February 28, 2019 Feature

A Century of Maritime Law and Its Impact on Other Regulated Industries

By Charles A. Patrizia

Since the founding of our Section in 1917, technology has changed the maritime industry and the industry has driven technological change. At the same time, much of the heritage of the maritime industry and its governing body of law has remained constant.

New Technologies, Time-Honored Law

Navigation is now aided by satellite, not sextant and the sighting of the sun or stars. Cargo travels containerized, and the role of stevedores to load and unload break bulk cargo is reduced.1 Diesel is the common power source, not coal-fired steam (though wind power is touted as resurgent). Automation has reduced crew size particularly on merchant vessels, even as vessel size increases. The largest container vessel is now more than 170,000 tons, yet caries a crew of fewer than 30. The newest passenger vessel—the Symphony of the Seas—will transport more than 6,000 passengers served by 2,000 crew members, whereas the Titanic could transport 2,500 passengers served by 1,000 crew members. Some countries’ navies and merchant marines are beginning to use drone vessels.

Yet with all those changes, the perils of the sea remain. A person lost overboard will always be a speck difficult to find in a rolling ocean. Storms still batter ships, and despite advances in navigation, there are still groundings and collisions.

And the law applicable to all these matters still draws on hundreds of years of admiralty cases and still carries its own special vocabulary—general and specific average, maintenance and cure, charter parties, and insurance clubs. While virtually all of the usual claims under the typical carriage or charter contracts are now subject to arbitration and federal cases have declined, arbitration decisions routinely cite U.S. and English admiralty cases.2

Maritime Industry in 1918

Of course, the defining event of 1918, as our Section began to evolve, was World War I. The War had reminded Congress of the decline of the U.S. merchant fleet and the country’s dependency on foreign shipping. The high-water mark of the U.S. merchant fleet was 1860—nearly 60 years before—when the U.S. fleet was nearly equal to Great Britain’s but superior in average size, speed, and profitability.3 By the start of the “Great War,” the United States had only about four percent of the world’s steamships, and the country was grossly underprepared to handle commerce while Britain’s fleet was under attack, much less to carry troops and material where needed.4 In 1916, Congress passed the Shipping Act to foster an increase in the U.S. fleet. At the start of 1917, there were only 61 U.S. shipyards, and of those, 24 were capable only of producing wooden, not iron, ships.5 A year later, as the Armistice was signed, there were 341 shipyards. Production of vessels had substantially increased, but nearly a third of the vessels under contract were delivered after the Armistice had been signed.

That first lesson, that the U.S. domestic fleet needed support, led to a major legislative change. In 1920, Congress passed the Jones Act, which required vessels engaged in the “coastwise trade” (i.e., carrying cargo between U.S. ports) to be U.S.-flagged. In practice, while the law supported domestic trade, it failed to re-establish the U.S. fleet as a major international player. In 1920, the 16 million tons of registered U.S. shipping carried about 52 percent of the nation’s seaborne trade. By 1939, U.S.-flag shipping tonnage had declined by one-quarter and carried only 22 percent of America’s maritime commerce.6

A second major lesson of the Great War, and one that had a significant impact on two of the industries of our Section, arose out of the advent of radio communications and its effect on shipping. While radio communications proved an initial boon, allowing vessels to communicate with shore and providing greater control, as early as the Russo-Japanese War, adversaries had recognized two key opportunities: first, interception of radio communications would give insight into enemy plans and intentions, but second, directional finding allowed an adversary to pinpoint the location of a transmitting vessel.7

To establish control over radio broadcasts as the United States entered World War I, President Wilson issued Executive Order 2585.8 The President directed that all radio stations in the United States that were required for “Naval communications” be taken over by the government, which created the potential to close all radio stations not necessary for Naval communications. The Order was later amended to allow the Navy to remove all “radio apparatus” from stations not required by the Navy.9

The Navy promptly began enforcing the closure orders, going so far as to use triangulation and directional finding to locate unauthorized stations and seize the equipment. Even while doing so, the Navy also continued to pass commercial traffic, returning $74,852.59 to the Treasury as fees received. 10

