May 22, 2017
Last week CBP withdrew its proposed change to the Jones Act exempting the carriage of offshore drilling material and supplies by all but U.S. flag vessels. The ruling sparked a heated controversy among industry associations and trade unions who lined up on both sides of the issue.
Understanding Jones Act Provisions
The current regulation makes a distinction between merchandise and vessel equipment exempting equipment from U.S carriage. Heretofore the act has allowed a liberal interpretation of equipment to include the resupply of offshore drilling rigs. In this respect the Jones Act has allowed foreign vessels to carry supplies and personnel to and from rigs off the Continental United States. Proposed changes withdrawn by Customs would have removed these exemptions tightening the use of American flag carriers in all coastwise trade.
Unleashing America’s Energy
Earlier this month the Offshore Marine Services Association (OMSA) applauded President Trump’s decision to roll back Obama’s restrictions on drilling off the Continental Shelf. That decision reopens 94% of our nation’s offshore resources paving the way for thousands of new jobs and millions of dollars in oil and gas revenue. OMSA and the American Waterway Operators (AWO) also saw the potential to end an 8-year struggle to secure carriage of oil drilling equipment. Made in America would take on new meaning as orders triple to firms like Eastern Shipbuilding which supply workboats for carriers like Harvey Gulf and Hornbeck Offshore. American flag vessels would finally control the supply chain for rigs in the Gulf of Mexico and off the California Coast. The CBP amendment as proposed would also strengthen our Merchant Marine industry requiring hundreds of new graduates to man vessels within the trade.
The Pitfalls of Restriction
The American Petroleum Institute (API) and the International Marine Contractors Association (IMCA) contended that restricting carriage would put undue strain on existing resources. The US could not possibly handle the total volume of re-supply necessary to support new growth in the offshore energy field. An analysis conducted by the API concluded that the CBP proposal would cause an anticipated loss of 30,000 jobs this year with as many as 125,000 lost by 2030. A transition to all American vessels and crews would create a 23% shortfall in oil and natural gas production with a $1.9 billion per year loss of government revenue between 2017 and 2030. The US gross domestic product could see a reduction of $91.5 billion during that period. “By rescinding the proposal, CBP has decided not to impose potentially serious limitations to the industry’s ability to safely, effectively, and economically operate”, Eric Milito, Upstream Director for the API, said in a statement on May 10th.
American Interests fire back
Quick to support Trump’s efforts to create American jobs, OMSA saw the CBP decision as simply a way to protect foreign interests allowing them to evade U.S. law. In a statement last month, Aaron Smith, President of OMSA, said; “… the report contains erroneous claims and misguided research. This study is a desperate attempt by companies promoting foreign workers to distort facts.” On Friday, he said the decision was “deeply damaging to the American crews, shipyards and companies who have waited more than eight years while the administration studied taking corrective action.” The shipbuilders Council of America (SCA) felt the decision was CBP’s way of passing the issue down the road, a deferral that “only hurts the more than 400,000 men and women of the US shipyard industry.” Tom Allegretti of the American Maritime Partnership said the decision will “damage our American mariners and domestic maritime industry which is essential for US economic security and job creation.”
Appeal to Reason?
Both sides seem to have compelling arguments for the future of offshore supply. On the one hand Trump pledged to protect American jobs and OMSA has made an appeal to the Administration to reconsider CBP’s decision citing that the 31 new and refitted vessels in the US offshore fleet are more than enough to handle work in the Gulf.
The IMCA countered with their view that if enacted the proposal would have drastically reduced our GDP and caused a significant loss to existing American jobs along the entire Gulf Coast. Attempts at arguments toward US Maritime Independence and National Security really don’t fly in the face of this niche industry. It is unlikely that US manned workboats would form the backbone of the Military Sealift Command. And there are other equally important issues to consider within the Jones act. Like Blue Highways, which would expand the movement of inter-coastal freight taking trucks off the road.
Are we headed for a future showdown here? Will the administration reopen a review of the Jones Act? If so should we settle for just a review of off shore drilling?