Karen Kelly Shea

Understanding the MARAD Waiver

At last year’s AYCA Seminar we reviewed in detail the Recreational Bareboat Charter Agreement and Vessel Service Agreement (also known as the Demise Contract) to help understand why these contracts are required for charters on recreationally endorsed US Flagged foreign built yachts that are in command and control of a US Coast Guard Licensed captain, and on US duty-paid foreign flag yachts with foreign crew holding B1-B2 visas. 

For US flag yachts that are owned by a US Citizen but were not built in the US, the MARAD Waiver offers the yacht owner an opportunity to apply for and obtain a waiver to the Jones Act restrictions placed on any commercial use of foreign built yachts in US waters.

The Passenger Vessel Safety Act of 1993 offered beneficial changes to the Jones Act laws governing passenger carrying vessels.  The major change was the requirement for vessels carrying more than 12 passengers for hire to be inspected for certification and bringing this process more in line with international standards. It also allowed for modification of the Demise Contracts used in commercial shipping for use in the Yacht Charter Industry.

Developed through loopholes in the Jones Act, the yacht charter version of the Demise Contract is a workable solution developed by the AYCA working together with the US Coast Guard & Maritime Attorneys.  However, there are many reasons why the Demise Contract is not ideal.  A primary reason is that the charterer assumes the full liability of ownership of the yacht being chartered for the term of the charter, while not clearly being covered under the liability umbrella on the yacht’s insurance policy.  Another is that the charterer must charter the yacht without the owner providing the crew nor the owner being a member of the crew.  The charterer must attest to this by employing the crew for the yacht via a separate Vessel Services Agreement.

For many years during the 90’s / early 2000’s Nicholson Yachts worked on behalf of the AYCA with the offices of several New England members of the US House of Representatives for a solution to the restrictions on foreign built but US owned & US flagged yachts chartering under the Demise Contract.  The owners of the yachts were very cooperative in providing their annual yacht expenditures in the US (such as shipyard refits, regular maintenance and upkeep, equipment, crew wages, fuel, dockage, provisions, etc.) that were directly related to charter operations.  The expense reports along with explanatory and appealing cover letters were sent year after year to these Congressional offices to exhibit the direct financial impact of yacht charter operations by these US owned yachts, on the local tourist economy.  Initially individual yachts were sponsored by a congressional representative and were eventually granted an individual yacht “Jones Act Waiver” which was attached to a maritime related bill passed in the US House of Representatives.  The efforts eventually led to the US Maritime Administration (MARAD) of the Department of Transportation to implement a formal waiver program. 

Link:  https://www.federalregister.gov/documents/2004/08/23/04-18861/administrative-waivers-of-the-coastwise-trade-laws-for-eligible-vessels

The original intent of the Jones Act legislation was to protect American maritime businesses -such as shipbuilders, ferry services & tour boats operators from competition from foreign entities: 

“all commercial vessels carrying cargo or passengers for hire must be built in the United States, owned by U.S. citizens, crewed by U.S. crew members and operated under strict U.S. Coast Guard regulations”  –  the Jones Act 46 U.S.C. 12121, 46 C. FR 388

The purpose of the Marad waiver is to work around the provisions of the Jones Act.  Both the e Demise Contract, and a MARAD Waiver work within loopholes or grey areas of the Jones Act.

Following are the requirements for the owner of a vessel to qualify for the MARAD administrative waiver of the Jones Act: 

  • The vessel must be owned by a US Citizen
  • The vessel must be at least 3 years old
  • While in service, the vessel can not carry more than 12 passengers
  • The use of the vessel is to carry passengers only.  Sport fishing vessels are allowed provided that any fish caught are not sold commercially.  No other activity such as towing or salvage, commercial fishing, dredging, and carriage of cargo, will qualify a vessel for this program.

The MARAD small vessel waiver is not a waiver of any requirements pertaining to vessel documentation, inspection, or manning.  When the MARAD Waiver is received the owner should file for a Coastwise Trade Endorsement All other legal documentation required for a vessel based in and operating within US waters must also be met.

The MARAD Waiver Application Process:

  1. The owner of the vessel will complete an on-line application (form MA-1023) for the Small Vessel Waiver and pay the $500 filing fee. Be sure to list all US States of intended operation. https://www.maritime.dot.gov/ports/domestic-shipping/small-vessel-waiver-program
  2. MARAD will then publish a “Public Notice” in the Federal Register for 30 days, displaying the vessel details & intended use.  
  3. During the Public Notice period, MARAD uses all sources available to determine if the issuance of a waiver will negatively impact U.S. vessel builders or the coastal trade business of any person who uses U.S.-built vessels.
  4. Unless an indication of negative impact is determined, MARAD will issue the waiver (typically 2-3 months.) (Denial of a MARAD waiver is extremely rare but may be denied in the case of fraud during the application process.)
  5. The waiver becomes part of the vessel’s documentation history and stays with the vessel if it is sold. After receiving a waiver, applicants should file for a Coastwise Trade Endorsement for the passenger trade with the U.S. Coast Guard (USCG) – if the vessel does not already hold this endorsement. For information on meeting USCG requirements, contact the United States Coast Guard National Vessel Documentation Center online / www.doc.uscg or you may call: 1-800-799-8362.
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