4th Circuit: Ship can remain in Jones Act trade

4th Circuit: Ship can remain in Jones Act trade    A federal appeals court has reversed a district court and ruled that it erred when it rejected a U.S. Coast Guard interpretation of its regulations that found a U.S. tanker given a double hull in a Chinese shipyard can continue to participate in the U.S. coastwise trade.
   The Fourth Circuit decision is a setback for vessel owners and shipbuilders who want the Coast Guard to strengthen its enforcement of rules prohibiting construction of ships engaged in coastal shipping overseas, the so-called 'second proviso' of the Jones Act.
   The ruling affects the Seabulk Trader, a tanker owned and operated by the Seabulk subsidiaries of Seacor Holdings. While not mentioned in the decision, the ruling may mean a sister ship called the Seabulk Challenger that had similar work done on it in China.
   The Shipbuilders Council of America, along with Jones Act tanker operators Crowley Maritime and Overseas Shipholding Group, had challenged the Coast Guard and its National Vessel Documentation Center, on its decision to allow the Trader to continue to carry cargo in the domestic trade.

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   The decision could also have implications for pending litigation surrounding Matson Line's ship the Mokihana. The Shipbuilders Council, along with Pasha Hawaii Transport Lines, are suing the Coast Guard in Virginia District Court over the Coast Guard’s decision to allow Matson to add decks for roll-on/roll-off cargo on the containership Mokihana. Matson had participated in the Seacor litigation as an amicus supporting appellant.
   After the Oil Pollution Act of 1990 required that all oil tankers in the coastwise trade be equipped with double hulls, Seabulk had alterations performed on the Trader in China to give it a second internal hull. Federal law requires that in order to maintain a coastwise endorsement a vessel must not be “rebuilt outside the United States,” and the dispute revolved around whether the work done on the ship was so extensive that it constituted a foreign rebuilding. Seabulk submitted a request to the Coast Guard for a preliminary determination of whether the work it proposed to undertake on the Trader would constitute a foreign rebuilding, and whether proposed alterations to the vessel's ballast tanks would violate the Port and Tanker Safety Act of 1978.
   Based upon the information Seabulk provided, the Coast Guard issued a preliminary determination that the work would not constitute a foreign rebuilding or a prohibited foreign installation of required ballast tanks.
   The work was done in China and constituted 8.15 percent of the Trader's pre-modification steelweight. After completion of the work, Seabulk applied for and was granted a coastwise endorsement for the Trader.
   The Fourth Circuit noted that “under U.S. law, a vessel becomes ineligible for a coastwise endorsement, and therefore ineligible to participate in the coastwise trade, if significant work is performed on the vessel in a foreign shipyard,” and that U.S. statute requires that when a ship is rebuilt, “the entire rebuilding, including the construction of any major component of the hull or superstructure, (be) done in the United States. 'A ship is considered 'rebuilt foreign' if either “a major component of the hull or superstructure not built in the United States is added to the vessel,” or if on ships made of steel or aluminum the work performed abroad “constitutes more than 10 percent of the vessel's ' discounted lightship weight.”
   The Coast Guard ruled that the work done on the Trader should not be evaluated under the 'major component test' because the installation of the steel to form the inner hull was not a separable major component of the ship.
   The district court found the Coast Guard's reasoning unpersuasive and declined to uphold its interpretation as a permissible construction of the regulations implementing the Jones Act.
   But in reversing the lower court, the Fourth Circuit said it found it erred in its application of law on how agencies like the Coast Guard implement regulations to enforce laws.
   It said the Coast Guard's interpretation offers a holistic vision of the regulation that gives effect to each of its provisions, and Coast Guard's interpretation comports with the plain language of the regulatory and statutory schemes. The interpretation is longstanding, has been consistently applied in the same manner, and comports with the congressional intent of the governing statute.'
   Matt Paxton, president of the Shipbuilders Council of America, said his group was disappointed in the ruling, but was 'still in the assessing stage.' But he said, 'we still think there is a real significant problem' with how the rules about how the Jones Act is interpreted. ' Chris Dupin