New Jones Act Waiver

The Trump administration announced this morning the approval of a 60-day Jones Act waiver to allow foreign-flagged vessels to transport oil, liquefied natural gas, fertilizer, coal, and a range of other critical commodities between U.S. ports.  The Jones Act (46 U.S.C. § 55102) normally requires the use of U.S.-flagged, U.S.-built, U.S.-owned and U.S.-operated vessels to move any cargo between U.S. ports (subject to limited exceptions).

The waiver has not been published yet, but it appears to be based on 46 U.S. Code § 501(a), which requires a finding by the U.S. Secretary of Defense that it is “necessary in the interest of national defense to address an immediate adverse effect on military operations.”  Within 24 hours of requesting a waiver, the Secretary of Defense must submit to Congress “a written explanation of the circumstances requiring such a waiver in the interest of national defense, including a confirmation that there are insufficient qualified vessels to meet the needs of national defense without such a waiver.”  

According to White House communications, the waiver will “help ensure that U.S. airfields and military installations are properly supplied, particularly from the U.S. Gulf Coast, so that the U.S. can avoid a shortfall that would adversely affect military operations.”  The White House Press Secretary also indicated that the waiver is “another step to mitigate the short-term disruptions to the oil market as the U.S. military continues meeting the objectives of Operation Epic Fury” and to “allow vital resources like oil, natural gas, fertilizer, and coal to flow freely to U.S. ports for sixty days.” 

The waiver announcement comes a week after President Trump authorized the Department of Energy “to release 172 million barrels from the Strategic Petroleum Reserve,” which “will take approximately 120 days to deliver based on planned discharge rates” according to U.S. Secretary of Energy Chris Wright.  The Strategic Petroleum Reserve is located at four sites along the coastline of the U.S. Gulf of Mexico.  The Jones Act waiver will make it possible for non-U.S. vessels to move the barrels to U.S. ports within 60 days.

Pursuant to 46 U.S. Code § 501(c), every U.S. domestic transportation of merchandise by foreign vessel under the Jones Act waiver will have to be reported to the U.S. Maritime Administration within 10 days of completion of the voyage.  The report will have to include the following information, to be published on the U.S. Maritime Administration’s website: “(A) the name and flag of the vessel; (B) the name of the owner and operator of the vessel; (C) the dates of the voyage; (D) any relevant ports of call; (E) a description of the cargo carried; (F) an explanation as to why the waiver was in the interest of national defense; and (G) any other information the Maritime Administrator determines necessary.”

Some observers and industry players are questioning whether the waiver satisfies the national defense requirements, and whether it will have the intended effect of reducing U.S. oil prices, among other reasons because (i) only a small percentage of the U.S. oil supply is carried on Jones Act vessels, (ii) many U.S. Jones Act tankers are on long-term charter parties under which the customers (e.g., refineries) will have to continue to pay for these vessels despite the waiver, and (iii) there is currently a lack of foreign-flagged oceangoing tankers and elevated freight rates in the international tanker market due to the Strait of Hormuz crisis.  It is possible that the waiver will be challenged.