Jones Act Waivers Following Natural Disasters

While the United States continues to assess the full scope of the devastating aftermath of Hurricane Ida on the U.S. Gulf Coast, national media have already reported shortages of oil and fuel supplies, as well as food and agricultural inventories, in Louisiana and Mississippi. Such shortages are compounded by the evacuation of offshore energy platforms that stopped production as Ida approached the Gulf of Mexico, as well as the damage to onshore critical utilities and transport infrastructure caused by flooding and high winds, and the inability of workers to reach such facilities to do their jobs.

In historical cases where hurricanes or natural disasters have disrupted the U.S. energy and oil supply, it does not take long before questions begin to arise whether there is a need for Jones Act waivers to add shipping capacity to resupply inventories or move products to market. True to form, on Aug. 30, 2021, the Biden Administration was already fielding questions about Jones Act waivers, and while not committing to the idea, acknowledged that the White House was assessing what needs exist to ensure that the U.S. has its necessary supply of fuel through a range of tools at the federal government's disposal.

However, before delving too far into Jones Act waiver discussions, it is important for stakeholders to understand how such Jones Act waivers operate and the (limited) cases in which they have been approved.

The Jones Act

The Jones Act is a colloquial term used to refer to Section 27 of the Merchant Marine Act of 1920, which limits U.S. domestic trade by water between points in the United States to "coastwise-qualified" vessels (i.e., U.S.-flag vessels constructed in the U.S. and owned and operated by U.S. citizens). 46 U.S.C. § 55102. The Jones Act, as used in this context, expressly prohibits the coastwise transportation of merchandise, such as oil, on non-coastwise qualified vessels.

Impacts to shipping and infrastructure caused by natural disasters, such as hurricanes, may disrupt the nation's fuel supply chain and cause shortages of critical oil and fuel, industrial commodities and food grains. In such cases, and as a matter of national defense and U.S. economic interests, the U.S. government is faced with an immediate dilemma of meeting U.S. energy demands as balanced against the availability of coastwise-qualified vessels to meet those same demands. In cases where coastwise-qualified vessel are unavailable to support critical fuel resupply operations, a Jones Act waiver may temporarily allow foreign ships to transport fuel between U.S. ports.

Jones Act Waiver Processes Under 46 U.S.C. § 501

The Jones Act requirements can be waived to allow foreign-flag vessels to engage in coastwise trade but only in rare circumstances in which the basis for an exemption is the "interest of national defense." There are only two types of Jones Act waiver request processes: 1) waivers requested by the Secretary of Defense, and 2) waivers requested by non-Department of Defense (DOD) entities (or "discretionary waivers"). Notably, the final issuer of any Jones Act waiver is the Secretary of the Department of Homeland Security (DHS) in both processes. And in both instances, the only grounds for Jones Act waivers are those issued in the "interests of national defense". The Federal Maritime Commission (FMC) plays no role in the waiver process, as the Shipping Act of 1984, its traditional purview, is not impacted.

In the first example, waivers can be requested directly by the Secretary of Defense under 46 U.S.C. § 501(a). All waiver requests by the Secretary of Defense must be granted, and in such cases, U.S. Customs and Border Protection (CBP) may waive the Jones Act immediately.

In cases falling under the latter category involving non-DOD waiver requests, the Secretary of Homeland Security has discretionary authority to grant a waiver only if it is considered necessary in the interest of national defense. 46 U.S.C. § 501(b). Distinct from Secretary of Defense requests, these waiver requests are not automatic and follow a delineated approval process.

The Jones Act Discretionary Waiver Process

In practical terms, the initial step in seeking a Jones Act discretionary waiver is for an interested party to submit a request to CBP (a DHS agency) that outlines the facts supporting the national defense need for the waiver. CBP then reviews the waiver request and forwards it to the U.S. Maritime Administration (MARAD). CBP also sends the request to the Secretary of DHS, DOD, and agencies with oversight of the issue (e.g., Department of Energy or Department of the Interior).

When DHS receives a discretionary waiver request, it undertakes an assessment of whether there is sufficient "interest of national defense" to proceed. In so doing, DHS consults MARAD to assess the capability and availability of qualified U.S.-flag vessels to meet the national defense requirements. MARAD must make a determination that insufficient qualified U.S.-flag vessels are available to meet the requisite transportation needs before the Secretary of DHS may evaluate whether the proposed transportation is "in the interest of national defense." Once MARAD makes its determination, the Secretary of DHS makes the final decision on the Jones Act waiver request.

Jones Act waivers remain somewhat controversial, and approvals have been few and far between. However, requests for waivers in instances involving natural disasters (such as hurricanes) have been successful when made on the basis that such waivers connected energy shortages and disruptions with national defense. The most recent example of post-hurricane waivers in the interest of national defense are those approved by the Acting Secretary of DHS in September 2017 to facilitate movement of refined petroleum products – including gasoline, diesel and jet fuel – in response to the impact of Harvey and Irma in Texas. Those waivers were extended for an additional seven-day period due to the continued shortage of energy supply through a second waiver. DHS also issued a temporary waiver in September 2017 to support the response to the damage caused by Hurricane Maria in Puerto Rico. Other examples include an 18-day waiver issued in September 2005 by DHS in response to Hurricane Katrina impacting Louisiana (and in particular New Orleans) that permitted foreign-flag tankers to move petroleum and petroleum products due to power outages at pipeline facilities in the Gulf Coast region, followed by a waiver soon thereafter in response to Hurricane Rita on similar grounds. In 2012, a waiver was granted for approximately three weeks to move fuel to the Northeast in response to Superstorm Sandy.

Problems with prior waivers have included undue delay in initially granting waivers, preventing ships from being loaded on a timely basis, and waivers that have such a short duration that is it difficult to book vessels, load and discharge at destinations before the waiver expires. Wording of a waiver is also important: For example, will the waiver cover a vessel that reaches the discharge port within the waiver period but then has to wait for some days due to poor weather for a berth to open?

Conclusions and Recommendations

Interested stakeholders should be aware of the process for seeking Jones Act waivers and understand that the opportunities for such waivers are narrow – and the window of time in which the waivers are approved is usually temporary and limited. Moreover, incomplete or inaccurate information in a CBP waiver request could unduly delay the processing of the request and forego opportunities. Thus, stakeholders should give due consideration to acting early with a clear justification on which the waiver is based.

For more information about Jones Act waivers or questions specific to your organization, contact the authors or another member of Holland & Knight's Maritime Team.

Information contained in this alert is for the general education and knowledge of our readers. It is not designed to be, and should not be used as, the sole source of information when analyzing and resolving a legal problem, and it should not be substituted for legal advice, which relies on a specific factual analysis. Moreover, the laws of each jurisdiction are different and are constantly changing. This information is not intended to create, and receipt of it does not constitute, an attorney-client relationship. If you have specific questions regarding a particular fact situation, we urge you to consult the authors of this publication, your Holland & Knight representative or other competent legal counsel.