US Treasury formalizes channel for continued humanitarian aid to Iran – FreightWaves

While the Trump administration continues to ratchet up economic sanctions against Iran, the U.S. continues to supply humanitarian aid to Iranian citizens.

The U.S. Treasury Department on Thursday said it has recently established a new “humanitarian channel” through the Swiss government, which will provide ongoing medical care to Iranian nationals without the Iranian government’s involvement.

“Iranian cancer and transplant patients are receiving treatments through this channel, which is subject to strict due diligence measures to avoid misuse by the Iranian regime,” the Treasury Department said in a statement. “The successful completion of these transactions provides a model for facilitating further humanitarian exports to Iran.”

“The United States is determined to ensure the Iranian people have access to food, life-saving medicines, and other humanitarian goods, despite the regime’s economic mismanagement and wasteful funding of malign activities across the region,” Treasury Secretary Steven Mnuchin said. “Humanitarian transactions are currently allowed under our sanctions programs, and we encourage companies to use this humanitarian mechanism.”

The Treasury Department announced the development of this new humanitarian financing channel on Oct. 25, 2019, citing the Iranian regime’s continued use of humanitarian trade schemes to evade sanctions and fund regional terrorist activities.

“Through this mechanism, no revenue or payment of any kind will be transferred to Iran,” the department said at the time.

The new mechanism through the Swiss government will focus on facilitating commercial U.S. exports of agricultural commodities, food, medicine and medical devices to Iran. However, other foreign governments can join the Treasury program.

“This framework will enable foreign governments and foreign institutions to seek written confirmation from Treasury that the proposed financial channel will not be exposed to U.S. sanctions in exchange for foreign governments and financial institutions committing to provide Treasury robust information on the use of this mechanism on a monthly basis,” the department said.

Since diplomatic relations were severed between the U.S. and Iran in 1979, the Swiss government through its embassy in Tehran has become the “neutral” political interface between the two countries.

US imposes sanctions on Russian railroad operator – FreightWaves

The U.S. Treasury Department’s Office of Foreign Assets Control (OFAC) has announced sanctions against Moscow-based Grand Service Express for operating a passenger rail service between the Russian mainland and Crimean Peninsula.

The agency said on Wednesday it added the Russian railroad, as well as CEO Alexander Ganov, to the Specially Designated Nationals and Blocked Persons (SDN) List for supporting Russia’s occupation of the Crimean Peninsula.

U.S. persons and companies are generally prohibited from conducting business with individuals or entities on the SDN List. Additionally, any entities owned 50% or more in the aggregate by these listed individuals are blocked.

Grand Service Express began offering service to the Crimea via the Kerch Strait Bridge in late December, a violation of OFAC’s Ukraine/Russia-Related Sanctions program.

The Russian railroad’s action also reinforces the July 25, 2018, Crimea Declaration, which states the U.S. neither recognizes Russia’s annexation of Crimea nor its use of force in Donetsk and Luhansk in eastern Ukraine. Russian troops officially entered Crimea and drove out Ukrainian military forces on March 1, 2014.

Since taking office, the Trump administration has increased U.S. economic sanctions against both Russian industries and businessmen under authority of the Countering America’s Adversaries Through Sanctions Act (CAATSA).

Besides Grand Service Express and its CEO, OFAC added seven government officials who represent the Russian-controlled Republic of Crimea to the SDN List. They include Yuri Gotsanyuk, prime minister; Mikhail Razvozhaev, acting governor of Sevastopol; Vladimir Nemtsev, legislative assembly chairman; Sergei Danilenko, Sevastopol Election Commission chairman; Lidia Basova, Sevastopol Election Commission deputy chairman; Ekaterina Pyrkova, Sevastopol Election Commission secretary; and Ekaterina Altabaeva, member of the Federation Council of the Russian Federation representing Sevastopol.

The European Union and Canada also added the seven Russian government officials to their respective control lists for their interference in Crimean politics.

“The coordinated U.S., EU, and Canadian designations limit the ability of these illegitimate officials to do business internationally and highlights the strength of the transatlantic alliance in standing up to Russia’s continued aggression,” Treasury Secretary Steven Mnuchin said in a statement on Wednesday.

Autonomous trucks may come to dominate UK ferry traffic – FreightWaves

Commercial and environmental pressures will encourage freight operators to look at new and innovative ways to ship freight between the UK and continental Europe in the future, according to a new white paper published by the British Ports Association and MDS Transmodal.

