*This article was prepared by our summer law clerk, Ridge Miguez.
On June 20, 2016 the U.S. Coast Guard posted a preview of the final version of the long-awaited Subchapter M regulation, which will extend inspection requirements to the majority of tugs and towboats for the first time. In 2004, Congress reclassified towing vessels as vessels subject to inspection, and consistent with 46 U.S.C. 3305, this rule sets out the scope and standards of inspection. Now with the implementation of Subchapter M the U.S. Coast Guard has created a comprehensive safety system that includes company compliance, vessel compliance, vessel standards, and oversight in a new Code of Federal Regulations (CFR) subchapter dedicated to towing vessels. This rule, which generally applies to all U.S. flag towing vessels 26 feet or greater, and those less than 26 feet moving a barge carrying oil or hazardous material in bulk, lays out both inspection mechanisms as well as new equipment, construction, and operational requirements for towing vessels.
To provide flexibility, vessel operators will have the choice of two inspection regimes. Under the Towing Safety Management System (TSMS) option, routine inspections of towing vessels will primarily be performed by third-party organizations (TPOs), including certain classification societies, and this rule creates a framework for oversight and audits of such TPOs by the Coast Guard. The TSMS will provide operators with the flexibility to tailor their safety management system to their own needs, while still ensuring an overall level of safety acceptable to the Coast Guard. Alternatively, under the Coast Guard inspection option, routine inspections would be conducted by the Coast Guard, providing an option for those operators who choose not to develop and implement their own TSMS.
Subchapter M also creates many new requirements for design, construction, equipment, and operation of towing vessels. Those requirements are typically based on industry consensus standards or existing Coast Guard requirements for similar vessels.
The most important change to the final revision of Subchapter M has been the changes made to the Coast Guard’s proposal in the NPRM. They have clarified the system for Coast Guard oversight and inspection of towing vessels that complements the TPO system. To address concerns about the cost impact of the rule, they have added “grandfathering” provisions to several requirements, so the requirements will not apply to existing vessels or vessels whose construction began before the effective date of the rule. Also, they have reorganized several parts for greater clarity or to better align with the existing text of other parts of the CFR. As noted in the NPRM (7 FR 49985), the Coast Guard still plans to promulgate a separate rulemaking for an annual inspection fee for towing vessels that will reflect the specific program costs associated with the TSMS and Coast Guard inspection options. As of now the Coast Guard is establishing the existing fee of $1,030 in 46 CFR 2.10-101 for any inspected vessel not listed in Table 2.10-101, as the annual inspection fee for towing vessels subject to Subchapter M. Furthermore, this fee will not be charged for a vessel being inspected for the initial issuance of a certificate of inspection (COI), however the fee will be charged annually starting the following year.
The Coast Guard released a statement that Subchapter M will affect approximately 5,509 U.S. flag towing vessels engaged in pushing, pulling, or hauling alongside, and the 1,096 companies that own or operate them. Towing vessels exempt from this rule include towing vessels inspected under Subchapter I, work boats, and recreational vessel towing vessels.
The estimate for total industry and net government costs is $41.5 million annualized at a 7 percent discount rate over a 10 –year period of analysis. The estimate for monetized benefits is $46.4 million annualized at a 7 percent discount rate, based on the mitigation of risks from towing vessel accidents in terms of lives lost, injuries, oil spilled, and property damage. Thus, a net benefit of $4.9 million is estimated from implementing Subchapter M.
The new rule became effective July 20, 2016. However, certain existing towing vessels subject to this rule will have an additional 2 years before having to comply with most of its requirements. It will be interesting to see how small operators are affected by the changes Subchapter M brings their way. Only time will tell, but it seems the rule change is in the greater interest of the industry as a whole.