How Jones Act reform can work for everyone (Maui presentation)
from Grassroot Institute of Hawaii, December 13, 2022
The Jones Act has been enshrined in American law for more than 100 years, with its roots based in similar codes that go back even farther. But has it finally run its course?
Colin Grabow, the nation’s leading critic of the 1920s federal maritime law, addressed that topic in Kahului last week during a presentation sponsored by the Grassroot Institute of Hawaii.
Grabow is a Grassroot Scholar in addition to being a trade policy analyst at the Cato Institute in Washington, D.C., and co-editor of the book “The Case Against the Jones Act.”
In keeping with the title of the talk — “How Jones Act reform can work for everyone” — Grabow discussed what reforms might be acceptable to Jones Act proponents, including elimination of its U.S.-build requirement.
Grabow explained that the Jones Act requires that cargo carried between U.S. ports be on vessels that are U.S.-built and U.S.-flagged and mostly owned and crewed by Americans. The logic behind the law, he said, “is to have a pool of ships that the military can draw from in time of war to transport goods and supplies for the military.”
But “as time goes on,” he said, the Jones Act is becoming “more and more divorced from its goals. Shipbuilding costs continue to escalate. The competitiveness of the U.S. fleet continues to fall. The size of the U.S. fleet continues to fall. Shipbuilding numbers are falling. By any reasonable metric, it’s failing.”
Grabow pointed out that conflicts in recent decades have shown Jones Act ships are rarely pulled for military purposes, mainly because there are so few of them and drafting them into service would leave places such as Hawaii, Puerto Rico, Alaska and Guam without any commercial service from U.S. mainland ports.
Similarly, Grabow said, the military would be at least 1,800 mariners short of what’s needed to crew the U.S. fleet in the event of a sustained sealift campaign, according to a government report done five years ago by a maritime working group.
Fewer ships means fewer mariners, Grabow said, and the Jones Act-compliant fleet of oceangoing ships has decreased by more than half in the past 40 years, from 257 in 1980 to 93 today. Grabow said U.S. shipyards currently build an average of only three oceangoing commercial ships per year.
“To put that number in context,” he said, “a single shipyard in South Korea can build 60 ships or more in a year. Last year, there were zero Jones Act ships delivered.”
A huge contributor to the nation’s decline in shipbuilding is that it costs roughly $330 million to build a ship in the United States, compared to $60 million to $70 million abroad, Grabow said.
And not only do U.S. shipyards produce very few ships, the ships that are built here are highly reliant on foreign parts to build them.
“This notion that [the] Jones Act frees us from foreign reliance on ship building is an illusion,” he said. “These are already, in many ways … foreign ships. … Not only the components, but the designs themselves are bought from Korean firms … and then we take the components, and we do the assembly work.”
Grabow said the high cost of building ships in America incentivises fixing old ships, which he said is often done in China.
As he expressed at an earlier presentation on Oahu, the good news is that bipartisan political momentum to reform the Jones Act might finally be building.
“It’s becoming harder to defend, and we’re seeing more people wake up to this,” he said.
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TRANSCRIPT
12-8-22 Colin Grabow at Grassroot Institute Jones Act event (Maui)
Joe Kent: Aloha, everyone, and welcome to the Grassroot Institute of Hawaii. Thanks so much for coming.
I’m Joe Kent, the executive vice president of the Grassroot Institute, and today we are talking about the Jones Act.
Keliʻi Akina, the president of the Grassroot Institute, couldn’t be here today, but he sends you his fond aloha.
And today’s presentation is being recorded. It will be broadcast on Akakū public access. We’ll do that a few times to make sure that everyone can hear this presentation. And it’ll be available on YouTube as well. And if you’d like to get that, you can go to our website and sign up for our newsletter — that’s grassrootinstitute.org.
So, thanks so much for being here. Again, my name is Joe Kent. We’ve got Sean Mitsui, he’s our development director at the Grassroot Ins … I mean, excuse me, finance director, at Grassroot Institute. And my assistant, Melissa Rabideau, is here with us as well from the Grassroot Institute.
And today, again, we’re talking about the Jones Act. It’s a hot topic. Inflation, the war in Ukraine, cost of living in Hawaii — these are all big topics right now, and the Jones Act is a part of all that.
As you know, the Jones Act says that only U.S. ships can bring goods from one U.S. port to another U.S. port — so, like from Los Angeles to Hawaii — and that makes the cost of living in Hawaii more.
But, I want to acknowledge that there [is] a lot of debate — there’s two sides to the coin on this issue.
There are a lot of shipping, pro-shipping interests who favor the Jones Act, who promote the Jones Act, and we invited those interests here, but somehow whenever the event gets closer, they go away, so, it was hard to get them here.