One upshot could see driverless heavy goods vehicles (HGVs) replace much of the UK’s conventional truck and container transport within a generation.

The paper examines how freight traffic between the British Isles and the Continent might evolve in the longer term after Brexit at the end of January. It details how a large proportion of the UK’s maritime traffic will fare in 2050 under an “autonomy and carbon reduction” scenario in which autonomous and ultra-low-emission HGVs have been widely deployed.

This scenario, the paper argues, will have wide-ranging impacts on UK ports, shipping, roads and rail.

“Our modelling of a scenario for autonomous and electric vehicles in 2050 suggests that potential developments include a substantial shift of traffic towards ‘driverless accompanied’ RORO traffic through ports located on the North Sea and the Western English Channel and this would have implications for RORO port operations and the amount of land required,” said Chris Rowland, Managing Director at MDS Transmodal.

Rowland admits many technical, regulatory and economic barriers must be overcome before autonomous HGVs can operate in Britain. However, he believes the need to reduce emissions and increase the efficiency of road freight transport, particularly given rising HGV driver costs, will prompt “significant” industry-wide efforts to overcome these obstacles.

“There are undoubtedly significant challenges ahead for the RORO sector and the wider ports industry, such as the transformation to net-zero carbon emissions and moves towards automation,” added Phoebe Warneford-Thomson, policy and economic analyst at the British Ports Association.

“By forecasting the future trends in the RORO sector and ensuring ports can cater for the potential growth in the ‘driverless accompanied’ type of traffic, they can anticipate these changes and be ready to maximize economic advantage.”

US wine and spirits importers want tariffs off the table – FreightWaves

American wine and spirits importers are shaken by the possibility that the Trump administration may impose additional tariffs on the European Union.

This month the Office of the U.S. Trade Representative (USTR) said it will consider increasing an existing 25% U.S. tariff on certain European-origin alcohol product imports to 100%.

The USTR imposed the 25% tariffs on wines and spirits from the EU in October 2019 in response to the ongoing U.S.-EU trade dispute in the World Trade Organization over subsidies for Airbus (OTCMKTS: EADSY).

The latest threat by the U.S. to implement 100% tariffs on certain alcoholic beverages, specifically French champagne and sparkling wine, follows the Trump administration’s opposition to the recent passage of the French Digital Services Tax.

“The imposition of additional U.S. duties on sparkling wines from France alone would cause significant economic harm to the alcohol industry and may result in more than 17,000 U.S. jobs lost,” warned the Wine & Spirits Wholesalers of America (WSWA) in a letter to members urging them to ask Congress to oppose the new tariffs. “This includes importers, producers, distributors/wholesalers, retailers, as well as the related jobs throughout the distribution chain, such as shippers, truckers, warehouse workers, bookkeepers and accountants, sales representatives, customs brokers, managers, hospitality, and others.”

The wine and spirits industry in the U.S. says it supports 1.3 million jobs, paying about $7.5 billion in annual wages nationwide.

“As consumer demands have evolved and changed, wine and spirits wholesalers have diversified portfolios with products from around the globe to meet every taste, budget, and occasion — driving growth and creating myriad job opportunities for U.S. workers,” WSWA said.

The trade association warned that the increased tariffs on French wines and spirits could result in further negative economic effects. The EU’s 25% retaliatory tariff on American whiskey, for example, resulted in a 29% decrease in exports to Europe last year, formerly the largest import market for American whiskey at $704 million in 2018, WSWA said.

“A tariff on champagne and sparkling wine from France will significantly increase pressure on the EU to impose additional tariffs on United States distilled spirits and wines,” WSWA said. “We cannot emphasize this enough — there will be negative, long-lasting consequences felt across our country.”

Source: SONAR Freight Market Dashboard.

The USTR on Jan. 7 held a public hearing in Washington regarding the proposed tariffs in response to France’s digital services tax.

A coalition of wine and spirits trade associations, including WSWA, Distilled Spirits Council of the U.S., Wine Institute, WineAmerica, American Beverage Licensees, American Craft Spirits Association, American Distilled Spirits Association, Kentucky Distillers’ Association, National Association of Beverage Importers, Wine and Spirits Shippers Association, and National Restaurant Association, sent a letter on Jan. 13 to USTR General Counsel Joseph Barloon, urging the Trump administration to remove tariffs on EU alcohol beverage products.

