Lessons Learned - May 2019

The Jones Act

When making coastal deliveries that span several days or weeks, we have plenty of time to discuss and sometimes research various topics, mostly maritime related. On a recent delivery, the subject of why on this particular delivery we had to pick up the new yacht in Ensenada, MX, while on the one the previous week, we started our coastal voyage in Long Beach, CA with San Francisco being the delivery location for both. The answer is simple.

Over the last several years I have had the opportunity to deliver yachts to Ensenada for shipment to the East Coast of the U.S., to Long Beach for shipment to New Zealand, to Oakland for shipment to Hawaii and to Oxnard for shipment to Japan. I have also picked up yachts for Bay Area clients that have arrived in Mexico, San Diego, and Point Hueneme. It is pretty common for owners that want to have their boat on the East Coast of the U.S. to ship them rather than take them through the Panama Canal on their own bottom. There are three ways to get a boat from the West Coast to the East Coast, or vice versa. If it is small enough, it can be shipped overland by truck. This option is generally limited to vessels that are less than 12-feet wide and even then the permits and pilot cars required drive up the cost considerably. You can sail it around on its own bottom. If you do this yourself and are not paying a crew for the 30 days or so voyage, then the costs can be quite attractive, and as a bonus, you get the adventure. But for most yacht owners, shipping the boat on one of the commercial yacht transports is the most economical and quickest method.

It might seem odd that in order to ship a vessel to the East Coast of the United States you first have to go to another country. Enter what is commonly called the Jones Act. The Jones Act was enacted by the United States Congress in order to stimulate the shipping industry in the wake of World War I. The requirement of shipping cargo between American ports only on American ships benefited the constituents of Wesley Jones, the U.S. Senator from the state of Washington who introduced the act. Washington State had a large shipping industry and the act was designed to give the state a monopoly on shipping to Alaska. While the act benefited Jones′ constituents, it increased the shipping costs of other states and U.S. territories.

The Merchant Marine Act of 1920 was signed into law by President Woodrow Wilson and regulates maritime commerce. Sections 27 and 33, better known as the Jones Act, deal specifically with coastal shipping and basically requires that all goods transported by water between U.S. ports be carried on U.S. flagged vessels that were constructed in the United States, be owned by a United States company or United States citizen and be crewed by at least 75% United States citizens. The impact of the Jones Act is it simply requires companies operating in the domestic coastwise commerce of cargo or passengers in the United States, known as cabotage, to comply with laws of the United States. This requirement includes corporate taxes, the National Labor Relations Act, the Fair Labor Standards Act, Coast Guard standards and employ American citizens. American ships are subject to these laws and foreign ships are not. Since the ships that transport our yachts are usually foreign built, foreign flagged, and usually foreign crewed, these ships cannot transport cargo (your boat), or passengers between two U.S. ports. For U.S. California boaters we generally take our boats to Ensenada, Mexico for shipment to Florida. Boat owners in Washington and Oregon generally take their boats to Victoria, Canada for shipment to Florida. Shipping to Asia can be done from any United States port and we select the shipper based on cost and availability. One of our yacht clients wanted his boat shipped to Hawaii. We had several options and compared the total cost for each. Move the boat to Ensenada and ship to Honolulu, move the boat to Victoria BC and ship to Hawaii, or using a Jones Act company we could ship from Oakland to Hawaii. Although the transportation costs shipping from Oakland were higher, we did not have to deliver the boat to Canada or Mexico for shipment. In the end, shipping from Oakland to Hawaii made the most sense and we used one of our local Jones Act carriers, Matson.

The Jones Act also provides sailors with additional rights including the ability to seek damage from the crew, captain, or vessel owner in case of injury based on claims of unseaworthiness or negligence. These are rights not afforded by international maritime law. The Supreme Court has ruled that any worker who spends more than 30 percent of his/her time in the service of a vessel on navigable waters qualifies as a seaman under the Jones Act. Only maritime workers who qualify as seaman can file a suit for damages under the Jones Act and have three years from the time of the accident to file a suit in either federal or state court.

Perhaps the most lasting effect of the Jones Act is its requirement that goods shipped between U.S. ports be transported on ships built, owned, and operated by United States citizens or permanent residents. Detractors claim that the Jones Act increases the cost of shipping to Hawaii, Alaska, Puerto Rico, and Guam by restricting the number of vessels that can legally deliver goods. The supply of American built, American owned, and American operated vessels is relatively small compared to the global supply of ships, while the demand for basic goods tends to remain constant or grow. This creates a scenario in which shipping companies can charge higher rates because of a lack of competition with the increased costs passed on to consumers. While the Jones Act prevents foreign flagged ships from carrying cargo between mainland United States and certain noncontiguous parts of the U.S., such as Puerto Rico, Hawaii, Guam, Alaska, they can offload cargo and proceed to the mainland without picking up any additional cargo intended for delivery to another United States location.

