Category: Government/Legislation

Protecting the Supply Chain: U.S. Government Studies the Role of Federal Agencies in Ocean Carrier Bankruptcies

Rick Antonoff and Evan Jason Zucker

In December 2018, the Frank LoBiondo Coast Guard Authorization Act (the “LoBiondo Act”) was enacted to, among other things, improve and support the operation and administration of the Coast Guard and update maritime and environmental policy. Section 713 of the LoBiondo Act directs the Comptroller General of the United States to “conduct a study that examines the immediate aftermath of a major ocean carrier bankruptcy and its impact through the supply chain.” In accordance with that mandate, in January 2020, the U.S. Government Accountability Office (“GAO”) published a report on the role of the Federal Maritime Commission (the “FMC”) and Department of Commerce (“Commerce”) in an ocean carrier’s bankruptcy case.

The study was prompted by supply chain disruption at sea and at numerous ports caused by the bankruptcy of Hanjin Shipping Co., Ltd. in August 2016. At the time, Hanjin was one of the world’s largest integrated logistics and container shipping companies transporting cargo to and from ports throughout the world. The GAO concluded that the FMC and Commerce played an important monitoring function in the industry, but did not recommend any changes to either agency’s role in an ocean carrier bankruptcy. This is because the GAO found that industry participants have already taken steps to mitigate the effects of another ocean carrier bankruptcy and current law does not authorize these agencies to have a more active role.

The Ocean Carrier Industry

The maritime transport industry is the backbone of globalized trade and the manufacturing supply chain. According to the United Nations Conference on Trade and Development’s Review of Maritime Transport 2019, more than four-fifths of world merchandise trade by volume is carried by sea. Annually, more than one trillion dollars in U.S. exports and imports are moved by ocean vessels. Prior to the current pandemic, the industry was already coping with low-freight rates, reduced earnings, and oversupply as a result of increased global tariffs, volatility in demand, and new environmental regulations. These market conditions have led to the continued consolidation of ocean carriers. “In February 2019, the [top] 10 deep-sea container-shipping lines represented 90 per cent of deployed capacity and dominated the major East-West trade routes through three alliances.” This consolidation in the industry increases the risk of disruption that the financial instability of any one shipping company can have on the global supply chain.

Scope of the GAO Study

To address the objectives mandated in the LoBiondo Act, the GAO reviewed documents filed in Hanjin’s bankruptcy case and documents provided by the FMC and Commerce. Additionally, the GAO interviewed 15 industry stakeholders representing various roles in the supply chain including representatives from four ports, two ocean carriers, one association representing carriers, one association representing freight forwarders and customs brokers, five associations or companies representing transportation and equipment providers, one association representing retailers, one association representing agricultural cargo owners, and officials with the FMC and Commerce. Continue Reading

Implications of Jones Act Changes to the Offshore Energy Industry

Jonathan K. Waldron and Stefanos N. Roulakis

Vessels are the backbone of any offshore construction project, and the Jones Act, which celebrated its centennial this month, regulates their operations in U.S. waters on the Outer Continental Shelf. Originally promulgated as a transportation statute, the Jones Act has governed vessels engaging in offshore construction for nearly four decades. While offshore oil and gas construction operations have been conducted in compliance with the Jones Act for decades, with the burgeoning offshore wind sector there is renewed interest on how the Jones Act will be applied to such projects. Indeed, planning for Jones Act compliance is a major component of successful wind farm installation operations, as has been the case for years with oil and gas-related work. Interestingly, despite the fact that the Jones Act is now a century old, there have been recent significant regulatory and legal developments in its interpretation.

Specifically, after years of debate within the offshore industry, on December 19, 2019, U.S. Customs and Border Protection (“CBP”) issued its decision in its Customs Bulletin, “Modification and Revocation of Ruling Letters Relating to CBP’s Application of the Jones Act to the Transportation of Certain Merchandise and Equipment Between Coastwise Points” (the “Decision”). The Decision became effective on February 17, 2020. Offshore developers, vessel operators, and other stakeholders must now face the question: How does the Decision affect offshore activities?

Further, the Decision currently faces challenges both in Congress and the courts. Some members of Congress who are not pleased with CBP’s actions have been focused on legislating in this area and modifying the Jones Act to include restrictions on lifting operations undertaken by installation vessels. This would effectively overrule parts of the Decision. Stakeholders in the offshore wind, ocean renewable energy, and offshore oil and gas sectors should pay attention to these developments as they will intimately impact offshore construction activities.

