Jones Act Waiver Mess

Potential energy shortages in the U.S. northeast this winter have led to arguments that the U.S. Jones Act should be waived. These arguments rarely, however, grapple with what exactly it takes to waive the Jones Act. This is not blameworthy because the Jones Act waiver standard has been a mess. For decades the standard for granting a waiver was interpreted in way as to make it all but meaningless, and now the standard is so strict that waivers are all but forbidden.

Section 27 of the Merchant Marine Act, 1920, the so called “Jones Act,” is a “if this, then that” kind of law. If there is transportation by land water of merchandise between two points in the United States, then a qualified U.S.-flag vessel must be utilized without exception.

Cost, commercial requirements, and safety do not figure. U.S. Customs and Border Protection, which has a Jones Act oversight function, wrote in 2015, for example, that the “strict language of the statute does not allow CBP to exercise discretion to take into account factors such as safety or commercial practicalities.” CBP was responding to a request from other federal agencies to consider safety in applying the Jones Act to offshore heavy lift operations.

The Jones Act itself has no intrinsic waiver provision. By its terms, nothing can be waived. Again, “if this, then that” without exception.

During World War I, Congress gave express permission to the U.S. Shipping Board (a predecessor to the current U.S. Maritime Administration) to issue “permits” to foreign vessels to engage in coastwise trade (but excluding Alaska). Almost 400 permits were issued. When the war ended, Congress ended the authority.

It was not until World War II that waiver authority was created which eventually became permanent. On December 12, 1941, President Franklin D. Roosevelt signed an Executive Order granting the Secretary of Commerce authority to waive compliance with navigation and vessel inspection laws “for war purposes.” The reasoning was that the war effort took priority over vessel inspection and navigation laws, including safety laws and the Jones Act.

Congress affirmed the President’s authority in the 1941/1942 War Powers Acts which established the waiver standard as being “necessary in the conduct of the war.” Nothing in these laws required a determination that no U.S.-flag vessel was available before a waiver was granted.

Numerous vessel inspection laws – such as load line or life-boat requirements – were waived during World War II. One waiver was issued to permit licensed officers to retain their original licenses on their person rather than “under glass” on the vessel’s bridge to facilitate abandoning ship if necessary. The Jones Act was also waived during war, without controversy.

The waiver law lapsed after World War II but was reinstated in 1950 to deal with the same sort of shipping impediments in the Korean War that had arisen before. The 1950 law introduced a new standard – “in the interest of national defense” – which continues to this day.

Once unmoored from “necessary in the conduct of the war,” all kinds of waivers have met the “interest of national defense” standard, often without any discernible connection to national defense. A towing by a Canadian tug on a single voyage, use of a Canadian dredge on the St. Lawrence seaway, a single voyage of liquified petroleum gas from Alaska to the continental USA, and a period waiver to move molten sulfur in the coastwise trade all received waivers. In no instance was the justification more involved than the bare statement that these waivers were “in the interest of national defense.”

The waiver standard expanded to cover energy production and transportation in the 1980’s culminating in a 1990 inter-agency agreement establishing a process for issuing waivers in the case of “actual or imminent energy supplies.” The connection to national defense was again not made clear.

The trend continued with hurricanes starting with Hurricane Katrina ending with Hurricane Harvey where short period of time energy waivers were issued. For the first time, a short period general cargo waiver for shipments to Puerto Rico was issued in 2017 after Hurricane Maria.

The law remained largely the same from 1950 until the Obama Administration issued dozens of waivers in connection with a sale of Strategic Petroleum Reserve oil in June 2011. This angered the Jones Act community and the waiver law has been steadily narrowed since then.

One thing added in 2012 was a requirement that the U.S. Maritime Administration post on its web site every finding that a U.S.-flag vessel was not available in connection with the issuance of a waiver. MARAD has made only four such postings since 2012, and two of them were issued in 2022 in connection with Hurricane Fiona. No period of time waiver was issued for Fiona unlike earlier hurricanes.

In January 2021, the law was amended such that no waiver can be issued without a finding that no U.S.-flag vessels are available under all circumstances (Department of Defense issued waivers previously did not have to comply with that requirement), and non-DoD-issued waivers are limited to 10 days extendable to 45 days “with respect to any one set of events.”

Perhaps most significantly, and after 70 years, Congress reverted in substance if not in words to the original formulation of “necessary in the conduct of the war.” Congress changed the “in the interest of national defense” standard for DoD-issued waivers “to address an immediate adverse effect on military operations.”

The strict time limit for non-DoD issued waivers combined with the strict standard for DoD-issued waivers now makes Jones Act waivers impractical except in narrow circumstances. Most opinions that the Jones Act should be waived to ease northeast energy shortages fail to take this into account. What was an unbounded pollical tool has become almost no tool at all.

This may be what proponents of the 2021 changes wanted, but it leaves the country with no way out from “if this, then that” futility if the stakes get high enough. An energy crisis in the U.S. northeast in the winter of 2022-23 may very well test whether having a law with no escape provision is good or bad for the Jones Act.