Analysis of current situation
Since the middle of 2019, the Paraná River has begun to show low water levels, and this situation has worsened over the years 2020 and 2021, dropping to its lowest water levels in the last 70 years, and even threatening to reach historical records.
The Argentine National Water Institute (INA) —a decentralized scientific and technological body engaged in the study, research, development and provision of specialized services in the field of water use and preservation— has reported that the current situation is quite unusual and is affecting the entire Basin, which covers a total area of 3 million square kilometres and where rainfall records have been well below normal for, at least, two years.
According to said institute, the situation has worsened during 2021, as river markers have been as low as -0.45 m in front of the city of Paraná, with similar records in Diamante (-0.20 m), in Victoria (-1.00 m), and La Paz (-0.24 m), keeping actual levels very far from the “low waters level” (2.30 meters), and even farther from its average height in July (3.10 meters) in Paraná. It is necessary to go back to 1944 to find records of a worse situation than the current one.
The Paraná River rises in the south of Brazil, and in Argentina, it extends from the north in the Province of Misiones to the south in the Province of Buenos Aires, so that the drought reported in its main tributaries, which have resulted in the historical low water levels, poses a threat to the supply of drinking water, as well as for port operations, hydroelectric power generation and economic activities linked to the export of the Basin formed by the Paraná, Paraguay and Iguazú rivers.
By virtue of this issue, in October 2019 the Argentine-Paraguayan Mixed Commission —an entity created by an agreement signed between Argentina and Paraguay (Act. No. 19,307)— declared a state of emergency for the navigation of the waterway of the Paraná River and, subsequently, on April 1, 2020, declared a new state of emergency and force majeure for the navigation of push tug boats carrying convoys and self-propelled, at the “COMIP1” section of the Paraná River.
In the same manner, the Executive Power declared the State of Water Emergency, approved by Decree 482/2021, published in the Official Gazette No. 51968/21, dated 26/07/2021, with a validity period of 180 days, during which various Ministries and National Agencies are authorized to adopt the corresponding measures —within the scope of their attributions— to mitigate the effects of the aforementioned emergency in the affected areas.
Commercial impact of the extraordinary low water levels
From a commercial point of view, this situation is affecting operations in the Paraguay-Paraná Waterway, which is essential for the development of Argentina as exporter, since it is the most relevant transport option for its agricultural production; representing the exit route of approximately 80 % of the national exports.
The Rosario Stock Exchange published an article on its weekly newsletter (Year XXXIX – Edition N° 2009, dated July 8, 2021), entitled “Paraná River low water level would represent a cost close to US$ 315 million in six months for agro-industrial export complex and Argentine agricultural producers”, which analyses the commercial implications of the low water levels.
From said report arises that the above-referred situation has generated significant negative effects for the agro-industrial sector, as well as for the transport sector, causing considerable losses to the Argentine granary value chain, which, according to their estimations, for the period from March 1 to August 31, 2021, will be around US$ 315 million. These losses are attributable to several factors, such as:
– Increase in costs due to the need to adjust the volume of cargo loaded on certain types of vessels, which are forced to leave with lower tonnage than expected to their ports of destination.
– Higher costs resulting from certain ships having to complete loads of cargo in other Argentine ports rather than at “Gran Rosario”, meaning an increase in the volume of cargo loaded in ports such as Bahía Blanca or Quequén, where the origination price of the goods ends up being bigger, due to logistical problems and higher land transportation costs.
– Higher transportation and logistics costs related to the lower tonnage that can be loaded on barge trains sailing down the Paraná and Paraguay rivers from Paraguay, Bolivia and other domestic ports.
– Losses suffered by the local agro-industrial complex arising from the lower export prices of soybean flour and oil, due to the logistical and transport problems resulting from low water levels of the Paraná River, associated with the risks and additional uncertainties that represent for a vessel to enter the river under the current circumstances.
Impact of low water levels on shipping: Increased incidence of groundings
Over the course of the last two years, the Argentine Maritime Authority (Prefectura Naval Argentina) has been issuing successive “Alert” communications, warning about the continuity of the extraordinary low water level situation which affects the entire Río de la Plata Basin and the port facilities located along the Parana River (Paraná Medio, Paraná Inferior and Parana de las Palmas), in particular, recommending both Captains and Pilots assisting them to “pay special attention to the emerging risks during approaching the port, berthing and undocking manoeuvres”, under the existing draft restrictions, “especially, when manoeuvring without tug assistance”.