Background on the CPB Decision

In both 2009 and 2017, CBP published notices to revoke or modify various rulings, which potentially could have overturned decades of precedent with regard to a sweeping range of offshore operations that have never been subject to the Jones Act. To be frank, CBP did not fully understand how the offshore industry operated offshore, and the proposals were potentially overbroad without CBP understanding the economic impacts on the various types of offshore operations these proposals would have adversely affected. As a result of strong industry backlash on both occasions, the proposals were withdrawn for reconsideration.  Finally, following the 2017 withdrawal, CBP undertook an intensive exchange of information with all facets of industry to fully understand how industry actually operates offshore and to fine-tune and focus its 2019 proposal on vessel equipment issues and lifting operations, which resulted in a decision that took into account comments and input from all stakeholders.

As far as substance, the Decision eliminates previous erroneous decisions that permitted non-coastwise-qualified vessels to transport items that should have been considered merchandise under the Jones Act. The Decision also clarifies that lifting operations may be conducted by non-Jones Act vessels. Specifically, as discussed in more detail below, the Decision 1) broadens the definition of merchandise to make it clear that non-Jones Act vessels can no longer carry out certain offshore activities that they have performed for years under a misguided and overly broad “mission of the vessel” theory, and 2) establishes a new interpretation of “Lifting Operations” to specify the movements that a non-Jones Act vessel can perform when conducting installation or decommissioning operations, which will not be considered “transportation” within the meaning of the Jones Act.

Should the Decision be overturned either in court or through legislation, it will have a significant impact on the market for offshore construction, whether for renewable energy or fossil fuel production. Currently, there are few or no Jones Act-qualified vessels that can perform the necessary lifting operations needed to undertake the multitude of varying construction projects offshore, depending on the crane capacity and vessel and stability characteristics required for a particular lifting operation. Continue Reading

Offshore Wind: Driving Factors and Recent Impediments

Joan M. Bondareff and Dana S. Merkel

This article contains a brief review of the latest developments in offshore wind, including state laws and policies, federal laws and permitting practices, and the impact of COVID-19. The main issue we are now watching is the Department of the Interior’s supplemental environmental review of the proposed Vineyard Wind project, discussed below. Until a final environmental review is completed, we are unable to predict with certainty how many offshore wind construction plans will be approved this year by the Bureau of Ocean and Energy Management (“BOEM”) in the Department of the Interior.

States Are Driving the Offshore Wind Process along the Atlantic Coast

We have reviewed state laws and policies before (see our article in the April 2019 edition of Mainbrace). Although developments offshore California and Hawaii are still being considered, they have been hampered by objections from the Department of Defense to siting wind farms near adjacent military bases. Meanwhile, development along the mid-Atlantic and New England coasts remains strong.

We conclude, as we have before, that the governors are taking the lead in promoting offshore wind by adopting new laws and/or executive orders and promoting renewable energy, including offshore wind. Their goal is to bring in some of the more than 40,000 new offshore wind jobs predicted by 2030. Continue Reading

 

Navigating the Maritime Regulatory Response to the COVID-19 Pandemic

Jeanne M. Grasso, Jonathan K. Waldron, Dana S. Merkel, and Stefanos N. Roulakis

Maritime stakeholders should examine key guidance documents that have been published by U.S. government agencies in response to the coronavirus pandemic. Some of these guidance documents create new opportunities for stakeholders, while others may impact operations in U.S. waters. Regardless of effect, businesses involved in maritime commerce should be aware of these updates and plan accordingly. For example, companies who depend on non-U.S. citizen crews for operations in U.S. waters should be adequately prepared to equip crew with support letters during visa interviews and transit to the United States. And, vessel owners and operators with upcoming ballast water compliance dates should examine whether installation is feasible in this climate and seek extensions to their compliance date if it is not.

EW DEVELOPMENTS

The COVID-19 pandemic and the logistical and operational challenges it has caused have raised a host of questions within the maritime industry. A number of government agencies have sought to clarify expectations and even ease some requirements for the industry. Some of these changes, such as changes to the approach to extending the compliance date for installation of ballast water management systems, were directly intended to benefit the maritime industry. Other updates, such as the U.S. entry restrictions instituted via a Presidential Proclamation, did not target the maritime industry, but the impact was felt by companies that rely on the ability to have crewmembers travel through the United States. Below is a summary of some key guidance documents that are affecting the maritime industry during this pandemic.

