Recent Developments in Coastwise Trade

By Sandra L. Knapp –

At the end of July 2017, the U.S. Coast Guard issued two letter rulings that are of interest to the U.S. Jones Act trade industry. The first one, issued on July 25^th, confirms the U.S. Coast Guard’s current analysis process of whether a vessel built in the United States with certain foreign built components will be considered U.S. built under the U.S. coastwise laws. The second one, issued on July 28^th, addresses the issue of whether a vessel repaired in a foreign shipyard is deemed “rebuilt foreign,” which could result in the loss of the ability to engage in coastwise trade.

The request regarding foreign built components was made with respect to two containerships to be built at Philly Shipyard for Matson Navigation. The determination letter recites that each vessel will be 13,394 Mtons. The total weight of the foreign components was found to be 166.8 Mtons or 1.25 percent of each vessel’s steel weight. The standard used by the U.S. Coast Guard under its regulations is that the combined weight of the major components not fabricated in the United States cannot exceed 1.5 percent. Therefore, the standard was met in this case. Further, the determination letter confirms prior rulings regarding “shipbuilding angles” and foreign assembled “machinery modules.” As a result, the U.S. Coast Guard determined the vessels are eligible for coastwise trade when completed.

The request regarding foreign repairs was made with respect to a vessel undergoing repairs and a crane installation to be performed in China. The relevant regulations contain a “major component test” and a “considerable part test” for these types of determinations. The major component test considers a vessel rebuilt foreign if a “major component of the hull or superstructure” is not built in the United States. A component added to the vessel is considered “major” if it is built separate from and added to a vessel accounting for more than 1.5 percent of the steel weight of a vessel. The considerable part test provides that 7.5 percent or less of the vessel’s steel weight can be performed on the hull or superstructure for it not to be deemed rebuilt foreign. The U.S. Coast Guard determined that, in this case, the work to be performed overseas is less than the threshold levels. The U.S. Coast Guard agreed that the crane to be installed should not be considered part of the hull and superstructure determination but that the “structural pedestal base” of the crane should be counted in the steel weight calculations.

These two recent determination letters, in our view, do not revise any existing law or regulation interpretation but rather confirm the U.S. Coast Guard’s standing interpretations and formulas. Every situation, however, is fact specific and vessel owners and operators should seek pre-approval.

For more information, contact Sandra L. Knapp at sknapp@gawthrop.com or 610-696-8225.