Legislative Hurdles To National Security In The Civil Maritime Domain

Ie.  A *Starting Point* for Maritime Deregulation

Part 3.

5. Inefficient Cargo Preference Requirements

Turning again to the regulations in question and their relevance in twenty first century operations, it is important to examine the specific national security concerns they addressed at the time of their introduction.

  • While the Military Cargo Preference Act of 1904 (10 USC 2631) specifies that all cargoes purchased by the armed forces must be carried on a US flagged vessel – excepting where unavailable due to resources and/or costs are unreasonable – it does not require a great deal of effort to justify the use of a foreign-flagged vessel in the case of an emergency.  In a situation not dissimilar to the previous contradiction noted with the crewing differences between military and civilian operators, 31 of the 46 Ready Reserve Force ships maintained by the military for emergency transport of materiel in case of war, were constructed outside the United States and are therefore ineligible for any use domestically were they to be sold to a US-flagged operator in the future.

USNS Supply resupplies a Danish Navy frigate and USS George H.W. Bush

In an amendment to the Merchant Marine Act of 1936, passed in 1954, at least 50% of all general US government cargo must also be carried by US-flagged vessels.  The type of cargo specified in this legislation has generally focused on high volume products like food aid to be delivered overseas – and this amendment was further modified to 75% specifically in relation to food aid deliveries in 1985.  While it is not hard to fault the original intent of the legislation at the time it was developed, it appears to have very little utility in everyday operation – and in fact is more harmful than beneficial.  In the case of a real emergency or wartime situation, the military already has large amounts of munitions and materiel pre-staged.  During routine operations, there are far fewer routine shipments needed for military support than earlier in the 20th century – which makes sense given the smaller numbers of vessels involved as well.  Naval resupply for instance is predominantly conducted underway between Naval vessels and Maritime Sealift Command (MSC) auxiliaries – commercial vessels never enter the equation.  An exception to this from recent years has been the drawdown of military materiel following the formal end of hostilities in Iraq and to a lesser extent, Afghanistan.

In general, Cargo Preference to date is limited to emergency food aid and similar emergency aid programs.  The utility of this program has deteriorated greatly due to the increasing variability of international harvesting results.  Even Federal Aid Agencies are becoming less likely to utilize these programs – even when still required to by law – it can be far more efficient both in time and money to purchase the necessary aid or in the vicinity of the emergency and have it transported locally – rather than paying to have it acquired and shipped internationally on a ship that may not immediately be available when needed.

  • These acts and the issues they embody are further reflected by MARAD’s Maritime Security Program.  Out of 110 US-flagged vessels participating in international commerce, a full 60 are enrolled in the Maritime Security Program.  By participating in this program, the operators acknowledge that the ships will be made available to the US government at the earliest possible convenience in the event of an emergency or wartime situation.  In exchange for this availability, these operators receive a cash allotment of about $3.1 million per vessel per year or about $8500 per day.  While initially appearing to be a significant amount, as the PwC MARAD report demonstrates, that amount only covers about 2/3 of the daily differential in operating costs between US and foreign-flagged vessels. [But it’s still your taxpayer dollars being shelled out]

6. Security Issues Specific to the Jones Act

  • Returning to the Jones Act as a commercial speed bump, it is possible to force exceptions through, but the process is cumbersome and time intensive and requires action at the congressional level.  This includes a considerable number of cases where vessels have been repaired or refurbished overseas but have been certified by the Coast Guard that their refurbishments did not exceed reasonable limits as established by the Second Proviso of the Jones Act – currently listed in 46 CFR 67.177.  This issue is complicated enough on the surface – attempting to calculate the mass differentials from multiple pieces of equipment out of a very large vessel – but it often becomes far more politicized as commercial competitors will attempt to challenge each other on the legality of any foreign repairs.  Leaving aside that the repairs have already activated the Ad Valorem duty by default, if a corporation can prove that more than, say 7.5% of a competitor’s vessel’s steelweight has been repaired or worked on, that would potentially void the Jones Act eligibility that vessel for future operations.  Bearing in mind that the National Vessel Documentation Center is the only fully civilian staffed command under the Coast Guard – and possesses neither the resources nor qualified manpower to inspect the ships during refits to verify the claims made by the companies – which by and large have proven accurate under penalty of law.  This is also a sort of situation open to abuse in that in a number of cases, decisions by the Coast Guard have been retroactively reversed or thrown out by courts based on these corporate complaints, although the Coast Guard assessments have been conducted in good faith in accordance with their established legal precedents.  It is difficult in many cases to determine whether any US jobs are currently being lost by work conducted overseas due to the timing involved and the limited number of active shipyards – estimates and guesses are freely distributed by both sides of the argument, but there are no solid numbers available.
  • The legislative limitations of the Jones Act are also such that those situations in which the casual observer would expect common sense to address swiftly, become political footballs.  US Coast Guard icebreakers for instance are an extremely valuable asset, but as there are only three currently active (between six and ten would be required to adequately meet all current operational goals), a waiver was required from the Department of Homeland Security (DHS) in order to resupply Nome, Alaska, after a Russian ice-class tanker was forced to take on fuel from Dutch Harbor to deliver to Nome as weather prevented the intended pickup in a Japanese port.  This situation among others, verges on the legal absurdity of applying a near-century old law in a blanket format with no available consideration for logic.