“Our EU counterparts share our strong opposition to the application of any tariffs on distilled spirits and wine and are urging their governments and the [European] Commission to secure an agreement to eliminate these tariffs as soon as possible,” the coalition said.

Shipper-owned containers bring much-needed flexibility to maritime shipping – FreightWaves

Within the container market segment in maritime trade logistics, there is polarity in the way containers are procured — with shippers either opting for carrier-owned containers (COCs) or shipper-owned containers (SOCs). 

Choosing between an SOC and COC depends entirely on the shipper’s needs. COCs usually are opted for standard shipments on stretches with a high volume of cargo flow. In that context, there is little incentive for large shippers to use their own containers, especially since the container line in question typically charges a flat fee for moving their freight while taking away logistical complexities for shippers to trace their containers. 

SOCs, on the other hand, are typically preferred by shippers when the trade route is between ports that do not handle high volumes and may not be sophisticated enough to process containers as and when they land. 

When COCs are left waiting at the port, demurrage and detention charges kick in, exponentially increasing the cost of hauling for the shipper. However, with SOCs, shippers can circumvent this issue as they bring their own boxes and cut the carrier line from the picture once they deliver the containers at the destination port.  

German-based SOC sourcing startup Container xChange recently published a report on the popularity of SOCs in the maritime ecosystem by approaching large freight forwarders disguised as a shipping company to glean insights into their approach toward SOCs. 

Florian Frese, director of marketing at xChange, explained that the industry is seeing a fundamental shift as it ambles toward democratizing the use of SOCs, which traditionally were offered by freight forwarders only to large and trusted shipping partners. 

“What we found while doing the study was that freight forwarders only offered SOC options to shippers who gave them very high volumes because it was hard for them to find SOCs on time as there is no market transparency,” said Frese. “At xChange, we buck that trend by providing shippers greater visibility into SOCs, helping them lease out SOCs and effectively avoid demurrage and detention charges.”

For the benchmarking study, xChange posed as a shipper and connected with the top 50 global freight forwarders to ask for SOC shipment quotes. Frese said that about 50% of the forwarders got back with a quote but only after incessant emails asking for a quote. In total, a paltry 18% of the forwarders ended up offering SOCs, which Frese contended was because these containers require a lot of manual effort in handling. 

“Lack of transparency is a huge determinant. Some freight forwarders have their own capacity and set agreements in place, but for most freight forwarders, helping a shipper depends purely on luck — whether they can source SOCs or not,” said Frese. “There are no tools available, not even Excel sheets where they can go and identify partners.”

For freight forwarders to offer SOCs, they would have to search manually across the ecosystem, vet their potential partners, set up legal agreements and book container insurances. The complexities involved in this process force several forwarders to drop the idea or only offer it to customers who can give them better margins by shipping high volumes. 

Nonetheless, SOCs are good for the maritime market at large, as it frees up capital and increases the availability of containers. With the possibility of short-term leasing and one-way container moves, SOCs can provide massive flexibility to shippers — unlike COCs that usually have long-term leases that run into several years. 

“For example, shippers can just rent a SOC from Hamburg to Valencia and then return it at their partner’s depot,” said Frese. “At xChange, we are pretty convinced that this is how the future will look like. With technology and transparency at play, shippers will have an option that is not only flexible but also much cheaper than the COC alternative.”

Maritime History Notes: Dry cargo on tankers – FreightWaves

The first oceangoing steamer designed and built to carry oil in bulk was the Belgian-flagged Vaderland, which was built in 1872. The intended service of this vessel was to carry immigrants to the U.S. and return to Europe carrying petroleum. Prior to the first voyage, however, the authorities forbade the scheme as being too dangerous. The ship was then converted to a passenger cargo liner and never carried an oil cargo.

The first prototype of the modern tanker was the Gluckauf of 1886. There were, however, numerous sailing ships owned by oil companies at the time. Interestingly, one such sailing tanker remains, the Falls of Clyde, currently laid up in Honolulu.

Until recently, most tankers were fitted with a dry cargo hold, usually located near the forecastle, and included cargo booms for the loading and discharge of cargo. The hold averaged 15,000 cubic feet and was used for the carriage of barrels, cases and drums of lube oil or oil and chemical products.

Tankers have been known to enter the dry trades. In 1944, World War II was raging across the European continent. The agricultural regions were devastated and what little grain remained in the fields could not be harvested with the farmers serving as soldiers. Europe’s cities faced starvation. The Battle of the Atlantic had fully employed all the dry cargo ships.

