depending on the circumstances and number of parties involved. A declaration of general average by the owner of a large cargo vessel can involve hundreds, if not thousands, of interests.

Often cargo owners who must make a contribution in general average are asked to provide financial security for their contributions before they can take delivery of their cargo, pending the final general average adjustment. That security can take the form of a bond or guarantee from an insurance company.

Himalaya Clause
A Himalaya clause is customarily found in bills of lading but can be found in other maritime contracts. It is a clause by which the benefit of the defenses and limitations of liability in the contract are given to third parties who are not parties to the contract, but may play a role in the performance of the contract.

The clause came from a 1950’s British case, Adler v. Dickson, involving a vessel named SS Himalaya. In that case, a passenger was injured when a gangway fell and she was thrown to the dock below. Her ticket contained a provision exonerating the carrier from liability. The passenger sued the master and boatswain instead, arguing they could not benefit from the exculpatory provision in the passenger ticket because they were not parties to it. While the court agreed that a carrier of goods or passengers could provide for the exoneration of third parties from liability, it held the injured passenger’s ticket did not expressly or even impliedly allow the carrier’s employees to benefit from its terms. Since Adler v. Dickson, Himalaya clauses have become commonplace in bills of lading to extend the defenses and limitations of liability to stevedores, terminal operators, and other parties who participate in the handling and transportation of cargo.

Himalaya clauses may vary in their terms. When there is a dispute over whether a particular party may benefit from a Himalaya clause, the court will interpret the Himalaya clause like other contractual terms. That is, the court will consider what it actually says. For example, if the language of the Himalaya clause in a bill of lading requires a direct contractual relationship between the carrier and the party seeking to be a beneficiary of the bill of lading, the court will not extend the benefits of the bill of lading to a party not in a direct contractual relationship with the carrier. In that situation, if a stevedore who damaged a shipment were hired by the terminal operator and not by the carrier, the stevedore likely will not be allowed to benefit from the defenses and limitations of liability in the bill of lading issued by the carrier. On the other hand, if the Himalaya clause extends the benefits of the bill of lading to “any person who participates in the transportation of the cargo”, direct contractual privity between the carrier and the third party beneficiary is not required for the extension of the bill of lading benefits to the third party and the stevedore hired by the terminal operator likely could enjoy the benefits of the bill of lading.

Inchmaree Clause
An Inchmaree clause is commonly found in named perils marine insurance policies. Like the Himalaya clause, it originated with a British case. Thames & Mersey Marine Ins. Co. Ltd. v. Hamilton, Fraser & Co., an 1887 case, involved the SS Inchmaree, which suffered a rupture of the air chamber in a donkey pump due to the closure of a valve that should have been left open.

The Inchmaree’s hull policy covered certain named perils of the seas and “other like perils.” The vessel owner argued the closure of the valve was covered because it was due to “other like perils”. The court disagreed, holding the covered “other like perils” must be related to the perils of the seas and what caused the rupture, likely crew negligence in failing to open the valve, was not so related. As a result of that case, underwriters voluntarily expanded the coverage available to insureds under named perils hull policies.

The covered perils added to a hull policy in the Inchmaree clause include, among others, accidents in loading or discharging cargo; bursting of boilers; negligence of the masters, officers, crew or pilots; negligence of charterers and repairers if they are not insured under the policy; breakdown of machinery; breakage of shafts or latent defects in the hull and machinery. Coverage under the Inchmaree Clause has a condition. There is no coverage for the added perils if the loss or damage was caused by the lack of due diligence by the insured or the owners and managers of the insured vessel. And, the masters, officers, crew and pilots are not considered owners of the vessel for the purpose of determining whether due diligence was exercised, even if they own shares in the vessel.

Part 3 of this series will continue the review of some frequently used terms in maritime and marine insurance contracts.

Marilyn Raia is of counsel in the San Francisco office of Bullivant Houser Bailey. She specializes in maritime and transportation-related matters. She can be reached at marilyn.raia@bullivant.com.

Bay Area’s WETA Seeks Proposals for Water Transit System Operations

The San Francisco Bay Area Water Emergency Transportation Authority ("WETA") has issued a Request for Proposals ("RFP") pursuant to the Federal Transit Administration’s Best Value Procurement Guidelines. The purpose of this procurement is to select a firm to operate the WETA Water Transit System.

WETA has prepared a description of the work activities and deliverables (the “Work”), appended to the RFP as Appendix A (the “Scope of Work”), and a form of Agreement for the Provision of Water Transit Services (see Appendix E for the “Agreement”).

