CBP, IMCA & OMSA: Oh, My!
U.S. Customs & Border Patrol moves quickly to change enforcement parameters for Jones Act in the offshore services sector. Timing of the move is curious and the swiftness of the deadlines for comments and/or objections alarms foreign-registered owners and their clients. What’s the rush?
As a new federal deadline for offshore, oil patch Jones Act compliance looms closer, foreign flag operators and their clients are sounding the warning bells on a potentially far reaching and arguably unfair process that could adversely affect offshore U.S. energy production. Separately, an industry group representing U.S.-flag supply vessels in the same sector cheered the Customs and Border Protection (CBP) for its recent proposal to strengthen the Jones Act. Arguments over Jones Act interpretations are not new. Nevertheless, the speed at which the current CBP proposal is moving forward, the narrow comment period allotted to those who might object and – perhaps more importantly – the timing of the initiative is more than puzzling.
If you are reading this column as a regular subscriber to the MarEx e-newsletter, then you more than likely also do not need to be told that under the Jones Act, cargo – unless a special waiver is granted – can only be carried between two U.S. points on vessels that are U.S. owned and crewed and built in U.S. shipyards. In this case, the CBP administers the Jones Act as it applies to offshore energy operations. The proposal now on the table involves plans to revoke or modify as many as 20 rulings to restore the (alleged) original intent of the Jones Act as it applies offshore. And, therein lies the “rub.” A large percentage of the offshore service fleet in operation today on the U.S. Gulf Coast is foreign-registered. As such, the potential for widespread disruption of offshore oil production, according to the UK-based International Marine Contractors Association (IMCA), is more than real.
Not everyone, of course, is unhappy with the current course of events, or the pace at which things are zipping along. According to the Offshore Marine Service Association (OMSA), “The U.S. Customs and Border Protection (CBP) has issued a proposal, open for public comment through mid-August, that will take important steps to help enforce the Jones Act more effectively and protect American maritime jobs.” OMSA is the national trade association representing the U.S. Flag offshore workboat industry. Needless to add, any decrease in market share for foreign registry operators would mean a windfall for American-based operators – and at a time when it desperately needs a shot in the arm.
OMSA says that CBP proposal will protect American maritime jobs. For its part, member-companies of the International Marine Contractors Association (IMCA) with vessels active in American waters, and their clients, are “disturbed about proposed modifications/revocation of ruling letters related to the coastwise laws of the United States, commonly known as the Jones Act. They are also worried about the shortness (30 days) of the consultation period now open for comment. The Jones Act restricts the activities of foreign-flagged vessels carrying merchandise between United States ports; the proposed modifications will have detrimental impact on activities vital to the US offshore oil and gas industry.”
IMCA references a CBP document that MarEx readers can access HERE. The CBP proposal is sandwiched (hidden?) in between 152 pages of other rulings. To say that the matter is complicated and shrouded in inconsistencies would not give the issue’s importance any justice. At the heart of the matter are longstanding CBP exemptions of certain specific activities from the Jones Act, including the activities of pipe-laying, cable-laying, diving support work, and heavy-lift crane construction and installation work. But, since so many of the specialty vessels in use offshore in the U.S. Gulf are multi-purpose vessels, laying down a line of demarcation between what is or is not a Jones Act violation is a complicated – if not impossible – assessment to make.
In their press release which appeared in our August 6th e-newsletter, OMSA President Ken Wells insisted, “With this proposal, CBP is saying that there is a hard line between transportation and installation. Foreign boats may be able to install oilfield equipment, but only U.S. boats can carry it offshore. The problem is that for many years, CBP rulings had allowed foreign vessels to carry cargo to subsea oil and gas locations as long as that vessel also installed it.” Indeed. And with 33 years of precedent in place to back up that policy, the rush to change all of that is puzzling. The recently issued CBP edict gives industry objectors only until 17 August to respond.
IMCA’s position is summed up neatly in their own press release that also appeared in the MarEx e-newsletter, when they claim, “In short, the CBP proposal would overturn over 30 years of precedent on which the offshore industry has relied, and in which it has invested millions of dollars on the necessary resources to conduct oil and gas operations, with precious little time to provide input to CBP for consideration or find suitable alternatives. This could shut down most activities in the deep water Gulf of Mexico for an extended period of time as there are currently very limited numbers of coastwise trade vessels existing that have the capacity, or the trained personnel, to perform these activities currently being performed by foreign-flagged vessels.”