Due to the urgency in Europe, a bold experiment was undertaken — bulk grain would be loaded into newly built tankers that had never been in the oil trades. It was decided that these vessels were to load at Canadian ports. The experiment became a success. These vessels did get safely across, although not much is known about their voyages.

Gulfcrest was the first tanker to load a cargo of grain. Note the two cargo booms located over the dry cargo hold. [Photo Courtesy: Capt. James McNamara]

Tankers did not enter the grain trade again until 1954, when economics dictated their return. The first vessel in this trade was the 1926-built Gulfcrest, owned by the Gulf Oil Co. This vessel initially had been employed for 27 years in the carriage of crude oil around the Caribbean and U.S. East Coast.

It should be noted that in 1954, the Grain Rules from the 1948 International Convention for the Safety of Life at Sea (SOLAS) were in effect and these rules called for the installation of bins and feeders in all spaces where bulk grain was to be loaded. However, the traditional tanker had holds or tanks that were subdivided by longitudinal and transverse bulkheads that honeycombed the hull into about 30 compartments or individual tanks. Thus, it was rather impractical to attempt to fit these ships with bins and feeders.

The Manhattan, after loading to its maximum draft at Baton Rouge and Galveston, anchored offshore to complete its loading of 105,000 tons of wheat from two World War II-built tankers in 1963. [Photo Courtesy: Capt. James McNamara]

On the other hand, tankships have inherent stability advantages. To accommodate the free surfaces of liquid cargoes, the longitudinal bulkheads were located to greatly reduce the transverse heeling moments. This design, therefore, similarly accommodated the potential shift of the grain, a commodity that, although it could move after stowage, was less fluid than liquid.

Thus, the first grain rules for tankers were issued in 1954 that set forth regulations on the required ship structure, fittings and cleanliness.

It should be noted that not all vessels intended to carry oil met the criteria. Structurally, this required the vessel to be subdivided by two or more suitably placed longitudinal bulkheads and not be fitted with double bottoms.

Over the years, hundreds of tankers were employed in the grain trades. Today, however, there are fewer tankers being built that can meet the criteria of the grain rules and thus fewer tankers are employed in the grain trade.

Construction of a Meccano or spar deck. [Photo Courtesy: Capt. James McNamara]

During World War II there was a great demand for sea transport, and the idea of using the open deck space of a tanker for the transportation of airplanes was developed. The wartime installations were nicknamed “Meccano decks” because they resembled Meccano toys, similar to Erector Sets. The ships, for the most part, were standard T-2 vessels that easily lent themselves to the composition of uniform steel or aluminum beams that when bolted together could be adopted to most standard tanker decks.

U.S. patrol boats in cradles on a spar deck in 1944. [Photo Courtesy: Capt. James McNamara]

After the war, when these tankers were turned over to private operators for civilian use, the Meccano decks were removed to eliminate topside weight, which was of no use to a private operator.

Autonomous trucks may come to dominate UK ferry traffic – FreightWaves

Commercial and environmental pressures will encourage freight operators to look at new and innovative ways to ship freight between the UK and continental Europe in the future, according to a new white paper published by the British Ports Association and MDS Transmodal.

One upshot could see driverless heavy goods vehicles (HGVs) replace much of the UK’s conventional truck and container transport within a generation.

The paper examines how freight traffic between the British Isles and the Continent might evolve in the longer term after Brexit at the end of January. It details how a large proportion of the UK’s maritime traffic will fare in 2050 under an “autonomy and carbon reduction” scenario in which autonomous and ultra-low-emission HGVs have been widely deployed.

This scenario, the paper argues, will have wide-ranging impacts on UK ports, shipping, roads and rail.

“Our modelling of a scenario for autonomous and electric vehicles in 2050 suggests that potential developments include a substantial shift of traffic towards ‘driverless accompanied’ RORO traffic through ports located on the North Sea and the Western English Channel and this would have implications for RORO port operations and the amount of land required,” said Chris Rowland, Managing Director at MDS Transmodal.

Rowland admits many technical, regulatory and economic barriers must be overcome before autonomous HGVs can operate in Britain. However, he believes the need to reduce emissions and increase the efficiency of road freight transport, particularly given rising HGV driver costs, will prompt “significant” industry-wide efforts to overcome these obstacles.

“There are undoubtedly significant challenges ahead for the RORO sector and the wider ports industry, such as the transformation to net-zero carbon emissions and moves towards automation,” added Phoebe Warneford-Thomson, policy and economic analyst at the British Ports Association.