Together, the Scope of Work and the Agreement detail the Work, performance standards, term, compensation mechanism, insurance requirements, and other contractual issues. Each response to the RFP (“Proposal”) submitted by a water transit operations firm (“PROPOSER”) must respond to the entire Scope of Work.

Key Dates
Issue RFP: May 6, 2011
Pre-proposal conference: 9 a.m. May 26, 2011
Deadline for RFP questions/clarifications: 3 p.m. June 14, 2011
Deadline for WETA Response to questions/clarification: June 20, 2011
Deadline for submission of Proposals: 3 p.m. July 12, 2011

To Download the RFP, please visit http://watertransit.org/contract_opp.aspx

Attn: Ernest Sanchez
Manager, Transportation Services
Pier 9, Suite 111, The Embarcadero
San Francisco, California 94111

Horizon Lines Obtains Charter Payment Rate Cut on Three Alaska Tradelane Vessels

Charlotte, NC-based Jones Act carrier Horizon Lines announced Monday that it has finalized an agreement with former parent-firm CSX Corporation to reduce the carrier's charter payments on three vessels being leased from CSX.

Under the terms of the deal, the embattled carrier's charter hire expense on the three vessels has been reduced by $3 million per year, retroactive to January 2011, and carrying through the January 2015 expiration of the charter. The agreement, according to Horizon, will represents a total savings of $12 million for the carrier over the remaining life of the charter.

The three chartered vessels, the Horizon Anchorage, Horizon Tacoma, and Horizon Kodiak, serve in the Alaska tradelane and were built in 1987.

"We greatly appreciate the willingness of CSX to provide meaningful financial assistance as we work to refinance our debt and position Horizon Lines for long-term success," Horizon Executive VP and CFO Michael Avara said in a statement. "As our former parent company, CSX remains a valued and very important business partner."

The reduction in charter hire expense of $3 million achieved this year under the agreement was previously included in the carrier's estimated 2011 cost-savings projections of $18 million or greater.

A May 21 default by the carrier under a convertible note indenture was staved off when a federal court agreed last week to reduce Horizon's fine related to a rate and surcharge fixing conspiracy involving maritime cargo handling over a six-year period. The court agreed to reduce the carrier's fine from $45 million to $15 million.

Report: Los Angeles Port Air Quality Improved in 2010

The Port of Los Angeles announced Thursday that new air quality data from monitoring stations in and around the port show airborne elemental carbon concentrations in the port area fell in 2010 for the fourth straight year. The data, part of an annual air quality report, show that elemental carbon was down 10 percent compared to 2009 and cumulatively down 50 percent since 2006. The measured 2010 levels were the lowest since monitoring began in 2005 – despite the port handling 16 percent more cargo in last year.

Elemental carbon, used as an indicator of ambient diesel particulate matter, or DPM, is most often seen as the soot component of diesel exhaust. DPM has been labeled a toxic air contaminant and known carcinogen by California state health officials.
The port has made reducing DPM, oxides of nitrogen and oxides of sulfur a priority since adopting the omnibus environmental policy, the Clean Air Action Plan (CAAP), in 2006.

“I’m very pleased to be able to report that we are living up to our CAAP commitment – we pledged to cut Port-related emissions by 45 percent, and these results show that for diesel exhaust we did more,” Port Executive Director Geraldine Knatz said.

The new data also showed a reduction in the levels of another major air pollutant related to diesel exhaust, PM2.5 (particles less than 2.5 microns in size). The port's 2010 PM2.5 levels met federal and state standards for the third straight year, and for the first time PM10 (particles less than 10 microns in size) also met state standards in the port-abutting community of Wilmington (there is no federal standard for PM10).

The port cites this data as proof positive that the CAAP, other port actions, and significant buy-in from stakeholders and industry are improving the port-area air quality in significant ways.

”This dramatic decline in the amount of DPM and the fact that we have attained air quality standards for both kinds of PM show how effective the measures we adopted in the Clean Air Action Plan are at reducing harmful air pollutants in neighboring communities,” Port’s Director of Environmental Management Chris Cannon said. “Every year shows an improvement over the previous year, making me very optimistic that we are going to achieve our Clean Air Action Plan goals.”

A major component of the port's CAAP (adopted in conjunction with the neighboring Port of Long Beach) has been the port's self-titled Clean Truck Program. Implemented in 2008, the program required all trucks serving the two ports to be 2007 model year or newer as of Jan. 1, 2010. With the assistance of a more than $650 million investment by the trucking industry to modernize the ports-servicing truck fleet, more than 90 percent of all moves in the dual port complex are now handled by a drayage fleet of roughly 10,000 cleaner-burning 2007 or newer model year trucks.

The Port of Long Beach is expected to issue its annual air quality report within the next several months.

