Letters

Update on Efforts to Block Future Waivers

October 14, 2005

Dear Friend of the Jones Act:

On September 1, in response to Hurricane Katrina, the U.S. Department of Homeland Security announced a temporary waiver of the Jones Act for the movement of certain petroleum products. The purpose of this letter is to bring you up-to-date on the latest developments regarding this waiver, a subsequent waiver after Hurricane Rita, and efforts ongoing in Washington, DC with respective Government agencies to press the industry’s concerns. We are writing to you today in our capacity as members of the Board of the Maritime Cabotage Task Force (MCTF), the largest advocacy organization in the history of the Jones Act.

From the outset, we would like to emphasize that the general state of the Jones Act and long-term outlook are strong. President Bush has been a strong supporter of the Jones Act since before he was elected, and he understands that the Jones Act is the foundation of our industry. The unique circumstances resulting from the unprecedented devastation caused by Hurricane Katrina, followed almost immediately by Hurricane Rita, and resultant pressure on the Federal Government to respond in any manner possible, which have given rise to limited waivers of the Act, will ease over time as sufficient U.S.-flag Jones Act vessel capacity is demonstrably available and Gulf Coast refineries return to production.

Where Things Stand

On August 29, 2005, Hurricane Katrina struck the Gulf Coast of the United States with Category 4 force winds. The result of this story is now well-known. Three days later, in response to the devastation and human tragedy of this story, President Bush announced a series of federal actions, including a limited blanket waiver of the Jones Act for the movement of certain petroleum products. Thus, on September 1, 2005, the Secretary of Homeland Security (DHS), in response to a request by the Department of Energy (DOE) citing interruptions to production, refining, and transportation of gasoline, jet fuel and other petroleum products resulting from Hurricane Katrina as threats to the Nation’s economic and national security, issued the formal waiver. As to the transportation of petroleum and refined petroleum products, this waiver expired as planned at 0001 hrs, September 19, 2005; with respect to transportation of petroleum released from the Strategic Petroleum Reserve (SPR), no expiration was set.

Then disaster struck again in the form of Hurricane Rita, which caused even greater damage to America’s refinery capacity. As a result, on September 26, 2005, DHS issued a second blanket waiver for the transportation of petroleum and refined petroleum products, to expire at 0001 hrs., October 24, 2005, citing much of the same DOE rationale as before, and reiterating the extended waiver with respect to SPR releases.

Because of the blanket nature of these waivers, no official government data is available as to the extent they have been used. Based on industry sources, however, it appears that 4-6 foreign vessel movements occurred under the first waiver and that three vessels moved immediately under the second from the New York area to the Gulf. No movements under the waiver have been reported since.

With respect to dry cargo, the Maritime Administration (MARAD) and DHS/Customs are handling requests on a case-by-case basis, granting waivers only after a determination that qualified U.S.-flag Jones Act tonnage is not available. To date, only very limited numbers of containers have moved under such waivers (1 in one case and 10 in another). Significantly, the last week of September, the Administration denied a request by 21 large and influential agricultural interests for a blanket waiver of the Jones Act for agricultural products. On the passenger side, although the charters of Carnival cruise ships to house evacuees and relief workers have received a great deal of criticism in the press, their use in that fashion does not require a waiver of the coastwise laws. Where the vessels have been permitted to relocate to avoid Hurricane Rita, even with evacuees on board, or to better meet the government’s need for emergency accommodations, such movements have historically been allowed by Customs.

Industry Response

The MCTF did not oppose the initial petroleum waiver for a variety of reasons, including the extreme human tragedy and loss of life in the Gulf region, and significant interruptions to the production and transportation of refined petroleum products. In addition, there was reason to believe that original proposed versions of the waiver were far more extreme, permitting the movement of all cargoes and with no expiration date.

However, in contrast to generally supporting the President on the initial waiver, the MCTF and domestic industry have taken the public position that the second waiver was neither necessary nor justified by any demonstrated need, notwithstanding the devastating impact of Rita on American refinery capacity. In meetings with government officials, we stress that we understand what they are trying to accomplish - the seamless movement of refined product throughout the U.S. - but that we do not understand how a Jones Act waiver helps achieve that objective. We don’t understand which transportation movements are made more efficient by the waiver. We also have emphasized that there is a substantial fleet of U.S.-flag tank vessels standing by and ready to assist in the movement of refined product within the U.S. We also point out the absurdity of a situation where U.S.-flag vessels manned by American crews stand idly by while foreign vessels with foreign crews transport domestic cargoes.