“By forecasting the future trends in the RORO sector and ensuring ports can cater for the potential growth in the ‘driverless accompanied’ type of traffic, they can anticipate these changes and be ready to maximize economic advantage.”

US wine and spirits importers want tariffs off the table – FreightWaves

American wine and spirits importers are shaken by the possibility that the Trump administration may impose additional tariffs on the European Union.

This month the Office of the U.S. Trade Representative (USTR) said it will consider increasing an existing 25% U.S. tariff on certain European-origin alcohol product imports to 100%.

The USTR imposed the 25% tariffs on wines and spirits from the EU in October 2019 in response to the ongoing U.S.-EU trade dispute in the World Trade Organization over subsidies for Airbus (OTCMKTS: EADSY).

The latest threat by the U.S. to implement 100% tariffs on certain alcoholic beverages, specifically French champagne and sparkling wine, follows the Trump administration’s opposition to the recent passage of the French Digital Services Tax.

“The imposition of additional U.S. duties on sparkling wines from France alone would cause significant economic harm to the alcohol industry and may result in more than 17,000 U.S. jobs lost,” warned the Wine & Spirits Wholesalers of America (WSWA) in a letter to members urging them to ask Congress to oppose the new tariffs. “This includes importers, producers, distributors/wholesalers, retailers, as well as the related jobs throughout the distribution chain, such as shippers, truckers, warehouse workers, bookkeepers and accountants, sales representatives, customs brokers, managers, hospitality, and others.”

The wine and spirits industry in the U.S. says it supports 1.3 million jobs, paying about $7.5 billion in annual wages nationwide.

“As consumer demands have evolved and changed, wine and spirits wholesalers have diversified portfolios with products from around the globe to meet every taste, budget, and occasion — driving growth and creating myriad job opportunities for U.S. workers,” WSWA said.

The trade association warned that the increased tariffs on French wines and spirits could result in further negative economic effects. The EU’s 25% retaliatory tariff on American whiskey, for example, resulted in a 29% decrease in exports to Europe last year, formerly the largest import market for American whiskey at $704 million in 2018, WSWA said.

“A tariff on champagne and sparkling wine from France will significantly increase pressure on the EU to impose additional tariffs on United States distilled spirits and wines,” WSWA said. “We cannot emphasize this enough — there will be negative, long-lasting consequences felt across our country.”

Source: SONAR Freight Market Dashboard.

The USTR on Jan. 7 held a public hearing in Washington regarding the proposed tariffs in response to France’s digital services tax.

A coalition of wine and spirits trade associations, including WSWA, Distilled Spirits Council of the U.S., Wine Institute, WineAmerica, American Beverage Licensees, American Craft Spirits Association, American Distilled Spirits Association, Kentucky Distillers’ Association, National Association of Beverage Importers, Wine and Spirits Shippers Association, and National Restaurant Association, sent a letter on Jan. 13 to USTR General Counsel Joseph Barloon, urging the Trump administration to remove tariffs on EU alcohol beverage products.

“Our EU counterparts share our strong opposition to the application of any tariffs on distilled spirits and wine and are urging their governments and the [European] Commission to secure an agreement to eliminate these tariffs as soon as possible,” the coalition said.

Shipper-owned containers bring much-needed flexibility to maritime shipping – FreightWaves

Within the container market segment in maritime trade logistics, there is polarity in the way containers are procured — with shippers either opting for carrier-owned containers (COCs) or shipper-owned containers (SOCs). 

Choosing between an SOC and COC depends entirely on the shipper’s needs. COCs usually are opted for standard shipments on stretches with a high volume of cargo flow. In that context, there is little incentive for large shippers to use their own containers, especially since the container line in question typically charges a flat fee for moving their freight while taking away logistical complexities for shippers to trace their containers. 

SOCs, on the other hand, are typically preferred by shippers when the trade route is between ports that do not handle high volumes and may not be sophisticated enough to process containers as and when they land. 

When COCs are left waiting at the port, demurrage and detention charges kick in, exponentially increasing the cost of hauling for the shipper. However, with SOCs, shippers can circumvent this issue as they bring their own boxes and cut the carrier line from the picture once they deliver the containers at the destination port.  

German-based SOC sourcing startup Container xChange recently published a report on the popularity of SOCs in the maritime ecosystem by approaching large freight forwarders disguised as a shipping company to glean insights into their approach toward SOCs. 