ANALYSIS

Visas and Entry Restrictions

On March 14, 2020, a Presidential Proclamation entitled “Suspension of Entry as Immigrants and Nonimmigrants of Certain Additional Persons Who Pose a Risk of Transmitting 2019 Novel Coronavirus” (available here) was issued, which included a travel ban for several countries. This Proclamation contained an exception for “any alien traveling as a nonimmigrant pursuant to a C‑1, D, or C-1/D nonimmigrant visa as a crewmember or any alien otherwise traveling to the United States as air or sea crew.” However, there have been significant problems for holders of B-1 visas for offshore work, which stems from differing interpretations from U.S. Customs and Border Protection (“CBP”) and the State Department. To date, industry is still experiencing difficulty with some embassies, which apparently are not recognizing that B-1 crew type visas are exempt from the Presidential Proclamation and should be considered mission critical, leading to reluctance on the part of some embassies around the world to issue these visas on an emergency basis. Support letters should be provided to crew seeking appointments and these crew type visas.

Please click here for the full client alert.

Congress Acts on Major Maritime Programs in 2019 and Postpones Work on Coast Guard Bill

Joan M. Bondareff and Stefanos N. Roulakis

We are in the middle of the two-year term of the 116th Congress. In 2019, Congress reauthorized and funded several maritime programs, described below. Impeachment and a busy Senate calendar have delayed the 2019 Coast Guard Authorization Act (“CGAA”) until the second session, which began on January 6, 2020.

Coast Guard Bill Delayed by Jones Act Waiver in House Bill

The main delay to finalizing the CGAA is how to handle a provision regarding installation vessels. This provision seeks to affirm that the Jones Act applies to “lifting operations” while instituting a government-run waiver process that may allow use of foreign-flag vessels. (For a complete summary of the House-passed bill, please see our advisory, Potential Impacts of Offshore Legislation on Industry.) In contrast, U.S. Customs and Border Protection (“CBP”) has recently issued a customs bulletin interpreting the Jones Act as specifically not applying to “lifting operations” in addition to creating new criteria for when a Jones Act vessel must be used in transporting items offshore. (For a complete summary of the CBP Notice, please see our advisory, U.S. Customs and Border Protection Decision Makes Substantial Changes Affecting the Offshore Industry.) Procedurally, the Jones Act waiver provision is in the House-passed bill (H.R 3409). The companion Senate bill (S. 2297) lacks a similar provision. As such, proponents of the CBP’s notice are encouraging Congress not to enact the House-installation vessel provision.

The specifics of the House provision would regulate lifting operations offshore. The provision states that until a coastwise qualified (i.e., U.S.-built, U.S.-citizen owned, and U.S.-flagged) lifting vessel is built, “lifting operations” are not subject to the Jones Act. Once such a vessel is built, the bill would charge the Maritime Administration (“MARAD”) with implementing a waiver provision for “lifting operations” requiring crane capacity greater than 1,000 MT. If MARAD determines that a U.S. Jones Act qualified vessel is available, only a coastwise-qualified vessel can perform the lift. As of this publication date, it remains to be seen how the House and Senate bills will be reconciled in conference. Continue reading “Congress Acts on Major Maritime Programs in 2019 and Postpones Work on Coast Guard Bill”

Congress at Work on Maritime Programs

Joan M. Bondareff and Jonathan K. Waldron

While much attention is being paid to the Mueller report and the internal Democratic fight regarding impeachment procedures for President Donald Trump, the 116th Congress and its respective committees are trying to do their regular work in the meantime—including passing both authorization bills and appropriation bills for fiscal year 2020. Here are some key legislative developments relevant to the marine industry.

Maritime Administration Authorization Bill

On May 15, 2019, the Senate Committee on Commerce, Science, and Transportation reported S. 1439, the “Maritime Administration Authorization and Enhancement Act for Fiscal Year 2020,” sponsored by Senator Roger Wicker (R-MS), Chairman of the Committee. S. 1439 hopes to accomplish a multitude of goals, including a 10-year reauthorization of the Maritime Security Program, a U.S.-flagged fleet of commercial ships deemed critical for defense sealift operations; and codifying President Trump’s “military to mariner” executive order (E.O. 13860), aimed at streamlining the transition of active duty and retired military into civilian maritime jobs. Additionally, the bill includes the Port Operations, Research, and Technology (“PORT”) Act, which authorizes $600 million for the secretary of transportation to make grants for port and intermodal infrastructure projects; the Maritime SAFE Act, aimed at combatting illegal fishing; increased funding—up to $40 million for FY2020—for the Small Shipyard Grant Program; and full funding ($33 million) for the Title XI maritime guaranteed loan program to support the maritime industrial base. The bill requires that all components used in grant-funded projects are American-made and American-bought (a Baldwin amendment). The bill also authorizes a program to support infrastructure development at Department of Defense-designated Strategic Ports, and enacts reforms at the U.S. Merchant Marine Academy regarding sexual harassment and assault prevention. Continue reading “Congress at Work on Maritime Programs”

Potential Impacts of Offshore Legislation on Industry

Jonathan K. Waldron and Stefanos N. Roulakis

The U.S. House of Representatives has introduced legislation that could potentially greatly alter the landscape for oil, gas, and wind installation and decommissioning activities on the U.S. Outer Continental Shelf (“OCS”). Stakeholders should examine the legislation for impacts to their operations.

