A specially-built, 100-foot, dead-end rail line at the Port of Bayside, just across the St. Croix River from the Red Beach section of Calais, is at the center of legal action being brought by U.S. Customs and Border Protection (CBP) that involves the largest penalty ever for violating the U.S. Jones Act -- over $350 million, which is 35 times the previous highest penalty. CBP's penalties threaten numerous businesses, hundreds of jobs and a seafood supply chain from Alaska through the Port of Bayside to the East Coast of the U.S.
     Kloosterboer International Forwarding (KIF), which, along with Alaska Reefer Management, is seeking to prevent the issuing of the penalties through court action, is facing a penalty of $25 million, which is almost 15 times its annual net income. Kloosterboer Bayside, which operates a cold-storage facility at the New Brunswick port, and Kloosterboer Dutch Harbor in Alaska are facing penalties totaling $37 million. The total penalties for all of the companies involved, including ship owners, shipper customers and trucking companies, are more than twice the annual value of all frozen Alaskan seafood transported through Bayside to U.S. destinations.
     KIF and Alaska Reefer Management (ARM) are both based in Seattle, Wash., and provide transportation and logistics services to seafood processing companies operating in the Alaska fisheries. On September 1, KIF and ARM filed suit in U.S. District Court in Alaska seeking to have the court rule that they are in compliance with the Jones Act and to prohibit CBP from issuing any penalties. In their court filing the companies say the penalties threaten to destroy their businesses and "hundreds of jobs in Alaska and throughout the U.S. in the frozen seafood shipping industry." They add that the penalties have "crippled, indeed brought to a crashing halt, the frozen seafood supply and transportation chain between Dutch Harbor, Alaska, and Calais, Maine, and from there to destinations in the eastern United States." If they are not withdrawn, the penalties "will likely result in higher prices and shortages of frozen seafood across the eastern United States." The penalties would also affect a Maine-based company that owns a fleet of Alaskan fishing boats and is part owner of a seafood processing company in Massachusetts.
     As for Bayside, the companies estimated that, as of September 2, 26 million pounds of pollock, equating to 550 truckloads, were on hold at Kloosterboer Bayside's cold-storage facility awaiting transport into the U.S. The port, including the wharf and dry storage area, is owned by the Bayside Port Corporation, which was formed by local private interests and purchased the port in 1999. The corporation is not facing any penalties, and Darrell Weare, chief operating officer of the Bayside Port Corporation, says, "This affects the port, but it won't result in the demise of the port." He points out that the port handles numerous other cargoes in addition to the Alaskan pollock imports, including fish feed that is shipped to Newfoundland, aggregate rock from Jamer Materials' quarry next to the port that is shipped to the U.S., salt from the Bahamas and supplies for the aquaculture industry.
     Kloosterboer, a Dutch company, is one of Europe's largest cold-storage operators and owns Kloosterboer Bayside and Kloosterboer Dutch Harbor. KIF is an Alaskan-owned subsidiary of Alaska Reefer Management, which is owned by American Seafoods Group, one of the largest seafood companies in North America.
     Per Brautaset, president of Alaska Reefer Management, released a statement on September 2, saying, "Until two weeks ago, the industry had received no hint that CBP was reconsidering its longstanding approval of the route and preparing notices of penalties amounting to over $350 million. Nothing in the notices of penalty provides any specificity about the alleged conduct that constitutes a Jones Act violation or any rationale for CBP's apparent reversal of its longstanding ruling."
     KIF and ARM presented arguments on September 17 in U.S. District Court requesting a temporary restraining order to stop the U.S. Customs and Border Protection (CBP) enforcement action. A ruling is expected soon. "A ruling in our favor will allow us to immediately resume trucking fish from the cold storage facility in Bayside without the threat of further customs fines," says Brautaset. "This will help to resolve immediate shortages of frozen seafood that are already impacting food processors and their employees who deliver products for consumers and fast food chains as well as school lunch and food bank programs in the eastern United States."

A rail track 'that goes nowhere'
     Kloosterboer International Forwarding contracts with Kloosterboer Bayside, which operates both the cold storage facility and the stevedoring company at the Port of Bayside, to transfer the frozen fish into markets in the U.S. The cold storage facility had undergone a $4.2 million expansion in 2018 to increase its holding capacity from 10,000 to 15,000 tonnes. The firm employs a total of 86 people, with 12 full-time, about 35 part-time year-round and the rest seasonal. General Manager Manny Estrada says that CBP's action has been having an effect on all of the spin-off businesses for about five weeks now, with 14,000 metric tonnes of frozen fish now in storage at the Bayside facility that cannot be moved into the U.S. He declines further comment on what the legal action means for the business until a court decision is issued.