Florian Frese, director of marketing at xChange, explained that the industry is seeing a fundamental shift as it ambles toward democratizing the use of SOCs, which traditionally were offered by freight forwarders only to large and trusted shipping partners. 

“What we found while doing the study was that freight forwarders only offered SOC options to shippers who gave them very high volumes because it was hard for them to find SOCs on time as there is no market transparency,” said Frese. “At xChange, we buck that trend by providing shippers greater visibility into SOCs, helping them lease out SOCs and effectively avoid demurrage and detention charges.”

For the benchmarking study, xChange posed as a shipper and connected with the top 50 global freight forwarders to ask for SOC shipment quotes. Frese said that about 50% of the forwarders got back with a quote but only after incessant emails asking for a quote. In total, a paltry 18% of the forwarders ended up offering SOCs, which Frese contended was because these containers require a lot of manual effort in handling. 

“Lack of transparency is a huge determinant. Some freight forwarders have their own capacity and set agreements in place, but for most freight forwarders, helping a shipper depends purely on luck — whether they can source SOCs or not,” said Frese. “There are no tools available, not even Excel sheets where they can go and identify partners.”

For freight forwarders to offer SOCs, they would have to search manually across the ecosystem, vet their potential partners, set up legal agreements and book container insurances. The complexities involved in this process force several forwarders to drop the idea or only offer it to customers who can give them better margins by shipping high volumes. 

Nonetheless, SOCs are good for the maritime market at large, as it frees up capital and increases the availability of containers. With the possibility of short-term leasing and one-way container moves, SOCs can provide massive flexibility to shippers — unlike COCs that usually have long-term leases that run into several years. 

“For example, shippers can just rent a SOC from Hamburg to Valencia and then return it at their partner’s depot,” said Frese. “At xChange, we are pretty convinced that this is how the future will look like. With technology and transparency at play, shippers will have an option that is not only flexible but also much cheaper than the COC alternative.”

Commentary: At 100, the Jones Act has many wrinkles – FreightWaves

The views expressed here are solely those of the author and do not necessarily represent the views of FreightWaves or its affiliates.

The Merchant Marine Act (1920) outlines one of the most consequential non-tariff barriers (NTBs) in U.S. history, and June 5th will mark its 100th anniversary. Often called the Jones Act after its sponsor, Sen. Wesley L. Jones (R-WA), the intent was to incentivize the building and maintenance of a domestic fleet of commercial ocean vessels that would be owned and operated primarily by U.S. citizens. The Jones Act set this requirement to ensure both national defense and a “proper growth of commerce” using the “best type of ships.” Regulators have since interpreted this to mean that the vessels must also be built by U.S.-owned shipyards. Most countries have some form of cabotage restrictions but the U.S. stands out with its domestic build and repair requirements in the maritime sector.

Cabotage is defined by Merriam-Webster as the “trade or transport in coastal waters or airspace or between two points within a country.” The Jones Act covers not only coastal commerce but the commerce of U.S. territories and possessions. As such, port-to-port transport of freight from the contiguous U.S. to Alaska, Guam, Hawaii, Puerto Rico, etc. can only be handled by U.S.-flagged vessels (meaning U.S.-built, U.S.-owned and U.S.-crewed). Section 27 of the act includes the same prohibitions on transport by land as well as by water. Of course, as the commercial air industry grew after World War II cabotage restrictions were applied there as well. In practice cabotage restrictions of some kind apply to all point-to-point domestic transport of passengers and/or freight regardless of mode.

Source: FreightWaves

Why the Jones Act was enacted

The Jones Act was certainly a creature of its times and it made some economic and political sense. Economically, the U.S. emerged from World War I with a need to expand its commercial fleet while protecting its growing domestic commerce from foreign vessels. Supporting U.S. shipbuilding capabilities to meet the expectations of the Jones Act is a classic example of the “infant industry argument” in support of trade protection. Politically, U.S. coastal states with large shipbuilding interests would benefit from the act’s restrictions on cabotage. Sen. Jones himself no doubt benefitted from giving his constituents in Washington State a near monopoly on shipping to and from Alaska. Of course, the problem with infant industries is knowing when to wean them off of the mother’s milk of trade protection so that they can try to survive and thrive in the cold world of international competition. Avoiding this simply incentivizes an industry to remain cost-heavy and uncompetitive.

