Biden Administration Issues Jones Act Waiver for Foreign-Flag Tanker

The U.S. Department of Homeland Security has issued a Jones Act waiver for one foreign-flagged tanker to transport fuel supplies to the U.S. East Coast, part of a large-scale effort to address shortages related to the Colonial Pipeline shutdown. 

Last week, the pipeline's operator suffered a ransomware attack which resulted in the theft of company data and the malicious encryption of a portion of its business-side IT network. As a precautionary measure, Colonial took all of its pipelines operations down, ensuring that the hack could not spread into its OT network, according to Bloomberg. 

This response took the most important product pipeline in America offline for days. Colonial said that it had fully restored operations on Wednesday evening, but gasoline prices had already spiked in several markets in the U.S. Southeast, where the pipeline serves a particularly important role. With abnormally high demand driven by panic buying, gas stations in multiple eastern states reported fuel shortages: By Thursday, fully 70 percent of stations in North Carolina and Washington DC reported limited fuel availability, along with 50 percent in South Carolina and Virginia, according to tracking company GasBuddy. 

The shutdown has put a spotlight on the critical role of maritime transportation as a backstop for the midstream sector. In the U.S., coastwise transport is legally limited to vessels that are built, flagged, owned and crewed in the United States. When such vessels are not available, and when national security demands it, the Department of Homeland Security has the authority to temporarily waive this requirement for national defense purposes. On Thursday, the White House said that DHS has issued one waiver for one foreign vessel to carry fuel from the U.S. Gulf Coast - where the pipeline shutdown has created a surplus - to undersupplied markets on the U.S. East Coast. More waiver requests are said to be under consideration. 

"In the interest of national defense, I have approved a temporary and targeted waiver request to an individual company. This waiver will help provide for the transport of oil products between the Gulf Coast and East Coast ports to ease oil supply constraints as a result of the interruptions in the operations of the Colonial Pipeline," said Secretary of Homeland Security Alejandro Mayorkas in a statement. "The decision to approve the waiver was made after careful consideration and consultation with interagency partners across the federal government."

The leading industry association for Jones Act shipping, the American Maritime Partnership, said in a statement that it did not object to the limited waiver. 

"The American Maritime Partnership does not object to the targeted approach of the administration, but strenuously encourages all policymakers to hold accountable those who seek to benefit from any waiver to avoid undermining American jobs and consumers," said AMP president Mike Roberts. "The Jones Act strengthens our industrial base and readiness, supports U.S. jobs and infrastructure, and protects homeland and national security. It should not be waived unless, and only to the extent that, a waiver would respond to an urgent national security need that cannot reasonably be met with American ships."

According to Reuters, a part of the motivation for the waiver was the timeline required to reactivate idle Jones Act tanker tonnage. At least six (and potentially more) Jones Act product tankers were in layup prior to the Colonial Pipeline shutdown, and industry sources told Reuters that shipowners were reluctant to reactivate these vessels without a firm commitment for longer chartering opportunities. According to one owner, it would take at least 10 days to break these idle vessels out of layup - plus additional time to transit to a loading pier, take on a cargo and transport it to the destination market.