     In their court filing, the U.S. Attorney's Office for the District of Alaska states that previously the frozen fish that was unloaded at Bayside had been shipped by truck to either McAdam or Saint John and then by rail using the New Brunswick Southern Railway, involving rail movements of 34 to 91 miles or more over Canadian rail lines, before being offloaded and driven again by truck to cross into the U.S. at Calais.
     However, in 2012 Kloosterboer Bayside, in order to save on costs, "radically changed their method of transporting seafood" and "devised a scheme" so that instead of using an established Canadian railway they would use "a specially-built mini-rail track, approximately 100 feet in length, that goes nowhere," the court filing states. The special rail line is called the Bayside Canadian Railway. After the frozen fish arrive at the port, the product is loaded onto trucks that are driven to the 100-foot track near the cold-storage facility at Bayside, onto the sole train and then pulled by a small engine to the end of the rail track and pushed back and are driven off and head to the Calais border crossing and into the U.S.
     Because the companies do not use U.S.-flagged vessels to transport the fish from Alaska, U.S. Customs issued the notices of penalty for violations of the Jones Act, a 1920 U.S. law that is aimed at protecting the fleet of vessels built in the U.S., owned by U.S. citizens and registered under the U.S. flag and that prohibits the use of foreign vessels to transport goods between U.S. points. If the Alaskan fish were transported directly by truck from Bayside into Maine, the arrangement would be prohibited under the Jones Act. However, the "third proviso" to the Jones Act states that the prohibition on using non-U.S. flagged vessels does not apply to the transporting of goods between points in the U.S. over routes that in part use Canadian rail lines.
     The companies, in their court filings, state that non-U.S. flagged ships are used to transport the fish from Alaska to New Brunswick "due to a tremendous shortage of coastwise qualified vessels in the United States merchant fleet."
     In April 2017, CBP's Jones Act Division of Enforcement (JADE) received a tip from a third party alleging the violations of the Jones Act and then obtained video clips from the Internet showing the rail movement at the Bayside Canadian Railway. CBP says the potential penalties are so large because the companies engaged in the illegal conduct for so many years.
     Instead of reverting back to using the New Brunswick Southern Railway or seeking a review of CBP's actions, the companies "seek breathtaking equitable relief" by asking the court to prohibit CBP from collecting the penalties, the U.S. Attorney's Office states in its legal filing, adding that the companies "are asking the court for a license to break the law."

Companies defend position
     In their suit against CBP, the companies assert that in mid-August of this year the U.S. federal law enforcement agency began issuing without warning the notices of "massive penalties" to the companies in the supply chain for the alleged violations of the Jones Act. The penalty notices have shut down the shipping route from Alaska to Bayside that had been operating for over 20 years and that delivers frozen fish to "consumers, fast food chains and school lunch and food bank programs throughout the United States."
     Their suit maintains that the companies are in full compliance with the Jones Act and that CBP was "fully aware of the use of Canadian rail trackage in part" through its review of customs documentation for every shipment that crossed into the U.S. at Calais.
     Also, written testimony submitted to the court on September 17 from Christy McManus, the former general manager at Kloosterboer Bayside, states that CBP officers were on site during and after construction of the railway at Bayside but at no time did they ever express any issues with the use of the railway. McManus added, "It is my understanding that the CBP was aware that the [railway] was being used for purposes of compliance with the Jones Act."
     Among the companies that would be affected by the CBP penalties is the O'Hara Corporation, a Rockland-based family business that owns and operates five Alaska fishing/processing ships. In a court filing, Vice President Francis O'Hara III notes that the company employs over 450 crew members on its Alaskan fishing boats and also is half owner of Eastern Fisheries Inc., a re-processor and distributor of seafood based in New Bedford, Mass. Eastern Fisheries receives the fish caught in Alaska on O'Hara's fishing boats and reprocesses it into fillets for market at its factory in New Bedford that employs hundreds of workers. If the shipments are not able to clear through customs to go to New Bedford, then part of that factory is at risk of ceasing operations.