State Board Approves Big Jump in Bay Area Pilot Rates, Surcharges

A California state board has approved a substantial raise to pilots that guide commercial vessels to and from dock in the Bay Area.

The California State Board of Pilot Commissioners voted Tuesday to increase rates and surcharges that the pilots charge shipping lines.

In addition to the actual pilot rate on each vessel call, shipping lines must also pay the pilots additional surcharges for pilot training, pilot pensions, and pilot fuel/equipment.

Pilot revenues are generated by applying the rate to the size of the ships they guide. Larger ships generate larger rates for the pilots. However, as the industry continues to increase the size of vessels, pilots’ incomes increase accordingly, regardless of any increase in rates.

Because pilot salaries are directly tied to the amount of total funds collected from the shipping lines, the rate and surcharge increases would raise the average annual income of the approximately 60 Bay Area pilots from about $400,000, coupled with predicted growth in shipping, to about $530,000 within the next four years.

In 2002, when the last rate increase was recommended by the state, the Board of Pilot Commissioners approved increased pilot rates by a cumulative 22 percent, but due to increased ship sizes pilot incomes actually increased by 53 percent.

If the board-approved rate and surcharge increases are approved by the State Legislature, the Bay Area pilots, already the highest paid pilots in California, would become some of, if not the most, highly paid port pilots in the entire nation.

By comparison, pilots in the Long Beach/Los Angeles port complex – the busiest container complex in the Western Hemisphere – make about $227,000, while remaining some of the most highly trained and well-respected pilots in the industry.

The Pacific Merchant Shipping Association, which represents most of the shipping lines and terminal operators on the West Coast, opposed the increases requested by the Bay Area pilots. The group proposed that rates and surcharges be adjusted so the pilots would earn about $425,000.

“We appreciate the important work done by harbor pilots everywhere and believe they should be fairly compensated for their work,” PMSA president John McLaurin said. “However, for the State of California to recommend increasing this rate and further driving up pilot compensation is irresponsible and unjustified.”

The state board approval comes after several days of hearings into the rates and surcharges increase request by the pilots.

Prior to the hearing, the San Francisco Bar Pilots Association, which represents the pilots, submitted a proposal to the Board of Pilot Commissioners requesting a rate increase of 22 percent over four years. This request would have boosted the average annual Bay Area pilot salary to more than $600,000 by 2015.

Tuesday, May 3, 2011

Study Tracks Truck Turn Times at SoCal Ports

The results of a major study of truck turn times at the ports of Long Beach and Los Angeles has found that nearly 60 percent of all truck visits to the ports take less than an hour and more than 90 percent of truckers spent less than an hour waiting to get into a terminal.

Commissioned by PierPass Inc. and Ability/Tri-Modal Transportation Services Inc., the Turn Time Study used Global Positioning System equipment to track 250 trucks and develop a representative model of the 10,000-truck strong drayage fleet servicing the two ports.

The study was developed as a tool to help the ports community discuss visit times based on factual information rather than on anecdotes, and provides the ports stakeholder with a common set of metrics regarding truck turn times.

The study evaluated three time periods: queue time, i.e., time spent waiting in line outside the gates; terminal time, i.e., time spent from the entry gate to the exit gate; and visit time, the sum of queue and terminal time.

Key findings of the study include:
  • The median queue time in October was 20 minutes and the terminal time 31 minutes, for a total median visit time of 51 minutes.
  • The vast majority of visits take less than two hours: 27 percent are under 30 minutes, 58 percent under an hour, 75 percent under one and a half hours, and 86 percent under two hours. A further 12 percent of visits take two to four hours, and 1 percent to 2 percent of visits take between four and eight hours.
  • About 91 percent of queue times were under an hour.
  • The median queue and visit times include trucks that choose to arrive early to wait for the 6:00 p.m. off-peak gate period to start.
  • The study found that daytime visits are shortest for trucks that arrive at 3 p.m. Median visit time for trucks arriving between 3 p.m. and 4 p.m. was 45 minutes, while for trucks arriving between 5 p.m. and 6 p.m. median visit time was 90 minutes, reflecting the 5 p.m. dock worker meal break.

The study also determined that when cargo volumes rebounded in the spring and summer of 2010, the decisions by terminal operators in the two ports to open additional service hours to hold down congestion proved effective. While cargo volumes increased 6 percent from May to October of last year, the study found that visit time decreased 13 percent.

Dr. Val Noronha, President of Digital Geographic Research Corporation that conducted the study, said that a major conclusion of the study is that "there is plenty of capacity in the ports. A surge in truck volume causes just a slight ripple in visit time. A very important aspect, in my view, is that the parties have come together to address this issue cooperatively. That is huge. That communication opens up possibilities in terms of strategies that we can use in the future."

