American Seafoods May Continue Jones Act "Canadian Rail" Route

A federal judge has given the green light for American Seafoods Company to resume its foreign-flag cargo shipments between U.S. points - at least until litigation over a series of alleged Jones Act violations is finished. The order will enable the delivery of about 37 million pounds of the company's frozen seafood to customers on the U.S. East Coast.

For more than a decade, American Seafoods has delivered its Alaskan fish to customers on the U.S. Eastern Seaboard using chartered foreign-flag vessels, acting through its Alaska Reefer Management affiliate. These ships are loaded in Dutch Harbor, and they transit through the Panama Canal and around the East Coast to the port of Bayside, Canada. At Bayside, the cargo is offloaded into truck trailers for delivery to the Eastern United States. 

If the trucks carrying this fish drove directly into Maine, the whole arrangement would be prohibited by the Jones Act, which bans the use of foreign vessels to transport goods between U.S. points. However, the "Bayside route" takes advantage of an obscure clause in the Act - the "Third Proviso" - which permits foreign-flag vessels to be used if a "through route over" a Canadian rail line is also involved in the delivery. 

To pass through this little-known loophole, each truckload of fish at the Bayside terminal is driven up a ramp and onto the sole train of the "Bayside Canadian Railway" - a 100-foot stretch of track with two rail cars and no destination. A small shunt engine pulls the train to the far end, then pushes it back to the ramp again. The truck then drives back down the same ramp, out to Route 127 and across the Maine border at Calais, completing a 7,500 nm foreign-flag shipment between two U.S. points.

A truck makes a "Third Proviso" compliance trip aboard the Bayside Canadian Railroad at Bayside, New Brunswick, 2015 (Brian Golding / U.S. CBP)

In mid-August, U.S. Customs and Border Protection sent notices of violation to American Seafoods, Alaska Reefer Management, terminal operator Kloosterboer and a number of foreign-flag reefer vessel owners, alleging multiple breaches of the Jones Act over a period of years. In total, these fines came to about $350 million - the largest Jones Act enforcement action on record. 

Alaska Reefer Management and Kloosterboer swiftly filed suit against CBP. They asked a federal court in Anchorage for an injunction barring further fines, which would allow them to finish delivering the fish in their foreign-flag transport pipeline. They argued that the potential threat of further Jones Act penalties was preventing them from delivering millions of pounds of their product, interfering with the supply of affordable pollock for school lunches and food programs. 

On Sunday, U.S. District Court Judge Sharon L. Gleason agreed, and she ordered CBP to refrain from pursuing any further fines or enforcement action related to the Bayside route until the case is fully resolved. The order allows Alaska Reefer Management and Kloosterboer to resume loading fish on foreign-flag vessels in Alaska, offloading it in Canada and transporting it into Maine, without fear of further penalties. 

"Without immediate injunctive relief, businesses dependent on [Alaska Reefer Management's] supply chain are likely to temporarily shutter factories, jobs are likely to be lost, and the supply chain for USDA food bank and school lunch programs is likely to be disrupted," wrote Gleason. 

Gleason also raised questions about whether CBP had changed its interpretation of the Jones Act without following proper rules of procedure. CBP is required to file a notice in the Customs Bulletin if it reverses course on an existing interpretation of the law, giving affected parties 30 days to comment. The agency previously approved other "Canadian rail" arrangements in New Brunswick, and Alaska Reefer Management contends that its Bayside route is "substantially identical" to the earlier (approved) rail compliance mechanisms - entitling ARM to prior notice before a change in CBP policy or a fine.

CBP asserts that the Bayside Canadian Railway is not a "through route" and is therefore not compliant with its earlier interpretations.