Moreover, we remind them that these waivers could substantially harm the American maritime industry. This is particularly true in the Gulf region, where the maritime industry is a major employer and where there is an urgent need to get American workers back on the job. For example, charters with Jones Act vessels have been canceled to send the work to foreign vessels immediately after the waivers were announced. In short, we argue that five years of strong support for the Act by this Administration should not be undermined by broad waivers of the Jones Act, particularly those (like the post-Rita waiver) that are simply not justified. Nonetheless, we continue to follow a strategy of working within the system in the belief that over the long term, a friendly Administration benefits the industry. The defeat of even broader waivers, including that requested by the aforementioned agricultural interests, has depended in large part on the willingness of the Administration to listen and respond to our needs. The MCTF strongly believes that a quiet, fact-based, systematic educational campaign is the best approach to addressing the waivers. What we have found over the past several weeks is that many of the key decision-makers in government have been operating with an imperfect understanding of the way the American maritime industry works. We are doing everything in our power to ensure that the right people have the right information.

Where We Are Headed

We believe that DOE remains concerned that the state of U.S. refineries puts this Nation in danger of an energy crisis as to both the availability and the price of refined products, including gasoline, jet fuel, distillate, and heating oil, and that maximum flexibility is required to prevent such a crisis. That is the core reason for the Administration’s blanket Jones Act waivers to date. It led government officials to make many decisions - including issuance of the post- Katrina waiver - quickly and without adequate information. Having now provided these officials with the relevant information, and based on input from a variety of sources, we expect (absent unforeseen circumstances) that the current waiver will expire as scheduled, on October 24, 2005.

The challenge going forward is to convince the agencies involved to, as a minimum, require that any future waivers be taken only on a case-by-case basis, which means offering a right of first refusal to American vessels before any waiver takes place. That is the key position being advocated by the MCTF to Washington policy-makers, and is based on a 1990 interagency agreement between DOE, the Department of Transportation, the Department of Homeland Security, the Maritime Administration and U.S. Customs and Border Protection. Under that agreement, there would be no blanket waiver of the Jones Act and the federal government would only grant waivers on a case-by-case basis when no U.S. vessel is available. This assures that, consistent with law, U.S.-flag tonnage is given the first opportunity to provide service. It also enables the responsible government agencies (DOE, Customs, and MARAD) to assess the extent to which waivers are being used and to be sure that each use is consistent with the purpose for which the waiver was granted.

To this end, meetings are being held with every agency involved (DOE, DHS, DOT, and Customs) to educate them on the harm caused to the Jones Act industry by blanket waivers. We continue to communicate with the White House as well. We also have received enormous support from our key friends on Capitol Hill who are articulate and persuasive advocates for us at the federal Departments and agencies. We are humbled by their support at a time when they have so much on their agendas.

On a more practical level, we have asked MARAD to keep apprised of the availability of U.S.-flag Jones Act tonnage for petroleum lift. Recently, a list provided by the MCTF led directly to the chartering of an available U.S.-flag tanker by a major oil company.

Conclusion

The extraordinary circumstances created by Hurricanes Katrina and Rita have placed unprecedented strain on the U.S. refineries and the transportation system for refined petroleum products. They are also creating an opportunity for the industry to do what it does best - transporting U.S. goods to U.S. markets in support of our domestic economy. The ability of the industry to do so, and the MCTF’s efforts to educate policy-makers to that effect, are our best weapons to gain continued support for the Jones Act and related cabotage laws. We were very pleased that the Administration denied the requested waiver by agricultural interests. That waiver was promoted by an extraordinarily powerful coalition of interests, and the consequences of that waiver would have been far more serious than the more limited petroleum waivers. We are now devoting all of our energy and attention to ensuring that policymakers in Washington, D.C. better understand the importance of the Jones Act and the need to do away with blanket Jones Act waivers once and for all.

Please do not hesitate to contact Mark Ruge of Preston Gates (markr@prestongates.com), MCTF counsel, or any of us if you have any thoughts or questions.

Sincerely, Philip Grill
Chairman of MCTF, and Matson Navigation Company
Thomas Allegretti
The American Waterways Operators
Alan Butchman
American Shipping Group
Charles Crangle
American Maritime Officers
James L. Henry
Transportation Institute
Frank Pecquex
Maritime Trades Department, AFL-CIO
James Rausch
Dredging Contractors of America
Chuck Raymond
Robert Zuckerman
Horizon Lines
Michael Roberts
Crowley Maritime Corp., Venable LLP
Allen Walker
Shipbuilders Council of America
Jim Weakley
Lake Carriers’ Association
Ed Welch
Passenger Vessel Association

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