The federal government’s seizure of radio operations and the Navy’s ongoing desire to control radio communications led the then-Secretary of the Navy to propose that the Navy permanently control and own all radio communications. Congress refused to agree, and private control resumed in 1919, but congressional attention to the need for regulation of frequencies and its relation to defense requirements led to the Communications Act of 1934.11

Maritime Issues 1940–1950

Despite the lesson of World War I and the value of shipping in transporting men and material to the war zone, the early months of World War II saw history repeat itself—the United States lost 519 merchant vessels in the first 180 days of the War. The United States once again engaged in a federal program to build merchant vessels. Using the lessons of the Shipping Act of 1916, the government created the Liberty Ships program that built more than 5,000 cargo and troop ships by September 1945. But the U.S. Merchant Marine paid a higher price relative to its numbers than any branch of the military save the Marine Corps: 733 U.S.-flag merchant ships were sunk and 5,638 American merchant mariners were lost in all theaters during the war, representing more than 10 percent of all Allied losses (5,150 Allied merchant ships, 21 million tons of shipping sunk worldwide). At the end of the War, more than 5,500 ships comprising about 40 million tons of shipping—60 percent of the world’s merchant tonnage—were operating under the U.S. flag, an increase of 43 percent since 1939.12

At the end of the War, the Merchant Ship Sales Act of 1946 led to the sale of more than 5,000 vessels from the U.S. fleet to private owners, many of whom were foreign.

Although the active U.S. merchant fleet still had 3,644 ships in 1948, two maritime historians noted that the 1946 Act “laid the groundwork for many of the problems U.S. operators had in maintaining any reasonable amount of market share—even in the U.S. trades. Even more than the creation of a strong foreign-owned merchant fleet, the 1946 Act set the foundation for a whole new concept —flags of convenience . . . .”13

Maritime Issues Post 1950

The combined effects of regulation, the higher cost of U.S. crews, and the growth of foreign fleets led to a substantial decline in U.S. shipping. In 1955, there were 1,075 merchant ships under U.S. flag. By 2010, there were only 221.14 “Although operational efficiencies were dramatically enhanced and despite the further infusion of shipbuilding funds (as a result of the Merchant Marine Act of 1970), by 1990, American-flag ships carried just four percent of the country’s seaborne commercial tonnage.”15

The greatest change in the maritime industry, however, was the advent of containerized shipping and the integration of truck, rail, and maritime commerce. The insight of a trucking company executive, Malcolm McLean, led to standardized containers, which were easier to load and unload and easier to move from one intermodal transport segment to another, and which significantly reduced costs. In 1956, loose cargo cost $5.86 per ton to load. Using an ISO shipping container, the cost was reduced to only .16 cents per ton.16 Although it took a decade or more to be fully implemented after the first voyage of a converted tanker in April 1956, containerization effectively revolutionized the maritime industry, and with it, much of the entire cargo transportation industry. The reduced cost of handling in turn contributed to the globalization of industry.17

With standardized containers and standardized contracts, maritime disputes have migrated away from the courts and to arbitration. In 2016, the major marine arbitration society in London, the London Marine Arbitrators Association, had 1,700 maritime arbitrations. Another 50 marine arbitrations were sited in London under International Chamber of Commerce or London Court of International Arbitration Rules. Singapore also had over 120 SIAC, SCMA, LMAA, and ICC cases in in 2016, with Hong Kong hosting another 46.18 The New York Society of Marine Arbitrators alone issued 29 awards in 2016.19

The effect of this migration of disputes from the court room to the arbitration hearing on the future development of maritime law could be striking. Arbitrations are technically not precedential, and decisions generally are not published. Commentators worry that the traditional, incremental development of maritime law through case law is diminishing.20 This increasing absence of a developing body of case law is particularly troubling as technological change creates an increasing need for continued evolution of the law as, for example, we move further into the use of drone or autonomous vessels and see increased regulation of emissions and discharges from vessels.21 A consistent development of a governing body of law for such cutting-edge issues across all international forums will be important to help foster a vibrant maritime industry in the century to come. 