Supporters of the Jones Act believe that it is necessary for our national defense and for the proper growth of our foreign and domestic commerce that the United States shall have a merchant marine of the best equipped and most suitable types of vessels sufficient to carry the greater portion of its commerce and serve as a naval or military auxiliary in time of war or national emergency, ultimately to be owned and operated privately by citizens of the United States.

Jones Act Vessels

The largest containership built in the United States, the 850-foot long Matson vessel named after Daniel K. Inouye, Hawaii′s late U.S. senator, on her maiden voyage delivered cargo from Oakland to Long Beach and onto Hawaii. She joins the company′s fleet of ten ships serving Hawaii and Guam.

The first of four ships ordered, Matson spent about $210 million on the ship, which can carry 3,600 containers. It now is the largest and fastest ship operated by Honolulu based Matson. The largest of Matson′s older ships, the Mahi Mahi and Manoa, were built in 1982 and have a capacity equivalent of 2,824 containers. In addition to more cargo capacity and faster speed of 23.5 knots, the new ships, which are costing Matson $929 million in total, feature more fuel efficient hulls, diesel engines that can be adapted to use liquefied natural gas, fresh water ballast systems and double-walled fuel tanks. The four ships will allow Matson to retire seven older steam powered vessels that were built between 1971 and 1980 and include four held in reserve. Also because of the new ship additions, Matson can put three younger diesel-powered ships into reserve status.

Matson is not the only Jones Act shipping company ordering new ships, others such as OSC, Tote, and Pasha are modernizing their fleets as well. Today there are more than 40,000 Jones Act vessels operating in United States coastwise and inland trade.

Chartering Your Private Yacht

With the yachting season quickly approaching, there are many opportunities for chartering our private yachts for commercial purposes. Be careful and review CFR Title 46 United States Code, section 2101 (21a). This CFR defines a passenger for hire as someone for whom consideration is contributed as a condition of carriage, whether it directly or indirectly flows to the owner, operator, charterer, agent, or other person having interest in the vessel. Consideration is defined as payment given to an individual, person, or entity but does not include the sharing of expenses of the voyage.

Depending on the nature of the operation, the United States Coast Guard may need to be involved in the inspection of the vessel and the license of the operator. Anyone considering renting (chartering) their vessel or operating the vessel with passengers for hire, should contact the Coast Guard and discuss the specifics and determine what regulations apply. Generally if a vessel is carrying more than six passengers with at least one for hire, chartered with a crew and carrying more than six passengers, or chartered with no crew and carrying more than twelve passengers, the vessel is required to be inspected. Inspected vessels cannot operate without a Certificate of Inspection that accounts for vessel stability, approved routes, lifesaving equipment, fire protection, pollution prevention and required crew compliments. To operate as an uninspected vessel you cannot carry more than six passengers or chartered with the crew provided by the owner.

To operate as a bareboat charter there are a few things to consider. The charterer must assume responsibility for vessel operation and must have complete command, control, and possession of the vessel as though it were his own. The owner cannot provide the crew and cannot require the charterer to hire a crew, if a crew is desired then the charterer selects and pays the crew. The owner cannot be onboard the vessel during the charter. All food, fuel, and stores are provided by the charterer. Insurance is obtained by the charterer to the extent of covering liability not included in the owner′s insurance.

A couple of bareboat charter common errors in which to be cognizant. A chartered vessel may never carry more than 12 passengers for hire whether underway or moored. This includes a vessel being used as a bed and breakfast. Both United States and Foreign flagged vessels may be chartered however foreign flagged vessels cannot carry passengers for hire between U.S. ports (sound familiar). Foreign built vessels owned by U.S. citizens must meet coastwise trade rules before carrying passengers for hire.

Should you decide to charter your privately owned yacht for commercial purposes for some of the exciting upcoming events in San Francisco such as the SailGP event May 4th and 5th, PICYA Opening day on the Bay April 28, or any of the dozens of marine events please contact the USCG Captain of the Port to determine applicable laws and regulations. Getting sideways with the regulations can result is significant fines and termination of voyage. If there is a paid crew on board be sure to discuss the charter with your insurance company. Most will require Jones Act coverage for the crew.

That′s it for this month as I get ready for the boat show and more deliveries. This issue will hit the streets in late April and after the opening day parades and just prior to the big sailboat event in San Francisco, SailGp. Have a good read of Mark Reid′s article as we all get ready for more high-octane sailboat racing.

Have a good story to tell, send me an email. patcarson@yachtsmanmagazine.com I love a good story and will happily share it. Time for that port and cigar as I wrap up another month of fun on the water. H

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