The stakes are very clear. OMSA’s Ken Wells attempts to calm the waters by responding, “Those claims are simply not true. They have made some statements that are a little hysterical. Obviously this could cost them business. However, the fact is American vessels are ready to do this work and if anything, the CBP proposal will protect existing U.S. jobs by keeping foreign boats from flooding the market in the future.” In simple terms, it is OMSA’s hope that the U.S.-flag offshore supply market would immediately benefit from a jump in business, primarily in the carriage of freight between U.S. ports and offshore markets.
IMCA and its member companies say it isn’t that simple. IMCA’s Hugh Williams warns, “U.S. companies involved in deepwater oil and gas exploration rely on sophisticated, highly specialised vessels for subsea installation construction support, pipe-umbilical laying, as well as maintenance of seafloor facilities. US-flagged vessels represent less than 20% of such capability, and almost none of the top-of-the-range vessels, so foreign-flagged vessels are essential to maintain operations at their current levels. Indeed, at least five years could be needed to develop a fleet of US vessels to meet the demands of the CBP's proposal if adopted as proposed.”
The implications are far reaching and somewhat obvious, even to the casual observer. The CBP proposal, if it goes through as it currently is worded, could amount to a windfall for U.S. shipyards, mariners and domestic-based marine operations. Developing that multi-purpose marine base will take time. IMCA raises the question of what will happen to offshore energy production, in the interim, assuming immediate implementation to the CBP proposal. And, they also correctly point out that oil companies have invested millions in the foreign-flag fleets – not in violation of Jones Act laws – but simply in compliance with federal guidelines that have been in place for decades.
The matter is rapidly coming to a head. The recently published (CBP) notice (17 July of this year) states that CBP intends to modify or revoke many such long-standing exceptions. With only a 30-day consultation period, objectors have arguably been given almost no notice to the intended actions and under the law, the decision would be implemented in 60 days following the CBP’s decision. And, what then? Are we looking at an endless stream of “waiver” applications from a myriad of different multi-purpose, specialty ships that are critical to the offshore industry and also notably absent from the U.S.-flag fleet? Only time will tell.
IMCA claims wide support for their position in the matter. “Support and opinions have come from far and wide," says Hugh Williams, Chief Executive of IMCA. He goes on to insist, “Collective opinion is that if the changes, as written, are adopted, they could have a potentially devastating impact on the US offshore oil and gas industry. Five years is not what is on offer to the industry; instead, the 30-day comment period on the proposed changes is due to end on 16 August, and the revised interpretation is scheduled to be in place within 90 days.”
Interest in this obscure, but important maritime matter is increasing. In sequential MarEx e-newsletters, delivered just seven days apart, we published opposing views from OMSA and IMCA on the CBP proposal. The IMCA entry has received almost three times the click-through traffic as the OMSA release. The IMCA release also ranks as one of the most frequently “opened” items (second only to this column, in fact) over that time frame. I don’t know what any of that means, but it is a statistic worth mentioning.
IMCA has three principal concerns: The first involves a lack of clarity in the target of the proposed rule change and the resulting amount of uncertainty. Secondly, the imprecision of the wording in the proposal is of great concern, as well. With the comment period rapidly nearing closure, many questions remain unanswered. Finally, the shortness of timescale is IMCA’s third concern. Notwithstanding the potential loss of business for its member companies, the impact on the offshore U.S. oil industry has clearly not been adequately studied.
Unspoken in all of this is also the conspicuous absence of MARAD or the U.S. Coast Guard in the process, all at a time of relative malaise (the summer recess) in Washington. And for whatever reason, E-mail objections are not being allowed for this one, adding to the difficulties in getting input from industry into play. It is also fair to ask if CBP is the federal agency with the proper expertise to be able to properly weigh in and write policy on such matters.
On Wednesday, we spoke to IMCA’s Chief Executive Hugh Williams about the CBP proposal. We asked him directly if he had serious objections to the enforcement of freight carriage aspects of the Jones Act as it applies to offshore operations. Williams replied, “If this is about freight and cargo only, then the proposed language of this rulemaking should say so. We have grave concerns over the unintended consequences that this ruling may have, in the near term and down the road.”