Just tuggin’ along…

In another situation, an oil drilling company which had previously been granted a Jones Act Waiver by DHS (under National Security auspices) to transport an oil rig from Texas to Alaska using a foreign built, foreign owned vessel was told that the waiver had been revoked and would require a new application.  Although the company halted the transit in Vancouver and used a US towing company to take the rig the remainder of the way, they were still fined $15 million – the equivalent value of the rig itself – for breaking the coastwise trades portion of the Jones Act.  This was in spite of a lack of available Jones Act eligible vessels needed for a timely transit and the fact that DHS refused to review their appeal in regardless of Congressional support, although – for example – 56 Jones Act Waivers were granted in the period of July-August 2011 (utilizing the identical national security rationales to allow private companies to transport oil from the Strategic Petroleum Reserve).  As the largest fine of its type to date, it’s also something of a precedent in that the company was charged the full value of the vessel being transported even though as an actual vessel it was argued that it should not be treated like ordinary cargo or merchandise being transported from one port to another port.  [Because FYTW]

This scenario does bring up a related question that has yet to be addressed, but which also further exposes the limitations of the Jones Act.  Recently, vast reserves of natural gas have been located offshore of Alaska.  These reserves are easily exploitable, and would benefit the state and country immensely – but for one issue.  Even if there are new Liquid Natural Gas terminals constructed on the west coast, it will be impossible for any LNG tanker to qualify for the Jones Act – in part due to the limitations discussed previously, the US simply does not possess the shipbuilding capability to construct one.  Given the legal precedents already established, it is unlikely that any corporation or vessel would receive a blanket waiver for the life of one or more foreign-built vessels to engage in Alaska to West Coast deliveries.  That basically means that under current legal rulings, Alaska will be required to transport and export all their natural gas internationally, with no net gain to national energy security.

7. Potential Corrective Legislative Actions

So, returning to legislative actions that would provide a net gain to national security utilizing Mahan’s rationale, each previously discussed act will be reviewed.

  • The Military Cargo Preference Act of 1904 and all the follow-on associated legislation should be scrapped in full.  The US military already maintains its own Ready Reserve Force in addition to the federally operated Maritime Sealift Command ships.  Any needs beyond that in time of emergency should be addressed as needed – utilizing appropriate contingency planning and the best vessel available at the time of the requirement – without excessive micromanagement or favoritism.  Security concerns would obviously be observed and dealt with accordingly as necessary.  In the case of non-military cargoes, the respective federal agencies and departments should again be free to negotiate for the best available carrier to transport their cargo.  In this time of skyrocketing deficits – it is important to provide the best possible deal for the taxpayer.
  • The Ad Valorem duty portion of the Tariff Act should be fully rescinded.  It functions simply as a punitive tax on companies that have very few options to begin with, while not providing any actual incentive to have repair work conducted in a US shipyard.  A better alternative might be to provide tax breaks for operators – US-flagged and otherwise – who do conduct their maintenance availabilities and repairs in US shipyards.  Additionally it is far too arbitrary in its enforcement – between the precedent-based measurements conducted by the Coast Guard, and the irregular legal reversals in the courts.
  • Regarding the Jones Act itself, depending on the legislative process it might be easier to address the various issues in individual amendments, as opposed to replacing the entire piece carte blanche.  For instance, the citizen crew requirement should be removed immediately – at least for the seamen – although it would be worth reviewing in further detail whether that citizenship requirement should be left fully in place for ship officers.  Similarly, it should be examined further whether there is any inherent harm in removing the right to sue from a seaman injured onboard a vessel.  If insurance provided by the operator is adequate, in accordance with the routine union protections, there ought not to be any loss suffered by the seaman.  Again, there are precedents set for this that can be reviewed – both as a matter of routine policy for all US service members, but also for the seamen employed by non-US-flagged operators.

  • Coast Guard to the rescue!

    Finally, regarding the Coastwise Trade requirements of the Jones Act – it is reasonable to maintain the existing regulations for trade on the inland waterways of the United States – to include the Great Lakes – the precedents and general operating procedures established there are not in dispute.  However, at this time, given the existing restrictions and limitations on US shipyards, it makes no sense to maintain the US-flagged requirements for all trade between mainland ports, with particular emphasis on trade between the mainland and Alaska, Hawaii, Guam and Puerto Rico.  Like the Ad Valorem Duty issues, it is a regulation that has outgrown its utility in the last century and causes more considerably more economic hardship than benefit for both the operators and customers.  [A number of estimates place the cost of shipping a container from San Diego to Hawaii at 10 times the cost of shipping the same container from San Diego to Shanghai.  Numbers have fluctuated a little over the years.]

8. Conclusion

Reducing or eliminating these regulations should not be carried out in a vacuum, but in conjunction with providing more incentives to operators and service providers.  As with other industries, it should be the goal of the government to make normal business operations easier, not more difficult – whether in developing or maintaining a shipyard, transporting cargo and passengers, or anything else.   These are all capital-intensive industries that provide a very large number of secondary and tertiary jobs and business opportunities across the country – which in turn provide far more tax revenue in net gains.  It is possible to restore and revitalize our nation’s maritime tradition, but the way forward involves far less government interference and legislation, not more.

 

Part One; Part Two