Your step-by-step guide on how to apply for an exemption to the Jones Act.
It was the year 1920 when Section 27 of the Merchant Marine Act was written and placed into law. Most commonly known as the Jones Act, Section 27 is a federal law that requires vessels operating in coastwise commerce (meaning, to operate commercially) to be built in the United States. That means a foreign-built vessel cannot be used for commercial charters where crew, food, and/or fuel are provided along with the boat.
One of the initial purposes of the Jones Act was to stimulate U.S. shipbuilding and related industries after World War I. The only thing is… the writers of the law didn’t anticipate what life would be like 100 years later. And boy, is it different.
Today, the law is sort of a catch 22 and essentially, it’s where the concept of “bareboat charter” (also known as demise charter) came about in the states. To get around the law, an owner of a foreign-built vessel might rent their boat to a customer without crew, food, or fuel. But of course, that comes with a whole set of complications, liability, and safety concerns further described in our article about The Merchant Marine Act and The Jones Act.
But alas! Owners of foreign-built boats that are more than 3 years old can apply for an exemption to the Jones Act. It’s called a MARAD Small Vessel Waiver, which when combined with a Coastwise Trade Endorsement, allows foreign-built vessels to operate as a crewed commercial charter in the U.S., and it’s not a (totally) scary application process.
Let’s break down a few common questions related to MARAD Waiver approval, the USCG Coastwise Endorsement, and the Uninspected Passenger Vessel (UPV) Examination, all of which theoretically increase your vessel’s valuation and operating flexibility when done properly.
What is a MARAD waiver, USCG coastwise endorsement, and UPV examination and why should I care?
From a quality perspective (and of course, putting politics aside), there is virtually no downside to owning a foreign-built boat in the United States. If you have a foreign-built vessel that’s more than 3 years old, you can apply for an exemption from the foreign-build requirement of The Jones Act. You just need to complete three steps in this order: 1) Apply for and get granted a MARAD waiver, 2) obtain a coastwise endorsement, and 3) pass an optional UPV examination.
(Note: we HIGHLY recommend the UPV examination to ensure regulatory compliance.)
Step 1 begins with the MARAD waiver application, which is completed through the Department of Transportation. You fill out some paperwork, pay an administrative fee, and, once processed, enter a 30-day period of public notice where the public can review your explanation of why obtaining a coastwise trade endorsement for your vessel isn't going to hurt the U.S. economy or U.S. jobs, among other topics.
Step 2 proceeds after the MARAD waiver approval is granted so that you can apply for a coastwise trade endorsement with the U.S. Coast Guard (USCG). Applying for a new, or renewed USCG Certificate of Documentation that includes the coastwise trade endorsement is a bit of an administrative labyrinth, depending on your specific situation. It’s best to obtain guidance beforehand in order to mitigate fees and the hassle of multiple submissions.
Step 3 can get a bit lengthy and costly, depending on your specific circumstances. The last step in, what is often called the Jones Act exemption process, continues after obtaining a coastwise endorsement on your USCG Certificate of Documentation. The Unexpected Passenger Vessel (UPV) Examination, while optional, is arguably the most critical step that ensures regulatory compliance. This is when the Coast Guard performs an examination on your boat to make sure it meets all of the U.S. requirements for operating in commercial service, commonly known as passenger-for-hire.
This step can get lengthy because, in most cases, the foreign-built boat is not manufactured and commissioned to U.S. regulatory requirements. For example, LPG (liquid propane gas) is an item where most foreign-built vessels need to be addressed. The European manufacturers have different regulations for building a LPG system and, in many cases, you would need to re-configure the LPG storage and supply delivery system to U.S. standards in order to pass the UPV exam.
What are the basic eligibility requirements?
To be eligible for a small vessel waiver and coastwise trade endorsement, the vessel must:
The vessel must be at least three years old.
There is no minimum size requirement. However, to obtain USCG endorsement and documentation, the vessel must be of at least 5 net tons as measured per federal regulations.
When in service, the vessel cannot commercially carry more than 12 passengers for hire, however in most cases it is limited to 6. This will vary based on the specific vessel.
The intended use must be to carry passengers only. Activities such as carriage of cargo, commercial fishing, towing, dredging, and salvage do not qualify for this program. Sportfishing is permitted as long as the fish caught are not sold commercially.
The vessel must be owned by a U.S. citizen.
Why should I apply for a MARAD waiver and USCG coastwise endorsement?
There are different ways you can benefit from completing all three steps of the Jones Act exemption process. First, by obtaining a MARAD waiver, coastwise endorsement, and passing a UPV exam, you can theoretically increase your vessel's valuation. Although the entire process is an investment of time and money, the waiver becomes part of the vessel’s documentation and stays with the vessel if it is sold.
Think of it like a house: when you’re ready to sell, you might pour $1,500 into painting the walls a neutral color so that you might get $10,000 more for the house. It’s a similar situation with your boat.
Another benefit is that you can offer fully crewed, all-inclusive charters as if the boat were made in the U.S. That’s a benefit to you, as a boat owner, because setting up your vessel for crewed charter can help offset the costs of maintaining it. For instance, if you own a Leopard 51 but don’t use it regularly, you can enter it into a charter fleet that will maintain the boat while using it for crewed charters.
How do I get started with the Jones Act exemption application process?
You can get started on step one by filling out a MARAD application on the Department of Transportation’s website. You’ll need to provide owner information, vessel information, the base of operation, and intended commercial use of the vessel, among other application fields. The MARAD waiver application and approval process aren’t too difficult, and most folks think that once approved, they are clear to operate as a crewed commercial charter. But remember, you still need to get a USCG coastwise endorsement, and (again) we highly recommend passing an optional UPV exam by your local USCG sector examiner.
Applying for a coastwise trade endorsement can involve a lot of paperwork. There can be stacks of forms that must be filled out truthfully and with supporting documents. While steps two and three might get lengthy and confusing, Bluesail offers a service to assist owners in obtaining a MARAD waiver and coastwise endorsement, plus help facilitate the UPV examination. Contact us for more information.