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Miniature railway spells multimillion dollar settlement for two Alaska seafood shipping companies

Maggie Nelson
For years, Kloosterboer and Alaska Reefer Management have been using an exemption in the law to transport seafood from Dutch Harbor to Canadian ports and back into the states on foreign-flagged ships.

A years-long Alaska seafood battle over a complicated shipping exemption has been settled.

Two Bering Sea seafood shipping companies, Alaska Reefer Management LLC and Kloosterboer International Forwarding LLC, settled a lawsuit in January challenging penalties that had been levied by U.S. Customs and Border Protection. Alaska Reefer Management is a subsidiary of American Seafoods, one of Alaska’s biggest fishing companies. Together, the companies will pay the federal government $9.5 million after violating federal shipping laws.

In September 2021, the two companies sued the federal government when they and companies in their supply chain were fined more than $350 million. They said those penalties were unlawful and challenged the fines in the U.S. District Court of Alaska.

But, according to the court, both Kloosterboer and Alaska Reefer Management violated the Jones Act — a 1920 law that requires goods to be transported by U.S. flagged vessels between U.S. ports.

For years, the companies have been using an exemption in the law to transport seafood from Dutch Harbor to Canadian ports and back into the states on foreign-flagged ships. The exception, known as the “Third Proviso,” allows companies to bypass the U.S. flagged vessel requirement as long as the route includes Canadian rail lines.

But the rail line the companies used was just 100 feet long. According to the U.S. Department of Justice, once the seafood made it to Canada, Kloosterboer arranged for it to be offloaded from the ships and onto rail cars on a small, 100-foot length of railroad track, known as the Bayside Canadian Railway. The seafood then took a trip down the rail and back, was driven off the train cars and went to a border crossing in Maine. The Bayside Canadian Railway was built specifically for this purpose and used exclusively to remain in compliance with the Jones Act, according to the department.

The plaintiffs argued that the route is expressly allowed by the “Third Proviso” and “by [Customs and Border Protection’s] own published interpretative rulings that remain in effect.”

Ultimately, the U.S. District Court of Alaska determined that using the railway in Canada was unlawful because there was no actual “transportation” of cargo by train. And in January, the parties settled for a $9.5 million payment. The companies have since stopped using the Canadian railroad to transport seafood.

This was the second largest Jones Act settlement in U.S. history, according to U.S. Attorney S. Lane Tucker of the District of Alaska.

This article previously referred to the $9.5 million settlement as a fine or penalty. The story now reflects an updated release from the U.S. Attorney's Office that characterizes the payment as a settlement.

Hailing from Southwest Washington, Maggie moved to Unalaska in 2019. She's dabbled in independent print journalism in Oregon and completed her Master of Arts in English Studies at Western Washington University — where she also taught Rhetoric and Composition courses.