Jones Act: In Extremis?
The dismal economy isn’t the only thing American flag operators and shipbuilders have to contend with as 2009 mercifully crawls to a finish.
At some point last week, it occurred to me that a challenging economy, swashbuckling pirate tales and sobering statistics of as much as 12 percent of the world’s container capacity in some sort of lay-up status have all taken our collective eyes off the ball on this side of the pond. Well into the 4th quarter of 2009, a myriad of factors, including regulatory, legislative and business pressures are quietly chipping away at the very fabric of American cabotage laws. It’s not all bad news, of course, but depending on where you sit on the matter, these subtle maneuvers will either make you quite happy or perhaps make your blood boil. Either way, all variables in play will matter in the coming years.
The latest and perhaps most obvious spat in the ongoing Jones Act wars involves a recent U.S. Customs and Border Protection (CBP) proposal to strengthen the Jones Act. The CBP action, prompted by U.S-flag interests, was aimed at closing “loopholes” in offshore work that allowed foreign-registered tonnage to perform certain work, including the carriage of materials offshore in the U.S. Gulf. The potential changes pitted the U.S.-based trade association Offshore Marine Services Association (OMSA) against the International Marine Contractor’s Association (IMCA). The latter entity represents the interests of foreign-register tonnage in the U.S. Gulf.
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 IMCA, is more than real.
In September, and in the face of 141 pages of comments from industry, CBP at least temporarily shelved the contentious proposal. IMCA warned that the proposed modifications “have had a significant negative impact for the United States offshore oil and gas industry. We continue to urge dialogue between the industry and CBP to develop an agreed way forward.” OMSA’s Ken Wells responded by saying, “We are disappointed.” He also told MarEx that “U.S. assets were sitting at the dock in Fourchon, LA fully capable of doing this offshore work.” Neither side expects the matter to go away completely. When and if CBP brings the matter back to the front burner again, you can expect fireworks. The long term effects of the effort, primarily intended to strengthen Jones Act enforcement in the oil patch, will have far-reaching implications; no matter what happens.
Curiously, the CBP proposal affecting the U.S. Gulf oil patch isn’t the only CBP action in play right now. The U.S. Customs and Border Protection (CBP) issued a final rule updating regulations relating to declaration, entry and dutiable status of repair expenditures made abroad for certain US vessels. The ruling provides for statutory changes that include an exemption from vessel repair duties for the cost of certain repairs and materials. The ruling also adding a provision to advise that certain free trade agreements between the United States and other nations may limit the duties on vessel repair expenditures made in those nations. The amendment, which comes into effect immediately, wasn’t widely publicized and its net affect on the U.S. shipbuilding and repair markets is unknown, but it sure sounds like – even if representing only a small incremental change – a weakening of the Jones Act to me.
Elsewhere, the courts have upheld a U.S. Coast Guard ruling that certain foreign alterations performed aboard on U.S.-flag coastwise tonnage were indeed legal and did not change the “Jones Act” status of the vessels. In simple terms, the Court of Appeals agreed with the Coast Guard that the agency's interpretation of its own regulations was reasonable and rejected the Shipbuilders' argument which failed to consider the statutory basis for the separable/inseparable distinction. The decision can’t be good news for mid-sized U.S. shipyards that are perfectly capable of doing the work and furthermore desperately need it. And, the court’s position should serve as a chilling reminder to those who advocate a strong U.S.-flag fleet that the prospects for achieving that sort of standard are lessened every time the ship repair base in this country is weakened. I don’t think there are too many that could argue convincingly that this did not qualify as one of those contributory events.
On the legislative side of things, the news is mixed. An effort to eliminate the Harbor Maintenance Tax (HMT) tax on the shortsea legs of the supply chain is still in play, but the issue is still very much in doubt. And everyone knows that a domestic shortsea shipping program is ”going nowhere fast” without the elimination of the HMT. The HMT, as it stands now, derives absolutely no revenue from shortsea shipping, simply because no one is stupid enough to be taxed twice on the same cargo when that box or commodity can be shipped overland without the added expense. As we kick off the fourth quarter of 2009, however, there may just be a little bit of light at the end of the tunnel to look forward to. It is anything but a done deal.
The elimination of the shortsea component of HMT might just be the shot in the arm that the domestic fleet needs, especially at a time of extreme fiscal crisis. But even that might not be enough, especially given the dearth of Title XI funding for new buildings. But the prospects for any significant injections of loan guarantee funds – notwithstanding the latest announcement of $40.8 million to enable the Canal Barge Company, Inc. of New Orleans, LA, to order nine asphalt barges and 30 open hopper barges – is poor.
The disaster represented by the bankruptcy of the Hawaii Superferry because of a bungled regulatory assessment has left a decidedly bad taste in everyone’s mouth. And the potential hit represented by the Maritime Administration’s (MARAD) $136 million Title XI federal loan guarantee for that project may have sealed the fate of additional projects of this scale. DOT Secretary Lahood characterized the latest barge loans as “low risk.” He added, “Partnering on projects like this leads to jobs and new orders for U.S. shipbuilders. When such an opportunity presents itself at a low risk to the government, it makes sense to pursue it.” Indeed. Let’s hope MARAD’s latest effort to jumpstart domestic boat building turns out to be, as Secretary Lahood insists, “low risk.” The fact that the state of Hawaii isn't involved in this one is a good start.
Also impacting the American maritime industry was the Department of Transportation’s recent announcement of 70 grants totaling $98 million in American Recovery and Reinvestment Act (ARRA) funds that will be used to improve small shipyards throughout the United States. The funds, awarded through the Maritime Administration’s Assistance to Small Shipyards program, are being touted as helping to create and preserve jobs, provide valuable employment training and make much needed improvements to shipyards across the country. That’s the good news.
The other side of the coin involves the realization that of the billions of dollars being pumped into the transportation sectors dwarfs anything being pointed towards maritime improvements. In fact, the $98 million sounds like a big number – because it is, in comparison to anything that came before it – but in reality, is a microscopic fraction of the bigger pie. And, while I am not suggesting that we create a welfare state for the maritime industry, it can also be argued at the same time that ARRA-funded shoreside infrastructure improvements are moving forward to the ultimate neglect of the waterfront. At some point, someone in Washington is going to realize that the there is a “waterborne” component to the supply chain. When that will occur is anyone’s guess.
It is stylish, from time to time, for everyone to criticize American cabotage laws and the requirements for government cargoes to be carried on U.S. bottoms. But these requirements are not unique to this country. Arguably, they represent an important part of the national defense picture. The Jones Act may be flawed in certain ways, but in its purest form, it represents good value for the American consumer. Connecting the dots isn’t always easy.
Today, and obscured by noisier maritime issues like piracy or Coast Guard efforts to reform their flawed marine safety and seafarer documentation programs, the subtle tweaking of Jones Act compliance, enforcement and legal interpretations are underway. As individual events, perhaps none of these machinations are significant. As a collective event, the movement has the potential to alter our coastwise cabotage laws. Where you stand on that depends on where you sit in the supply chain.
Is the Jones Act really In Extremis? Probably not, but we're also not very far from that point where the privileged vessel on a collision course determines that it must maneuver to avoid that collision. Of that, I am sure. – 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>