Endnotes

1. As noted later in this article, vessel size has increased substantially, especially among containerized vessels. While stevedores do not enter holds on container vessels to move pallets or cargo, the largest container vessels now carry 20,000 individual containers. At a typical container port, it will take 3,000 people working three days around the clock to unload the vessel and reload. See Costas Paris & Mike Sudal, Giant Ships Require Extra Push in Port, Wall St. J., Dec. 21, 2018, at B5.

2. Federal Judicial Center information suggests that for coastal district courts, admiralty cases about the time of our Section’s founding were approximately half the caseload. And in districts with relatively light caseloads otherwise, such as Delaware and Rhode Island, maritime cases were the majority of the caseload. See Federal Judicial Center, Jurisdiction: Maritime and Admiralty, FJC.gov, https://www.fjc.gov/history/courts/jurisdiction-admiralty-and-maritime (last checked Dec. 26, 2018). Court statistics for 2017 show only 691 “marine contract” cases and 17 “marine personal injury” cases filed in federal district courts, out of more than 271,000 total cases filed. See Table C-2, U.S. District Courts––Civil Cases Commenced, by Basis of Jurisdiction and Nature of Suit, During the 12-Month Periods Ending June 30, 2017 and 2018, Admin. Off. U.S. Crts., http://www.uscourts.gov/statistics-reports/statistical-tables-federal-judiciary-june-2018 (June 30, 2018).

3. See The History of the Maritime Industry, Transportation Inst., https://transportationinstitute.org/know-our-industry/national-defense-role/history/, (last visited Dec. 26, 2018).

4. Id.

5. Id.

6. Id.

7. See Tim McGeehan & Douglas Wahl, Editorial, To Rule the Airwaves, Maritime Executive, http://www.maritime-executive.com/editorials/to-rule-the-airwaves at 5 (last visited May 22, 2018).

8. (Apr. 6, 1917), Papers Relating to the Foreign Relations of the United States, 1917, Supplement 2, The World War, Volume II, Off. Historian, U.S. Dep’t of State, https://history.state.gov/historicaldocuments/frus1917Supp02v02/d361 (last visited, Dec. 26, 2018).

9. Exec. Order No. 2605A (Apr. 30, 1917), Woodrow Wilson, Am. Presidency Project, https://www.presidency.ucsb.edu/documents/executive-order-2605a-taking-over-necessary-and-closing-unnecessary-radio-stations (last visited Jan. 18, 2019).

10. See McGeehan & Wahl, supra note 7.

11. Indeed, under the Act, the President may suspend or amend rules and regulations upon proclamation “that there exists a war or a threat of a war or state of public peril or disaster or other national emergency or if he deems it necessary in the interests of national security or defense.” The President may prioritize defense or security communications, authorize government use or control of communications facilities, and suspend or amend “rules and regulations applicable to any or all stations or devices capable of emitting electromagnetic radiations.” 47 U.S.C. § 606 (c), (d).

12. See The History of the Maritime Industry, supra note 3.

13. Id.

14. Id.

15. Id.

16. The Container Industry: The World in a Box, Economist (Mar. 16, 2006), https://www.economist.com/books-and-arts/2006/03/16/the-world-in-a-box.

17. See Marc Levinson, The Box: How the Shipping Container Made the World Smaller and the World Economy Bigger, passim (2006).

18. Holman Fenwick Willan LLP, The Maritime Arbitration Universe In Numbers: Will Brexit Impact London’s Standing? Mar. 2018, http://www.hfw.com/downloads/HFW-The-maritime​-arbitration-universe-in-numbers-March-2018.pdf.

19. Id.

20. See Ank Santens & Romain Zamour, Dreaded Dearth of Precedent in the Wake of International Arbitration— Could the Cause Also Bring the Cure?, 7 Y.B. Arb. & Mediation 73 (2015).

21. Vessels are subject to increased regulation of diesel and other emissions from engines in order to reduce air pollution, as well as to increased regulation of ballast and other discharges, especially to prevent transfer of foreign organisms into new environments.

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By Charles A. Patrizia

Charles A. Patrizia (charlespatrizia@paulhastings.com) is a partner in the Paul Hastings Litigation practice and is based in the firm’s Washington, D.C., office. He has more than 40 years of experience in regulatory matters and complex dispute resolution. He chairs the Section’s Committee on Maritime Law.