As an NTB the Jones Act has its supporters as well as its detractors. Supporters laud its spirit of national defense. This means that in time of war or emergency any vessel and crew operating along U.S. coasts and rivers would be “American” and thus not of questionable loyalties if commandeered to move military equipment and/or personnel. Detractors see the Jones Act as antiquated and serving only to keep transport costs higher than they would be otherwise. This is due, the argument goes, to the stifling of foreign carrier competition in domestic freight markets and propping up U.S. shipyards with their lower economies of scale and higher labor costs than those in Asia. This is the classic conflict between free trade versus ensuring stable domestic industries and employment.

Today the Jones Act enjoys bipartisan support in Congress and it is hard to imagine President Trump setting aside his mercantilist tendencies to support any large-scale reform. Yet the Jones Act has enough wrinkles, loopholes and exceptions to keep politicians, regulators, transportation lawyers and even professors of logistics on their toes.

Political pressure for cabotage reform does arise from time to time. The latest was at the G7 Summit in August 2019 when U.K. Prime Minister Boris Johnson encouraged President Trump to consider supporting U.K. vessels wishing to engage in U.S. cabotage. Currently, EU nations can engage in multimodal cabotage among themselves. It would be interesting to see if a post-Brexit U.K. could maintain its cabotage rights with EU nations and, at the same time, successfully build such rights into a bilateral trade agreement with the U.S. However, it should be remembered that U.S. cabotage options with neighboring Canada and Mexico are very limited – despite each being a much larger merchandise trade partner than the U.K.

Some Jones Act wrinkles

The U.S. build and repair requirements apply only to domestic water vessels. U.S. airlines can buy airplanes from Airbus, Bombardier and Embraer, etc. U.S. motor carriers can buy Volvo trucks (or Mack trucks, which has been a Volvo subsidiary since 2000). Municipal governments offering light rail transit and bus services can buy their conveyances from Siemens and New Flyer, respectively.

container terminal in Honolulu
U.S. Rep. Ed Case (D-Hawaii) wants to open the trade between ports on the U.S. West Coast and Honolulu to foreign flag ships. (Photo credit; Flickr/Bernard Spragg. NZ)

Of course exceptions to the rule barring foreign companies from offering domestic transport can occur in times of emergency or when a domestic vessel is not available for the required move. These assessments are made by the Executive Branch or by Congress. Notable emergency exceptions to the Jones Act were made for foreign vessels to assist with the clean-up of the Exxon Valdez oil spill in 1989 and relief after Hurricane Katrina in 2005.

Regarding domestic vessel availability, Alaska has the dubious distinction to have played a part in the largest Jones Act fine in U.S. history. In 2011, the U.S. Department of Justice (DOJ) fined Furie Operating Alaska (then known as Escopeta Oil & Gas) $15 million for using a Chinese-flagged heavy-lift vessel to haul a jack-up drilling rig from the Gulf of Mexico to Alaska’s Cook Inlet. In 2017 both parties negotiated a settlement and the payment was reduced to $10 million. Ironically, Escopeta was granted a Jones Act waiver in 2006 to use a foreign vessel for the haul. But the haul did not proceed until March 2011 and by then the U.S. Department of Homeland Security (DHS) declined to renew the waiver. At any rate the haul proceeded from the Gulf of Mexico, around South America, and up to Vancouver, British Columbia, where U.S.-flagged tugboats took over and completed the trip in July 2011. Escopeta claimed that its tight timeline to reach Alaska before its tax breaks on drilling expired had forced it to use the foreign-flagged vessel. DHS did not agree and the fine was assessed by DOJ. Fast forward to 2019 – citing production difficulties in Alaska and unpaid debts, Furie filed for Chapter 11 bankruptcy protection in August of that year.

Special air cargo circumstances in Alaska

Alaska has a more positive cabotage story regarding foreign air cargo. Ted Stevens Anchorage International Airport (ANC) is centrally located at 9.5 hours flying time to 90% of the industrialized world. This makes it an excellent air cargo trans-shipping point. This operational advantage is accentuated by an exception to the Jones Act. ANC’s innovative air cargo transfer program allows belly-to-belly transfer of U.S. bound cargo between a foreign air carrier’s aircraft or between those of two different foreign air carriers. This would be illegal at any other airport in the contiguous U.S. Furthermore, when the foreign airplane continued to another U.S. airport it would constitute cabotage. Why is this allowed at ANC?