Phillips to Retire as Head of Southwest Washington Business Recruitment Group

The long-time president of the Columbia River Economic Development Council has announced that he will retire from the business recruitment non-profit effective May 21.

Bart Phillips, hired as CREDC president in 2000, tendered his resignation at a Monday morning meeting of CREDC's board of directors.

CREDC, which is funded through member dues and government grants and made up of 130 members governed by a 41-member board of directors, has come under recent fire by the Washington-state Port of Vancouver and Clark County officials for the group's perceived lackluster performance in luring new businesses to Southwest Washington state.

The CREDC board said it will begin a search for a new president, a position that was earning Phillips $150,000 a year. In the interim, Southwest Washington Workforce Development Council executive director Lisa Nisenfeld will handle the day-to-day operations of CREDC.

Last November, the governing board for the Vancouver port cut 25 percent of its annual financial support for CREDC citing disappointment with the non-profit's recent inability to create local jobs.

The port move comes after a similar shellacking of CREDC's efforts by the Clark County Board of Commissioners around the same time. The county board criticized the non-profit for a lack of communication with area partners and failing to support local companies.

CREDC describes its mission as promoting "job creation and investment while maintaining the county's exceptional environment and high quality of life." Clark County currently faces an unemployment rate over 12 percent.

Port commission President Jerry Oliver told The Columbian in November 2010 that a year prior CREDC had promised 12 leads to businesses that could benefit the port by expanding or relocating. Oliver said that not one lead that met the criteria materialized.

While the port board split 2-1 in its vote to reduce funding to CREDC, the lone dissenter Oliver stated that he actually wanted more drastic cuts to port funding for the group. Following the approval of the $10,000 cut to CREDC funding by the port, the commissioners signaled that further cuts could be expected if CREDC did not address the port's concerns by June of this year.

Railroads and Major Union Reach Tentative Labor Pact

The nation's largest railroad operating union and a group representing the nation's leading railroads have reached a tentative five-year labor deal.

The United Transportation Union, which represents about a third of the nation's railroad workers, and the industry-representing National Carriers' Conference Committee, announced the deal Monday.

The UTU is the largest railroad operating union in North America with more than 600 locals, and all told, represents about 125,000 active and retired railroad, bus, mass transit and airline workers in the United States. The UTU is representing about 38,000 railroad employees in the negotiations, which began in January 2010.

The NCCC represent more than 30 railroads nationwide, including the West Coast Class I railroads BNSF and Union Pacific, as well as the other Class I railroads CSX Transportation, Kansas City Southern, and Norfolk Southern.

Terms of the tentative agreement have not been released pending a vote on the deal by the UTU members. If approved, the deal would apply retroactively to January 1, 2010.
Deals between the NCCC and two labor groups representing 11 other unions, remain in mediation.

California Bill Seeks to Make Drayage Drivers Employees, Ban Independent Operators

A bill set to appear before the California Assembly's Committee on Labor and Employment on Wednesday, seeks to make all drayage drivers in the state employees of the trucking firms they work for and effectively ban independent owner operators from working in the state's ports.

The vast majority of more than 15,000 drayage drivers in the state are currently independent owner operators.

Assembly Bill 950, introduced by Speaker of the Assembly Rep. John Perez (D-Los Angeles), would dictate that "for purposes of state employment law (including workers' compensation, occupational safety and health, and retaliation or discrimination) a drayage truck operator is an employee of the entity or person who arranges for or engages the services of the operator."

The bill by Perez, a union organizer and cousin of Los Angeles Mayor Antonio Villaraigosa, mirrors a recent move by the International Brotherhood of Teamsters to attack independent owner operators status as a "misclassification." Teamsters president James Hoffa has repeatedly stated that a primary organizing goal of the Teamsters is to unionize the nation's drayage drivers. Hoffa worked closely with Villaraigosa to develop "employee-only" language in the Port of Los Angeles Clean Truck Program – language that remains in litigation.

Under current law, per-load independent owner operators cannot be unionized, only per-hour employees.

More than 30 labor, environmental, and social justice groups have signed onto the bill as supporters.

"The indisputable reality is that port drivers misclassified as "independent contractors" do exactly the same work as the much smaller group of port drivers who some trucking companies have hired as 'employees,'" the California Teamsters Public Affairs Council wrote in its statement to the bill.

Two-dozen industry groups, representing the vast majority of the intermodal industry in the state and including several groups representing drayage drivers, have tendered their opposition to the bill.

"Rather than address potential misclassification, this bill reaches too far in eliminating a class of drivers and small businesses that represent the dominate model for the drayage industry," the California Trucking Association said in its opposition statement to the bill.