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.

Jones Act Win: Bayside Connection and its Train to Nowhere are ruled illegal.

Since 2009, tens of thousands of tons per year of pollock and other fish were being shipped from Dutch Harbor AK to American ports on foreign flag vessels, funneled through Bayside, Nova Scotia. This would patently violate the Jones Act, except for the 3rd Proviso of the Jones Act, which allows cargo to be offloaded in a Canadian port and shipped to an American port on a Canadian railway. (Trucking would violate the Act).

The Bayside Connection in Nova Scotia made use of a 100-foot long stretch of rail track, on which truckloads of fish were loaded, driven back and forth 100 feet, and then unloaded and driven to American cities, the ruse being that the cargo had been “transported” on a Canadian railway.

On May 25th Judge Sharon Gleason of the United States District Court for the District of Alaska ruled the Bayside Connection violated the Jones Act, writing:
" to simply require the peripheral involvement of a rail line - would result in absurdity, as it would effectively permit almost any non-coastwise-qualified vessel to fall within the Third Proviso so long as the journey included some contact, however limited, with a railroad in Canada…"

Shipments between Dutch Harbor and the Bayside Connection came to a crawl last fall when the CBP announced $400 millions in fines against the shipping company involved, ARM, and its customers. However Judge Gleason, though torpedoing the Bayside Connection, has dismissed the fines.

A clear win for the Jones Act, meaning an additional 50,000 MT of cargo a year will now be transported on American vessels

Your update is great news indeed…now, regarding this:

any insight on what US shipper will pick up this cargo? Seems like it’s relatively small loads over a very long distance (thru the canal). Will this cargo just be shipped to Seattle then transported by rail across the country?

4 jones act shippers in seatac with services to dutch harbor will pickup the slack on this fairly easily. Not a lot of tonnage, but remember it’s all high value reefer cargo. Some in containers, some in breakbulk.

I’m guessing yes, ship to Seattle, then across the country, in refer vans it could go with Matson, TOTE, or one of the barge lines, breakbulk will most likely go with Coastal.

So, what prevents the shippers from still using foreign flagged ships (Dutch Harbor to Vancouver), then starting the overland trip? Doesn’t NAFTA allow for that? I’m certainly not rooting for that outcome, but just asking.

How would that be different than shipping to New Brunswick?
though you make a valid point, there should be laws that require U.S. seafood to be shipped on U.S. flag ships (oil and gas too)

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Logistics wise, New Brunswick is on the East coast of Canada requiring a very long voyage including paying Panama Canal fees. Vancouver is on the West coast of Canada requiring a much shorter ocean voyage.

Jones Act compliance wise, the cargo would be loaded on a Canadian train in Vancouver which (maybe) would meet this?

Once again, I’m not advocating for this, I’m just asking what is preventing them from doing this?

Agree completely

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As long as you pay for it sure.

And timber as well. The taxpayer builds mountain roads so that forests can be stripped and shipped to Japan while American mills are sold for scrap. That scrap probably gets shipped on FoC bottoms to foreign steel mills. Petroleum products, timber, seafood, and every single government item shipped overseas should be required to be carried on American flag ships.

Oh boy do we ever pay for it!

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In the early 80’s I was on a run to Europe. The schedule was Bremerhaven, then Felixstowe before heading back to the States. I watched a lot of boxes that were loaded in Bremerhaven landed in Felixstowe and then reloaded. I asked the C/M what the deal was. He said US customs duties were lower on “exports” from the UK…Seemed strange to me but that was what was happening.