Court says tanker may not participate in Jones Act trade
A recent Virginia court decision instructing the Coast Guard to revoke the coastwise trading privileges of a Jones Act tanker could have wider repercussions for domestic shipping companies if other judges agree with its logic.
Last month, the U.S. District Court for the Eastern District of Virginia in Alexandria, said the Coast Guard’s National Vessel Documentation Center had improperly issued a coastwise endorsement to the Seabulk Trader after it had undergone modification work at a shipyard in China rather than in the United States to give it a double hull and segregated ballast tanks.
Without a double hull, the tanker would have to stop trading in 2011 under the Oil Pollution Act of 1990, the law passed after the Exxon Valdez oil spill.
The Seabulk Trader is owned by a subsidiary of SEACOR Holdings Inc., a Fort Lauderdale, Fla.-headquartered firm that operates tankers, inland barges, and supports companies doing work in the oil patch with marine and helicopter services.
The Shipbuilders Council of America sued the Department of Homeland Security over its decision to allow Seabulk Trader to continue to trade after a new inner hull was added to the ship. Crowley Maritime and Overseas Shipholding Group joined in the lawsuit. SEACOR subsidiaries intervened as defendants.
Judge Leonie Brinkema said, “Because the existing record does not support the Coast Guard’s issuance of the coastwise endorsement for the Seabulk Trader, the court will remand this matter to the Coast Guard with instructions to revoke the coastwise endorsement.”
Matthew Paxton, president of the Shipbuilders Council of America, said his group expects the decision to be appealed, but said the district court was “quite clear in its decision, it was not on the fence. It was a remand with an order to revoke.”
He said the “same fact pattern” applies to a similar-sized tanker that was rebuilt in China by SEACOR called the Seabulk Challenger and to work done on a Matson Line containership, Mokihana.
Under the Jones Act, ships trading on inland waterways, along the coast, or between the contiguous 48 states and Hawaii, Alaska and Puerto Rico must U.S. built, U.S. registered, owned in the country and crew by Americans.
Under the so-called “second proviso” of the Jones Act, rebuilt ships must also have that work done at U.S. shipyards, and the Shipbuilders Council was successful in arguing that the rebuilding of the Seabulk Trader violated the second proviso.
Coast Guard regulations say a vessel is deemed rebuilt outside the country if “a major component of the hull or superstructure not built in the United States is added to the vessel.”
It also said that if the hull and superstructure are made of steel or aluminum, then a vessel is deemed rebuilt if “work performed on its hull or superstructure constitutes more than 10 percent of the vessel’s steelweight, prior to the work.” If the work comprises more than 7.5 percent, but not more than 10 percent than it “may” be considered rebuilt, the regulations say.
In this case Seabulk said the components added constituted 8.15 percent of the vessel’s pre-work steelweight.
The Coast Guard declined to characterized the inner hull as a major component because unlike, say, a bulbous bow or additional decks, it was not a “separable component” that was added to the hull. When the second proviso was drafted in 1960, Congress was concerned about the practice of some ship owners adding foreign-built mid-bodies to Jones Act ships.
But Brinkema said the Coast Guard failed to explain how “a piecemeal addition of a foreign-built hull or deck onto the vessel materially differs from a wholesale addition of a pre-constructed foreign built hull or deck onto a vessel.”
Paxton emphasized the Shipbuilders Council’s beef was not with SEACOR, but with the Coast Guard, which he said, “through its processes for foreign rebuild determinations has let the thing go amuck.”
“We support the Jones Act and we support the Jones Act trade. Those operators are our customers,” Paxton said. “We don’t have a problem with the Jones Act vessels going overseas — there are going to be problems when they have to go over there for repair issues. But these are substantial jobs.
“We believe we can do it here in the U.S., and do it better, much better, than foreign shipyards,” he said. “We are part of the Jones Act along with those operators. It is the Coast Guard that has allowed this loosey goosey analysis to creep in.
“There are all sorts of reasons a Chinese shipyard can do things cheaper than a U.S. yard and it is not because they are more effective than us,” he said. In addition to lower wage workers, Chinese yards “also don’t have nearly the regulations we have — they don’t have OSHA requirements and environmental regulations. We pride ourselves on having a healthy and effective shipyard industry.”
He said the movement of work overseas has hurt U.S. shipyards.
The council, along with Pasha Hawaii Transport Lines, is also suing the Coast Guard in the same Virginia District Court, albeit before a different judge, over conversion that was done in China of work that added decks for roll-on/roll-off cargo onto Matson Line’s containership Mokihana. Paxton said oral arguments in that case are due June 20. Matson had no comment on the litigation.
And while Overseas Shipholding Group supported the litigation by the Shipbuilders Council, its U.S.-flag affiliate OSG America could be affected by another legal challenge to the Coast Guard granting a coastwise endorsement — this time to brand new product tankers being built at the Aker Philadelphia Shipyard in Philadelphia.
The Metal Trades Department of the AFL-CIO, which represents workers at Aker and other shipyards around country, has filed a lawsuit in the U.S. District Court for the Eastern District of Pennsylvania in which it said the Coast Guard has improperly allowed ships built at the Aker yard to trade coastally.
Oral arguments in the case were heard last month by Judge Gene E. K. Pratter.
“Contrary to the requirements of the Jones Act and the Coast Guard’s regulation, much of the assembly work necessary to build these product tankers has been and is being performed in foreign locations” including the Hyundai Mipo Dockyards in South Korea and in Germany, the union claims.
“This is the first time anyone has interpreted the Jones Act to allow Hyundai Mipo Dockyards to build the guts of the ship, assemble all these foreign parts in their massive South Korea shipyards in huge “modules” of completed systems (hydraulics systems, engine room systems, compressed air systems, complete deck winches and cranes with motors, cable and electrical controls, brake assemblies, etc. all painted and piped up, ready to operate. No U.S. assembly required,” said Ron Ault, president of Metal Trades.
Aker builds the ships, which are then purchased by Aker American Shipping — once part of the same company, but now an independent firm. Aker American bareboat charters the ships to OSG America, which operates the ships for major oil companies such as Shell. Four of the tankers are now operating. Aker said it has firm orders for eight more, and options for another 13. ' Chris Dupin