Exxon Valdez Oil Spill – Economics and Risk On The 20th Anniversary

Captain Joe Hazelwood - Exxon Valdez

Exxon ValdezDo you have an environmental question to explore? We were recently asked to participate in a Blogger’s Roundtable discussion on the Exxon Valdez grounding that occurred 20 years ago today. Unfortunately, it was canceled but we were offered a direct interview with a topic expert in matters that relate to the incident. Where to start? Here is the response I wrote in an email to USCG Public Affairs:

The Exxon Valdez itself is too big of a topic, with too many misconceptions for us to cover with anything short of a book. We are, however, looking for an audio interview to fill our next podcast episode. I would like to cover something that is important but has not received much press. I am open for suggestions but here are some related topics suggested by our readers:

  1. Changes in mariner liability since the Valdez.
  2. The untold story of ballast – Why in-tank treatment alone won’t solve the problem
  3. Nuclear Waste At Sea – How do we detect and deal with dangerous foreign waste disposed of in international waters.
  4. Marine Pollution in the Gulf Of Aden – How global pollution concerns effect shipping.
  5. A look at what keeps the Captain Little, Commander Of Marine Safety, awake at night?

This email stems from internal debate here at gCaptain, mostly centered around the question: Are there still lessons to be learned from incident? The answer, of course, is yes but defining those lessons becomes troublesome as the topic has already been well explored. The question I keep returning to is: Have hey been explored too well?

Problems of this size and magnitude always bring me back to the lessons of Economics and Risk, a class I took while perusing my MBA. This class taught us that every activity worth pursuing, including the transportation of oil, has associated risk that needs to be mitigated to a level of acceptance. Elimination of risk is impossible because there are a limited number of resources available to solve problems and prevent unfavorable outcomes. Here is is the relation of these lessons to oil spill prevention today:

The Law Of Diminishing Returns

According to this relationship, in a production system with fixed and variable inputs (say factory size and labor), beyond some point, each additional unit of variable input yields smaller and smaller increases in output. Conversely, producing one more unit of output costs more and more in variable inputs.

Boiled down this means: first pick the low hanging fruit.

The Exxon Valdez quickly gave rise to industry reforms that included double hull tankers, BRM training, VTS improvements, owner liability and oil spill response requirements. Would it make sense to create a triple hulled tanker or double the length of BRM courses? These would certainly lower the risk of a spill.

Ballast water is a good example as millions of dollars and countless man hours have been spent to find solutions for treating ballast to prevent the growth of invasive species in the tanks. This is seemingly necessary because the current solution, the exchange of ballast water at sea, is not working but has all the low hanging fruit really been picked? Any experienced pumpman will tell you the tanks are clean but the sea chest and suction pipes are dirty. Could our solution be as simple as cleaning the piping once a year?

Could the problem be outside of the ballast system entirely? I am certainly not an expert but it seems that the cleaning of hulls while a vessel is alongside the dock dislodges a fair amount of foreign organisms. Could we not clean the hulls each time a vessel is at anchor?

Opportunity Loss

Opportunity cost or economic opportunity loss is the value of the next best alternative foregone as the result of making a decision. Opportunity cost analysis is an important part of a company’s decision-making processes but is not treated as an actual cost in any financial statement. The next best thing that a person can engage in is referred to as the opportunity cost of doing the best thing and ignoring the next best thing to be done.

Boiled down this means that focusing too heavily on one topic keeps our focus off other solutions.

My reply to the USCG was primarily driven by this factor. The public and industry’s focus has been so focused on the news headlines that it has missed opportunity to fix other issues.

For Example, it has been widely reported that piracy in Somali waters is the result of reduced fish stock from illegal dumping and an overabundance of foreign fishing interests in the Gulf Of Aden. Lack of fish created desperate fisherman looking for new opportunity for wealth. Could we have been so concerned with other environmental problems that we don’t have the resources to tackle the underlying problem? Are other environmental concerns like the disposal of nuclear waste in Russia a larger risk to the global environment?

Unintended Consequence

Unintended consequences are outcomes that are not (or not limited to) the results originally intended in a particular situation. The unintended results may be foreseen or unforeseen, but they should be the logical or likely results of the action. For example, historians have speculated that if the Treaty of Versailles had not imposed such harsh conditions on Germany, World War II would not have occurred. From this perspective, one might consider the war an unintended consequence of the treaty.

Boiled down this means that every cloud has a silver lining and every solution to a problem has negative consequences.

The Exxon Valdez had many silver linings, not only in terms of environmental protection but also in safety at sea. The addition of BRM training, improvements in incident response and better ship owner liability statutes have all resulted in safer operations and less marine causalities. There is, however, a dark side.

