Why the toilet paper shortage?

by Keli'i Akina, Ph.D., President / CEO, Grassroot Institute

If you’ve found yourself at the store lately trying to grab the last of the toilet paper before the supply runs out, you’ve probably wondered how we could be in this situation again. 

In some ways, this crisis reminds me of Hawaii’s shortage of healthcare capacity, in which government policy and regulation have led to insufficient hospital beds. In other words, the shipping crisis has its roots in government interference. 

Thus we see photogenic scenes of ships being forced to drift offshore for up to a week or more at major U.S. ports while waiting to unload their cargo.

With retailers warning shoppers to start their holiday shopping now, some have blamed the port congestion on COVID-19, and that’s partly true. 

“The cause of the backup, say port officials, is strictly enforced COVID restrictions at the ports, including those in Asia, as well as unprecedented demand for goods from China, South Korea, and other Asian exporting countries,” reported Popular Science in mid-September. 

The Wall Street Journal reported that shortages of truck drivers and warehouse workers have made shipping delays worse.

But behind it all are America's federal maritime laws, such as the 1920 Jones Act and the 1906 Foreign Dredge Act.

The former requires that all goods shipped between U.S. ports be on vessels that are U.S. flagged and built, and mostly owned and crewed by Americans, while the latter prohibits foreign dredging companies from helping modernize our ports.

Grassroot Scholar Colin Grabow, one of the nation’s foremost Jones Act experts, shared with me this week his speculation that if foreign-flagged vessels were allowed to carry goods between U.S. ports, “large containerships would likely cease making so many stops along the coast, and instead a hub-and-spoke system would develop, with containers transshipped on smaller vessels closer to their ultimate destination. So a ship might stop in New York/New Jersey, then head off back across the Atlantic while smaller [foreign-flagged] vessels would run up and down the East Coast.” 

In April, Grabow wrote for the Cato Institute that such transshipment of containers does not happen in the U.S. because "any goods moved between U.S. ports — including those originating from abroad — must use expensive and uncompetitive Jones Act shipping.” 

He said transshipment of international containerized cargo by feeder ships is prevalent abroad, but in the U.S., containers typically are moved to their final destinations by rail and trucks, with their attendant environmental costs.

Meanwhile, America’s ports themselves are in big trouble. Last year the World Bank Group and IHS Markit ranked the world’s ports in terms of efficiency, and no U.S. ports cracked the top 50. Among ports most important to Hawaii, Seattle finally showed up at 236, followed by Los Angeles, 328; Oakland, 332; and Long Beach, 333. Honolulu isn't even on the list, which stops at 351, though Guam' Apra Harbor is, at 248.

Reasons for the inefficiency of U.S. ports include labor contracts that prevent automation, raise costs and make it difficult to extend working hours into evenings and weekends. But, again, federal maritime law also is a reason. 

For example, many U.S. ports are unable to accommodate larger cargo ships because they are too shallow. Deeper ports means you can import more goods. According to the National Ocean Service, just one more inch of depth in a port means that a cargo ship can carry about 50 more tractors, 5,000 televisions, 30,000 laptops or 770,000 bushels of wheat.

Dredging is how you make a port deeper. But because of the Foreign Dredge Act, that is easier said than done.

As Nicolas Loris of the Heritage Foundation put it two years ago, U.S. law has excluded “the world’s largest dredging companies that could provide better and cheaper service for dredging projects.”

Cato Institute analyst Daniel J. Ikenson wrote in 2015: "America’s harbor capacity shortage is the result of a domestic dredging industry that is immune to competition, has little incentive to invest in new equipment, and cannot meet the growing demand for dredging projects at U.S. ports.” 

He quoted one industry analyst who estimated European dredgers could save U.S. taxpayers $1 billion a year on current projects, and “enable more projects to be completed more quickly."

In short, we are witnessing a chain reaction of inefficiencies, stoked by government regulations that have increased the cost and diminished the flexibility of domestic shipping and stifled the modernization of U.S. ports.

Our toilet paper shortages might have been inevitable due to the economic shocks cause by the coronavirus, but outdated federal maritime laws haven’t helped.

I hope this is the last time we see shortages in response to a public health threat. However, it will be our own fault— and the fault of our representatives in Congress — if we do not address the laws that have made this bad situation worse.

If we want to be prepared for the next emergency, we need to update U.S. maritime laws for the 21st century. 

E hana kākou! (Let's work together!)