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Dean Shoultz

Chief Technology Officer

SubChapter M: The American Game Changer

Supplied with kind permission of the ABR Company Ltd, publishers of:

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Regulations governing the US towage industry are expected to come into force this summer, more than a decade since they were first mooted as part of the US Coast Guard Act of 2014. Dean Shoultz, chief technology officer of MarineCFO, based in Houma, Louisiana, looks at the potential wide-ranging impact of SubChapter M.

The American towing industry’s days of operating uninspected fleets are fast approaching an end. During the summer of 2004 the US Congress passed legislation requiring American towing vessels to meet certain safety and mariner working hour requirements. The US Coast Guard (USCG) was authorized to build out this regulatory framework, known as SubChapter M, and for more than a decade this rule-making process lumbered forward with the co-operation of countless towing industry stakeholders. A published SubChapter M Final Rule, anticipated by mid-summer 2016, will have an impact on the greater part of 6,000 US towing vessels.

Few will contest the public benefit and business advantage that a mature safety and quality management system can offer, but the sheer number of SubChapter M vessels requiring USCG inspection appears daunting. Fortunately, the industry’s trade association, American Waterways Operators (AWO), mandates all its members to participate in the Responsible Carrier Program (RCP) as a condition of membership.

RCP has been an industry-policed safety management process since the 1990s; recently USCG indicated a significantly modified RCP would likely be accepted as a SubChapter M towing safety management system (TSMS) standard. Early adopters of SubChapter M, electing either an ISM model or a customized TSMS model like RCP, will help the industry gain initial traction. Will that traction be sustainable?

The USCG intends to delegate SubChapter M statutory auditing and surveying authorities to various classification societies, such as the American Bureau of Shipping (ABS), RINA USA and Tokyo- based ClassNK. This authority delegation should create both market choice and competitive pricing, while lifting some of the USCG administrative burden. An entire SubChapter M ‘cottage industry’ has been built around the classification societies, offering comprehensive ‘cradle to grave’ SubChapter M solutions – including consultancy, auditing, surveying, certification, training and electronic record keeping.

Although the proposed rule-making also allows USCG to delegate inspection authority to qualified parties other than classification societies, the likelihood that these organizations can remain financially viable against the classification societies is slim.

Industry experts believe the cost burden to American towing operators could be substantial in terms of the initial ISM, TSMS or RCP-TSMS setup and implementation, onboard electronic record-keeping solutions, and machinery and system upgrades. The USCG proposes that upon publication of the Final Rule, towing operators will have 24 months to develop, adopt, certify and implement an ISM, TSMS or RCP-TSMS programme, while concurrently bringing their fleets into inspection readiness.

After that, towing operators will have another four years for USCG to issue every vessel in the inland fleets with a certificate of inspection. Since the majority – nearly 80 percent – of SubChapter M operators are small and medium-sized concerns, the outsourcing of the ISM, TSMS and RCP-TSMS setup and training processes to SubChapter M consultancy groups seems the most cost-efficient and quickest path towards meeting the initial two-year compliance deadline.

Sadly, other than the mentioned classification societies, the number of SubChapter M consultancy groups is small. One of the most reputable of these, Tug and Barge Solutions of Mobile, Alabama, experienced greater than expected growth throughout 2015.

The transition to a statutory inspection regime will have the obvious result of higher levels of mandated safety, planned maintenance and audit record-keeping, previously vastly unfamiliar to the American towing industry.

Like many of their blue water brethren, the shallow water carriers are likely to seek out automated electronic record-keeping to minimize the ‘pencil time’ of already overworked wheelhouse personnel. ABS has modified its deepwater ‘NS5’ software into ‘NS SubChapter M’ as a record- keeping option specific to towing operators. MarineCFO is releasing early this summer the Vessel 365 towing vessel record to complement the widely known MarineCFO Enterprise Solution. ClassNK purchased Canadian software developer Helm in 2014 to assist in its long-term penetration of the US inland towing market.

Once again, with few competitors able to market record-keeping solutions specific to the American towing industry, these three firms appear poised to compete as SubChapter M market markers.

Although the USCG is expected to permit a five-year ‘grandfathering’ of SubChapter M machinery and system upgrades, the expenses associated with installation and maintenance of automated engine rooms, alarms and monitoring panels, and other equipment modifications, will continue to loom over the heads of American towing operators.

The rules of the game are changing in the US towing industry – but how these changes will impact the American landscape of carrier revenue, vessel utilization, cargo capacity and consumer cost is anyone’s guess.