The plot thickened, late on Wednesday afternoon. CBP Spokeswoman Kelly Rose Ivahnenko told MarEx, "Customs and Border Protection (CBP) is charged with administering the Jones Act (46 U.S.C. 55102) which prohibits the transportation of merchandise between U.S. points in any vessel that is not U.S.- built, owned and documented. In March 2009, the Offshore Marine Services Association (OMSA) requested CBP to revoke or modify rulings in which CBP determined that certain articles carried by foreign vessels are vessel equipment, and therefore, not merchandise for purposes of the Jones Act. In addition, on June 18, 2009, the Senate Report of the Department of Homeland Security Appropriations Bill recommended that CBP ensure that the benefits granted to the U.S. maritime industry under the Jones Act are enforced particularly as they relate to maritime transportation between the U.S. mainland and installations on the Outer Continental Shelf. A notice was published in the Customs Bulletin on July 17, 2009, in which CBP announced that it was proposing to modify its position regarding this matter. The notice solicits comments from the public as to the correctness of CBP’s intended actions."
As for IMCA members, they first saw the DRAFT ruling in early July and immediately asked if the 30-day response period could be extended, given major implications of this type of action. In fact, CBP got a number of such requests, but on 24 July, the extension was denied. By then, the proposed rule had been published in an obscure, voluminous 152 page document. MarEx readers who take the time to research the document will find it confusing and lengthy. IMCA again asked for an extension, but this was denied, as well, according to IMCA sources.
As MarEx goes online with this edition, IMCA is asking - given the shortness of time left in the comment period - to be allowed to submit e-mail comments. According to Hugh Williams, "Currently we are in communication with CBP about whether e-mail submission is allowed. This was denied a few weeks ago, granted today and rescinded again today." This morning, CBP told MarEx, "Unlike regulatory projects in the Federal Register, comments in the response to Customs Bulletin notices are not posted online. Consequently, we decided to accept only written comments in this instance."
CBP also declined to "discuss internal deliberations with the public" and further asserted in a prepared statement that, "the mechanism to stay informed of changes is to review the weekly editions of the Customs Bulletin (or, Federal Register if the issue involves regulatory action.)" We pressed CBP to more clearly define the wording of the notice which includes language referencing installation and construction and pipe laying. Specifically, we asked: "Are these aspects of offshore work (except for cargo and freight movements from U.S. soil and back) still specifically afforded to foreign registered tonnage?" CBP responded that our query was "quite broad but suffice to say, under some circumstances, the activities you reference could still be accomplished by foreigh-flag vessels. However, we would advise interested parties to see what the final rule contains when it is published in the Customs Bulletin, which takes into account comments submitted by interested parties during the public comment period."
It is IMCA's position that CBP went far beyond the original intent of OMSA's petitions, and now has proposed to revoke or modify at least 20 additional rulings issued over a span of more than 30 years, and to re-interpret a key Ruling from 1939. And, insists IMCA, none of this was brought to light until July.
The CBP-proposed changes might be exactly the right thing to do. But, what’s the rush? The same federal government that thinks it is important enough to have all of DOT’s other modal administrators in place in short order also can’t seem to decide on a maritime administrator. Fully seven months after the highly-effective Sean Connaughton left to work the Hill for ABS, the job remains open. Nevertheless, a proposed rule change that will dramatically affect MARAD’s work load – and potentially, the bulk of the nation’s offshore energy production – is being rammed through at the speed of light.
In Washington, it has taken almost ten years to (almost) produce a proposed rule on invasive species and they are not yet done. Incredibly, and just a hop, skip and a jump away inside the beltway, more than thirty years of Jones Act precedent is about to go out the window in the space of a secretive, seemingly unstoppable 75 day juggernaut. Seems like the Coast Guard could probably take some guidance from CBP on how to get these things done. As a licensed American merchant mariner and a “Jones Act” kinda guy, it may at the same time be unpopular for this American-based maritime magazine editor to say so, but nevertheless, I’d like to know more before I buy in. What about you? - MarEx.
Joseph Keefe is the Editor in Chief of THE MARITIME EXECUTIVE. He can be reached with comments on this editorial at [email protected]. Join the Maritime Executive ‘Linked In’ group at by clicking http://www.linkedin.com/e/gis/47685