New Development

The House Committee on Transportation and Infrastructure marked up and approved H.R. 3409, the Coast Guard Authorization Act of 2019 (“2019 CGAA”) on June 26, 2019. This legislation, if enacted, could have significant impacts on how oil, gas, and wind vessel activities are conducted on the OCS. Of particular note, the legislation could have an outsized effect on offshore wind in the United States, which is at a nascent stage and requires installation activities of the type contemplated in the 2019 CGAA.

Background

In January 2017, U.S. Customs and Border Protection (“CBP”) proposed to overturn decades of precedent with regard to offshore operations potentially subject to the Jones Act in its “Proposed Modification and Revocation of Ruling Letters Relating to Customs Application of the Jones Act to the Transportation of Certain Merchandise and Equipment Between Coastwise Points” (the “Notice”). The Notice, which was published in the CBP Customs Bulletin, proposed the modification of approximately 25 CBP rulings that delineated the difference between “equipment of the vessel,” the transportation of which does not implicate the Jones Act, and “merchandise,” which may only be transported by qualified vessels under the Jones Act.

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The Maritime Outlook for the 116th Congress

Joan M. Bondareff and Genevieve Cowan*

When we last wrote about the 115th Congress, it had just completed work on the Coast Guard Authorization Act of 2019 and Save Our Seas legislation. These bills were summarized in our Mainbrace (October 2018) article, Congress Passes Major Maritime Safety Legislation but Fails to Fund a New Icebreaker or Pass Authorization for Most Coast Guard Programs. Of notable significance since our last article, the 2019 spending deal finally provided funding for a new polar icebreaker, which is discussed in detail further below. Continue reading “The Maritime Outlook for the 116th Congress”

Impact of New U.S. Import Tariffs on the Maritime Industry

Joan M. Bondareff and Matthew J. Thomas

President Trump, from his campaign through his time in office, has been a vocal supporter of U.S. manufacturing jobs and a critic of what he characterizes as unfair trade practices from traditional U.S. trading partners. This is one reason he withdrew from the Trans-Pacific Partnership, and currently is renegotiating the North American Free Trade Agreement (“NAFTA”). As we are putting this issue of Mainbrace to bed, the administration has announced the successful completion of a new trade agreement with Mexico and Canada, which is now called the U.S.-Mexico-Canada Agreement (“USMCA”). At a later date we will provide insights into the “new” NAFTA and its potential impact on the maritime industry. Keep in mind that Congress will ultimately have to approve the USMCA before it goes into effect.

Although there are hints of some negotiations between the United States and China, we expect this is the last trade deal that President Trump will negotiate because of his increasing rhetoric and tougher stance on the imposition of billions of dollars of new tariffs that go into effect on January 1, 2019. This also explains his imposition of tariffs on thousands of products imported from China, and steel and aluminum tariffs for most countries, including the European Union, as well as his threats to impose tariffs on automobile imports. In this article, we analyze the potential impact of these tariffs on the broader maritime industry. Continue reading “Impact of New U.S. Import Tariffs on the Maritime Industry”

Congress Passes Major Maritime Safety Legislation but Fails to Fund a New Icebreaker or Pass Authorization

Joan M. Bondareff, Jonathan K. Waldron, and Genevieve Cowan*

This article provides an update on the status of several maritime-related bills pending with the 115th Congress as of October 3, 2018, and reviews one major marine safety law that passed Congress and is awaiting presidential signature.

America’s Water Infrastructure Act of 2018

The latest version of “America’s Water Infrastructure Act of 2018” (S. 3021), previously referred to as WRDA, is a product of compromise. The issues that were stalling the legislation for most of the summer have been resolved, resulting in a now far broader version that includes improvements to America’s water resources infrastructure; a streamlined project acquisition process for the Army Corps of Engineers that allows them to accept funds from nonfederal sponsors to advance studies and project elements; an extension of a new Environmental Protection Agency (“EPA”) water loan program for two more years; an EPA study requirement on small water utilities that are repeatedly out of compliance; a Government Accountability Office (“GAO”) study on whether to move the Army Corps out of the Department of Defense and into a civilian agency; and enhancements to oversight and transparency when reviewing water resources development activities by Congress. For a full summary and section-by-section review of the bill, please visit the House Transportation and Infrastructure Committee’s webpage on America’s Water Infrastructure Act of 2018. Continue reading “Congress Passes Major Maritime Safety Legislation but Fails to Fund a New Icebreaker or Pass Authorization”