Captain Joseph Hazelwod’s greatest fault was in not identifying the weaknesses in his bridge team. It was the mate, not the captain, that made the wrong decisions and alcohol had very little to do with the incident. The Staten Island Ferry and Cosco Busan incidents both brought into question the use of medications by pilots but every day thousands of mariners operate ships with the safe use of medication. The Captain and Chief Mate of the Heibi Spirit were convicted for spilling oil into the sea despite the fact they were at anchor when their vessel was hit by a barge. Their crime? Pressuring up the IG system, inert gas that prevents tank explosions, forced more oil into the surrounding water.

Each of these incidents is causing mariners to rethink their careers. It is true that the elimination of alcohol aboard ships was a positive move for our industry but, twenty years later, I get asked frequently by the general public about alcohol abuse aboard ship.

The Staten Island Ferry incident is even more troubling. This industry puts great emphasis on the experience of Captains to the point where some young, but qualified, Chief Mates have taken to artificially graying their hair when up for a promotion. The reason why experience matters is clear but with age comes medical issues and the resultant medication. By publishing lists of medication that are subject for “further review” the Coast Guard is sending a clear message; if you have a medical problem then take a desk job, avoid being diagnosed or roll the dice on your career. Statistically this is going to effect our oldest, and thus, most experienced Captains.

While the Exxon Valdez incident tarnished the reputation of mariners and has negative effects on our industry’s ability to attract the best and brightest candidates, and the Staten Island Ferry and Cosco Busan incidents have the potential of driving away our most experienced mariners, the Heibi Spirit sends a message the gravest message; if you want to pursue this career you may have to make the choice between potential loss of life or potential jail time.

Are some of our solutions creating larger problems?

Diseconomy of scale

Diseconomies of scale are the forces that cause larger firms to produce goods and services at increased per-unit costs. They are less well known than what economists have long understood as “economies of scale”, the forces which enable larger firms to produce goods and services at reduced per-unit costs.

Why is it that IBM, AT&T or even Microsoft did not create Facebook or Twitter? Each was created by small start-up companies that did not have the resources or cumulative experience of the larger companies.

The news headlines create congressional action, Coast Guard involvement, discussion among industry leaders and budgets to handle specific problems. Today hundreds of people are working on maritime training, schools have been set up and government budgets have been created. Thousands of individuals are personally invested in finding solutions and this creates inertia that drives the industry towards a specific end most of which were identified after the Exxon Valdez grounding. This concentration of effort has created exceptional training but, now that training levels have increased, new ideas for increasing the competency of mariners are not being invented.  Are there less traditional training, or simple not yet discovered, methods worth exploring?

Maybe it will take a small start up to create the next revolution in mariner training.

Human Resource Management

HRM is the strategic and coherent approach to the management of an organisation’s most valued assets – the people working there who individually and collectively contribute to the achievement of the objectives of the business.

This might be better served under the Law of Unintended Consequence but I was recently at an environmental awareness event conversing with phd candidates in the field of Marine Biology, all hyper intelligent and all working on whale research. A noble cause indeed! The topic of my past employment soon came up and when I mentioned Offshore Exploratory Drilling their faces  sunk. “How could you work for an offshore driller?” one asked. “And you consider yourself and environmentalist?” asked another. Meanwhile one told me his duties were primarily relegated to the operation of a small skiff. “You are a phd candidate who drives a skiff? Are you not undervaluing your education?” asked a friend of mine. “Certainly but it’s important research”.

The point of the story is that we want environmentalists, phd candidates and good mariners working aboard oil rigs. We also would be better served to have great skiff operators working on whale research. The Exxon Valdez and related incidents have pitted “us” against “them” but this is a great disservice. The solution is not to fight and not just to cooperate with smart idealists. It’s figuring out ways to have them join our ranks and supporting their work internally. We should encourage people from different fields, backgrounds and education to have a look “under the hood” and generate new ideas.

The End Result

Today I set out to write a post on the Exxon Valdez but could not bring myself to start typing. The changes brought about from the incident have created deep and lasting changes to our industry but we need to shift focus to new ideas. The solutions to our problem are not more double hulls, more oil spill response vessels or larger oil spill prevention budgets. The Exxon Valdez caused a jolt in our way of thinking and an imputes for finding new ideas and it is regenerating that jolt of change that we will improve.

Increased regulation is not a solitary solution to any problem, it’s asking unconventional questions and listening carefully to the responses that leads to answers. It’s pulling in people from different fields to find problems and giving the heretics and leaders of your organization the opportunity to influence change. Let’s not continue down the road well traveled but find a new path for the future of shipping.

Do you have a new idea or environmental question to explore? gCaptain would be honored to hear it.