Nevertheless, since the low water levels began to appear, the number of groundings recorded along the river has increased substantially.
According to unofficial figures, during 2020, the incidence of groundings increased by 31.25 % with respect to the average of the last 10 years, leading to extraordinary costs associated with such incidents, which can be of a multiple nature and for amounts which may vary due to several factors, such as: complexity; presence of damage to third parties; seriousness of the damage suffered by own vessels; need of employing tugs, salvage companies and/or lightering of cargo, regardless of the possibilities of being susceptible to cargo claims –in case of damages– and, for delays associated with the grounding, among others.
Responsibility of the Captain and the Pilot under the Argentine Navigation Law in cases of incidents during navigation
Without prejudice to the effects that the phenomenon of the low water levels previously described may have on the generation of incidents taking place on the river, most of those which give rise to groundings, damage to fixed and floating objects (FFO) and fines could be considered to be caused by errors in the navigation from those who hold the command of the ships, or by defective advice from the Pilots or “Baqueanos” in charge of advising the Master in the navigation and manoeuvring the vessel.
Even though pursuant to Argentine Navigation Act, the use of Pilots in the waterway is mandatory, they are only considered advisors of the Captain. Consequently, the authority of Captains is not subsumed into that of Pilots, and they will always be directly liable to third parties for those incidents or damages caused by the commanding and manoeuvring of their ship, creating indirect liability to Shipowners who appointed them; and without prejudice to the recovery actions that they both may have for defective advice against Pilots, if they can demonstrate negligence in the performance of the Pilots’ duties and its causation link with the damages resulting from the incidents.
In this regard, it should be remembered that the liability of the Captain under the Navigation Act is limited to +/- US$ 20,000 and that of the pilot, to +/- US$ 62,000 —as per current exchange rate—, except where it is accredited that they acted with intention to cause the resulting damages, in which case, the responsibility of both shall be unlimited.
These limits of liability are the result of the entry into force of the Law on the Development of the National Merchant Marine and Regional River Integration (Law 27,419), in force since December 29, 2017 (Art. 33 and 34), which amended Arts. 145 and 181 of the Navigation Act. Notwithstanding this, considering the public feature of the pilotage services, we consider that the legality of the rules providing for the limitation of liability could be arguable.
By virtue of the above, it is of the utmost importance to warn Captains of domestic and foreign ships about the risks arising from the water situation described, in view of safeguarding the interests of their crew, cargoes, and vessels.
New rules: Speed restrictions on the river due to low water levels
Since the end of October 2020 and until the aforementioned conditions cease, the Maritime Authority has decided to establish a transitory maximum speed limit of 9 knots for all types of vessels, which may be increased by a 6 % in the section between kilometres 406 to 435 of the Paraná River and could only be exceeded for navigation safety reasons (as per Disposition DI-2020-66-APN-PZBP#PNA (26/10/20) as amended by DI-2021-3-APN-PZBP#PNA (27/01/2021)).
Moreover, the Maritime, River and Lake Navigation Regime (REGINAVE) sets forth a prohibition for any ship to sail at such speeds that may cause dangerous situations (whether to ships, naval devices or vessels sailing, moored or anchored in the vicinity), or that exceed the limits set by the Maritime Authority.
This issue is of particular relevance, as transgressors of these rules may be subject to fines. In fact, so far this year, there has been a substantial increase in the incidence of fines, both for the transgression of speed limit rules and for other types of incidents because, as a result of the alerts issued due to the historical low level of the water, the Maritime Authority is carrying out an even more active monitoring through its VTS centres.
Administrative liability and fines arising from breaching navigation rules in Argentine waters
This circumstance deserves special interest, since —as it was reported in our news release dated November 2019 (find it here) — with the entry into force of the new REGINAVE, approved by Decree No. 770/2019 of the National Executive Power (November 13, 2019), modifications were introduced to the sanctioning regime, which are of great relevance for all the actors involved in the maritime industry and among which, we highlight the following:
– Both domestic or foreign seafarers, owners and/or shipowners may be subject to fines. The sanctioning regime for foreign seafarers was not previously set forth.
– Substantial increase in the amount of fines that may be imposed on Masters, Skippers, Owners and/or Shipowners, particularly, foreign individuals or companies incurring in acts that constitute breach of the duty of care, misconduct, recklessness or negligence, in matters of navigation, in which cases fines may rise to +/- US$ 26,000, depending on the seriousness of the offence.
– Shipowners may be subject to direct and/or indirect administrative liability.
