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FILE PHOTO: A product tanker at anchor in New York Harbor. Photo by John Konrad 2017

Department of Homeland Security Issues Limited Jones Act Waiver to Foreign Shipping Company

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May 13, 2021

By Jennifer A. Dlouhy and Jennifer Jacobs (Bloomberg) —

The Biden administration temporarily eased century-old U.S. shipping requirements so a single foreign tanker could transport gasoline and jet fuel to the East Coast, where the Colonial Pipeline outage caused tanks to run dry.

A waiver has been issued for one company under the 101-year-old Jones Act, which stipulates goods transported between U.S. ports be carried on ships built and registered in the U.S. as well as crewed by American workers, Homeland Security Secretary Alejandro Mayorkas said in a statement Thursday.

A White House official said Thursday that the exemption applied to one tanker but other waiver requests are under consideration.

The move is designed to address fuel shortages spurred by the cyberattack on the Colonial Pipeline, which shut down a major artery for gasoline, diesel and jet fuel across the U.S. East Coast. Even with fuel shipments resuming from around 5 p.m. New York time Wednesday, it’s unclear how long it will take for the network to return to normal.

“This waiver will enable the transport of additional gas and jet fuel between the Gulf Coast and East Coast ports to ease supply constraints,” White House Press Secretary Jen Psaki said in a statement.

Colonial Pipeline – To Waive Or Not To Waive The Jones Act

Biden is also urging Americans “to just purchase what they need, and not hoard fuel, as supply is restored,” Psaki said. Gasoline stations from Florida to Virginia have reported running dry after Colonial Pipeline Co. was forced to take systems offline May 7, and pump prices soared above $3 a gallon for the first time in six years.

While the government has temporarily lifted U.S. shipping requirements to combat fuel shortages after major storms, including Hurricanes Sandy and Harvey, the issue is politically fraught. The Jones Act is championed by some of the nation’s biggest shipbuilders and vessel operators, as well as their allies on Capitol Hill. It also has the backing of a key Biden constituency in organized labor, including the Seafarers International Union.

Waiving the requirements allows foreign-flagged tankers to fill the supply gap left by the interruption to the pipeline. It would take an estimated six to seven days for a tanker to carry fuel from the Gulf Coast to New York Harbor. By contrast, a shipment of fuel from Europe could arrive in 10 to 14 days. A single cargo delivery into the East Coast is usually about 300,000 barrels.

The company and tanker affected by the Jones Act waiver have not been identified.

“We believe widespread panic buying, coupled with the one- to two-week time frame for fuel to reach delivery points along the pipeline created an opening for a non-U.S. tanker,” Height Capital Markets analyst Josh Price said in a research note for clients.

Under federal law, the U.S. could waive Jones Act shipping requirements if “necessary in the interest of national defense.” However, first, the Maritime Administration “would have to determine that qualified U.S.-flag vessels cannot meet the need,” said Charlie Papavizas, an expert in Jones Act law at Winston & Strawn LLP.

Related: White House: Foreign Shipping Companies Need to Prove Need for Jones Act Waiver

The Maritime Administration completed a survey of available Jones Act-compliant tankers on Tuesday, though the results have not been made public.

The American Maritime Partnership, a group that represents U.S.-flagged ship owners and has opposed efforts to scale back Jones Act protections, did not immediately respond to the administration’s move. Previously, Wednesday, the group’s president said it “does not object to a targeted approach to issuing waivers when there is a legitimate need and when such action does not reward those who would utilize foreign vessels to game the system at the expense of American jobs and national security.”

–With assistance from Jordan Fabian.

© 2021 Bloomberg L.P.

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