(Photo credit: Ted Stevens Anchorage International Airport)

Basically, Alaskans can thank the advocacy of the late Sen. Ted Stevens, when he wrote this unique operation into a re-appropriation bill for the Federal Aviation Administration (FAA) back in the mid-1990s. Regulators now consider foreign air cargo landed at ANC and destined for the contiguous U.S. to still be “international” and therefore not a cabotage move in the spirit of the Jones Act. Despite this liberalization, ANC’s management team has had to work hard to convince skeptical Asia-based carriers that this quasi-cabotage activity is quite legal. What makes it hard to believe at first is why the U.S. would offer such a unilateral trade benefit to countries like China and Japan.

Transit by ship and tour buses

Now consider tourism. Many cruise ship passengers embark on their trips to Alaska from the Port of Seattle. They will cruise up the West Coast and dock at various Alaska ports. Interestingly, these foreign cruise ship companies rarely use U.S.-flagged vessels. But how is it not cabotage if the passengers are steaming from one U.S. port to another by foreign-flagged vessels? Certainly, most of Alaska’s ocean freight is delivered from the Port of Tacoma (Washington) by TOTE Maritime and Matson, which by law must use U.S.-flagged vessels. Why the difference?

Such Alaska cruises may be a cabotage move by definition but it is actually a type of cabotage move not covered by the Jones Act. Cruise ship and ferry activities in the U.S. fall under the Passenger Vessel Services Act (PVSA; 1886). As long as the domestic trip is “broken” by a visit to a foreign port along the way the cruise would be legal under the PVSA. Besides, passengers usually do not complain if their trips to Alaska are topped-up by a stop at the Port of Vancouver or Port of Victoria, British Columbia. On the other hand things might seem odd when a cruise from San Diego to Hawaii is interrupted by a quick stop at the Port of Ensenada in Baja, Mexico. Yet this move is necessary for the foreign-flagged vessel to comply with the PVSA.

Canada- and Mexico-based tour bus companies certainly do not fall under the PVSA but they do enjoy a similar protection. Foreign tour buses can pick up passengers in the U.S. and take them on a roundtrip tour of Canada or Mexico, as the case may be. The key requirements are that most of the tour takes place in a foreign country (i.e., it is international commerce) and the passengers are returned to their U.S. point of origin. Picking up and dropping off passengers at different U.S. points along either leg of the tour, however, would constitute illegal cabotage. 

Cross-border truck freight between the U.S., Canada and Mexico was $64 billion or 63.1% of all cross-border freight during September, according to data. (Photo credit: U.S. Customs and Border Protection)

Motor carriers and freight

The U.S. motor carrier sector is particularly tricky since a Canada- or Mexico-based conveyance is covered under customs laws, while their drivers are covered under separate immigration laws. These laws and regulatory interpretations do not conform to one another. For example, U.S. customs regulations allow for very limited options for foreign motor carriers to engage in cabotage. The move must be “incidental” to a well-defined export or import move. Another option is to carry cabotage freight while “repositioning” between well-defined export or import moves. Typically, the cabotage move must be “outward” – meaning, for example, that the conveyance is traveling northward from the U.S. back to Canada. Canada, on the other hand, allows repositioning moves to be east-west and this creates confusion in the trans-border motor carrier sector. Simply put, different countries can have different laws and regulatory interpretations. Of course, the moves noted above apply only to conveyances. U.S. immigration regulations are not as liberal – which means, in practice, these cabotage moves are often rendered impractical.

Foreign drivers would, however, be able to undertake incidental or repositioning moves if they were dual citizens, held a Green Card or were at least 50% by-blood members of a First Nation tribe in Canada. Canada extends the same courtesy to similar persons from U.S. tribes. This derives from the Jay Treaty (1794). The quick history is that the United States and British North America, while drawing their common border, did not want to zig-zag it around tribal lands. Today, for all intents and purposes a U.S. or Canadian native with an appropriate Band (tribal) Card is treated like a dual U.S.-Canadian citizen. Trans-border motor carriers doing business in the U.S. and Canada might find it revenue-enhancing to hire such people for their fleets or use them as owner-operators. 

A long line of trucks wait to enter the United States from Canada at the Blue Water Bridge linking Ontario and Michigan. Photo credit: U.S. Customs and Border Protection

In 2020, does the Jones Act necessarily add to U.S. national security or is it just a jobs program? If this is an example of the infant industry argument, the baby is turning 100 years old this year. Economics and politics always make for strange bedfellows.