– The Maritime Authority may forbid or delay the departure of foreign vessels until the potential fines has been either paid or guaranteed. Guarantees might be given as personal bonds, asset-backed securities, or sureties provided by individuals or entities, domiciled in Argentina, proving to be financially solvent at the maritime authority’s discretion.
These securities shall be rendered before –and as a condition for– the authorization of the vessel to depart from Argentine ports. Currently, the Maritime Authority is accepting Letters of Undertaking issued by the P&I Clubs, or their local correspondents, as sufficient to guarantee the liability which may eventually arise from pecuniary sanctions resulting from violations to the Reginave. This promotes the celerity and non-interruption of voyages.
Liabilities arising from the effects of low water levels under Charterparties.
As explained, this low water level phenomenon has created various liabilities to Shipowners, Charterers, Carriers, Shippers, cargo and hull and machinery underwriters and P&I Clubs, who play different roles in the execution of the contracts for the use of vessels, such as time charterparties, voyage charterparties, and bareboat charterparties.
In relation to those ships engaged in voyage charters or volume contracts, low water levels are preventing vessels from loading their holds up to the capacities they may have contractually agreed, and this has generated claims between shipowners and charterers/shippers, for dead freight, and conversely, between charterers/shippers and shipowners, for lack cargo capacity.
In the same way, shipowners or carriers have been exposed to liabilities for delays and extraordinary costs, which had not been foreseen while discussing the terms of such contracts. This has been especially relevant in long-term contracts such as time charters, volume contracts, or charters for consecutive trips.
In some cases, Masters and Shipowners have been compelled to make voluntary and reasonable extraordinary expenditures and sacrifices, such as the jettison of cargo, or hiring towing, lightering, salvage services, etc., to preserve all those at risk (i.e. cargo, vessel, fuel, freight) in the common maritime adventure from the perils caused by the by the described hydrometeorological situation.
All these have led to General Average situations, and the resulting damages or losses shall be proportionally shared among all stakeholders in the common venture.
It is also important to mention that the obligation related to Safe Ports, which provides that ports of origin, call and destination must be always safe for the vessel to arrive, remain, operate, and depart from it, without interruptions, that is common to all kinds of charterparties and charters by demise, has also been object of different conflicts and legal disputes.
Finally, It should be mentioned that in specific circumstances, dispute resolution clauses in contracts for the use of the vessel, which provide that they shall be governed by foreign law and jurisdiction, may be considered invalid or null and void by Argentine courts. Therefore, each particular case must be analysed in detail, as certain provisions of the Argentine Navigation Act No. 20,094, such as the ones referring to the obligation of the charterer to nominate a safe port or berth, the right of the master to disobey illegitimate orders from the charterer, the provisions related to dead freight and the Carrier´s right to discharge the cargo in the event that unloading at the place of destination becomes impossible, the ones related to off-hire situations, laydays and demurrage, and the different situations which may give rise to exemptions to liability due to Acts of God or Force Majeure event, or those relating to the frustration or termination of the different contracts, may be applicable.
Responsibilities derived from the effects of low water levels, under the terms and conditions of use of port terminals of the Waterway
Another type of issues that have not been alien to the effects of the low water levels are the conflicts arising between ship operators and the port terminals located along the river basin, due to the plain and simple application of their terms and conditions of use, which provide for extremely onerous contractual penalties, for not clearing the wharf immediately after completing loading/unloading operations.
Looking to the near future.
Finally, it should be noted that the circumstances described above will continue or could even worsen in the near future, since according to the “RED ALERT” report issued by the Argentine National Water Institute on July 29th, 2021, the downward trend observed in water levels will continue with a very high probability that the low water levels will persist during the rest of the winter and with the possibility of reaching minimum values during the spring.
Consequently, as we have been doing with our clients, we recommend owners, shipowners, charterers, and shippers, port terminals, crew members and pilots, to be alert to the situations described above and to take into consideration, the operational measures that may be taken to prevent or minimize as much as possible the harmful consequences of the water situation described, and the legal actions or legal preventive advice that in a timely manner may be essential to prevent or mitigate the contractual and legal contingencies that may also arise.
Dra. María Belén Espiñeira – Senior Partner Lawyer
Dr. Alejandro Schmilinsky – Lawyer
We emphasize that this report intends to provide information to the reader and does not attempt to provide legal advice. If you consider it necessary, we are at your disposal to assist you on the different issues mentioned in this report, and others of different nature, providing preventive legal advice and helping you minimize any legal contingencies to which you may be exposed.
