The Railroad to Nowhere: Threat to the Jones Act

Will fish sticks torpedo the Jones Act? Yes, if foreign owned shipping companies and cold storage operators have their way. A Federal judge is deciding on the issue right now. If the foreign companies prevail, they will carve out a permanent exemption to the Jones Act wide enough for other companies to follow.

Since 2012, an ocean shipping company called ARM, working in conjunction with the cold storage operator Kloosterboer, have chartered foreign palletized reefer ships to carry pollock from Dutch Harbor, Alaska to Bayside, Nova Scotia. Purpose: circumvent the Jones Act.

Pollock, the fish used in Filet-o-Fish sandwiches and fish sticks, is a lucrative cargo. The pollock is destined for processing plants in American cities–the Gorton Seafoods plant in Gloucester, Mass and, until recently, the Tyson plant in Jefferson WI. But it travels on foreign ships from Alaska, through the Canal, to Nova Scotia before travelling overland to the U.S…

This would normally violate the Jones Act. Even if the foreign ship stops in a Canadian city, and then the cargo is transported to an American city, the Jones Act is violated. Except for one provision: if the cargo is moved by Canadian railroad company with a published tariff, such shipments are legal. But not so if moved over-road in trailers. And here lies the rub.

Originally, ARM/Kloosterboer unloaded the cargo from ships in Bayside and put it in railcars for Gloucester and Jefferson. Which is legal.

But in 2012 they began doing something radically different. They unloaded the cargo into a cold storage. When the U.S. plants needed product, Kloosterboer then loaded the cargo into trailers, in violation of the Jones Act. They then drove the trailers onto railcars on a specially built Railroad to Nowhere. Only 100 feet of track. A locomotive moves the trailer 100 feet and backs up, at which point the trailers are driven off the railcars, and off to American cities.

ARM /Kloosterboer claims it is legal, because while the Jones Act says the cargo must be loaded onto a train, it doesn’t say that it has to stay on a train.

CBP thought differently. This August, the Jones Act Enforcement branch of Customs and Border Protection cited ARM, Kloosterboer, and a number of American seafood companies for violating the Act, and levied a collective $350 million in fines. The federal judge involved in the case has not ruled on the case, but has prevented more fines from being levied, and has even allowed the entire Bayside Connection, frozen since August, to keep operating until the judge’s final decision.

The foreign companies have doubled down. They now want a permanent exemption to the Jones Act, claiming that American ocean shipping companies don’t have the capacity to haul the product, despite the statements from four such companies , including Matson, that they have plenty of capacity.

When one permanent exemption from the Jones Act is made, how many will follow? If you can do it for pollock, why can’t you do it anything else?

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I’m pretty sure Fisherman’s Finest is aware of another.

Matson’s claim to have the capacity is suspect.

How many ships does Matson have laid up?

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The difference between the two cases: Fisherman’s Finest received a one-time waiver–essentially a pardon. If Fisherman’s Finest /DCI did the same thing again, they would not receive one because the waiver was awarded in the belief that the defendants didn’t know they were violating the Jones Act.

From Professional Mariner:
…the Guard conducted a review to determine whether the shipyard that constructed America’s Finest or its purchaser (Fishermen’s Finest) knew whether components of the vessel violated Jones Act requirements… “The Coast Guard…determined that neither the shipyard nor the purchaser knew before the components were procured, or before installation had commenced, that usage would violate statutory requirements.”… The now-certified waiver forgives Dakota Creek for what it claims was a mistake.

ARM/Kloosterboer could theoretically ask for a waiver (a pardon) for past violations. But they are asking for something far more than that. They are doubling down. They are asking to maintain the Bayside Connection, and ship the cargo in violation of the Jones Act permanently.

Because U.S. law works on precedent, once there is precedent for granting permanent exemptions to the Jones Act (as opposed to waivers for past violations) it makes it easy to grant more exemptions.

Does anyone know the reasoning for the Canadian Rail provision? I don’t understand why the Jones Act would care if we provide jobs to the Canadian Rail Sector in the first place is it simply because US CBP will get some percentage of that Tariff?

Also more of the previously reported story.

I can’t give you the exact story, but the “Third Proviso” of the Jones Act specifically allows it. I was told that it was a “carve-out” hammered out by senators a hundred years ago, when they crafted the act, to please a specific group of shippers.

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Here is the full–if complicated-- story of the Third Proviso of the Jones Act:

Wow! So the government has conceded that ignorance of the law is now an excuse to violate it. I wonder how that defense will hold up for the rest of us.

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I suspect that varies with how obscure the law is and the number of politicians that are the recipients of your campaign contributions.
I wouldn’t have guessed the Canadian truck idea was illegal off the top of my head, trucks aren’t ships.