We have a chair right over there just in case one of them pops in, then we can — we wanted to make it more of a debate.
But, anyways, I’m going to ask a lot of the questions that they would have asked or a lot of the questions that they typically do ask.
Now, today we have with us Colin Grabow; let’s give him a round of applause.
[applause]
He’s one of the nation’s top Jones Act scholars and one of the folks from Cato Institute in Washington, D.C.. He’s also a Grassroot Institute scholar, and we learn a lot from him about the Jones Act.
There are a lot of people in Washington actually who wanted to try him for treason for talking about the Jones Act [chuckles], but we have, you know, free speech in this country, so we can’t do that.
Colin is a research fellow at the Cato Institute’s Herbert A. Stiefel Center for Trade Policy Studies, where he focuses on trade protectionism. … He has a master’s degree in international trade and investment policy from George Washington University, and he’s also, again, a Grassroots scholar, and he helps us a lot with the Jones Act issue.
So, today, we are going to interview basically interview Colin together, and there’s going to be a time for Q&A at the end. So, one more round of applause for Collin, please.
[applause]
And I want to start, again, by just — we want to start with a 101 course, a crash session to explain what the Jones Act is, and then after that, we’re going to go to a 201 course to talk about some of the main arguments about the Jones Act, and we’ll hear about that.
But first, what is the Jones Act for those in the audience that might not know, and how does it work?
Colin Grabow: Well, thank you, everyone. Aloha. The Jones Act is Section 27 of the Merchant Marine Act of 1920, and it says that if you want to move cargo from one point in the United States to another over water, you have to use a vessel that is U.S. flagged and registered, as opposed to another country. It has to be built in the United States. It has to be crewed mostly by Americans and owned mostly by Americans, at least 75% U.S. owned
Kent: OK, and so, just a quiz. I’m going to do a quiz here with the audience. Oh, actually, [let’s] see if I can switch mics with you. OK, one, two. Does that…
Grabow: Got you.
Kent: OK. Keep it close to your mouth so we can hear you.
Grabow: OK. Alright.
Kent: So if a ship from Shanghai, a foreign ship from Shanghai, brought goods to Hawaii, is that allowed? Everyone, is that allowed?
Audience member: Yes.
Kent: It is allowed. It is allowed, actually. Why is that allowed?
Grabow: Because it’s a foreign ship. It’s international. It’s between — the Jones Act applies to domestic shipments from one U.S. port to another U.S. port.
Kent: So that’s international. So, what about a foreign ship brings goods to Hawaii and then goes to LA? Is that allowed? Everyone, is that allowed? Yes or no? What do you think?
Grabow: The answer is it depends. The foreign ship can come to Hawaii and drop off goods that came from abroad, and it can continue onto Los Angeles and drop off other goods that also originated in China. What it cannot do is pick up goods in Hawaii and then transport those goods to California.
Kent: OK, one more [chuckles]. A foreign ship goes to LA, picks up goods, brings them to Hawaii and drops them off in Hawaii. Is that allowed? No, right?
Grabow: Right.
Kent: [laughs] And that’s because of the Jones Act. So, now we all know, kind of, how the Jones Act works here in Hawaii.
But I wanted to talk about — we invited the head of Mats— or a, excuse me, one of the heads of Matson, Ku‘uhaku Park, the president of the American Maritime Partnership, which is the nation’s premier Jones Act lobby group, to attend this. Unfortunately, he never responded. And we invited many other Jones Act proponents here, and again, that chair is for them [chuckles], but they weren’t here. If they happen to walk through the room, though, please usher them to the chair.
But I’m going to ask a few questions that they would have asked. So, the main argument for the Jones Act is national defense, right? We need the Jones Act to protect our military. So, if the Jones Act were repealed, then military campaigns would be serviced by foreign entities. So, how do you respond to that?
Grabow: So, to elaborate on this point — how national security figures into the Jones Act — the logic behind the Jones Act is by requiring U.S. ships that we have a pool of ships that the military can draw from in time of war that can transport goods and supplies for the military to where it’s needed.
The U.S. crew requirement means that we have mariners — American mariners — that can crew these ships so we don’t have to rely on foreigners. And the U.S.-built requirement means, theoretically, that we have shipyards that can build or repair ships damaged in battle — obvious military applications there.
But the problem with this logic is it doesn’t work. These goals are laudable. By all means, absolutely, the military should have what it needs to do its job. They should have the ships, they should have the mariners, and they of course should have shipyards to repair them. But if we look at each one of these categories, the Jones Act is failing.
Kent: Oh, can you put that mic even closer to your mouth? Yeah.
Grabow: Sorry. OK.
We start off with ships. Over time, the Jones Act fleet has gotten smaller and smaller and smaller. As recently as 1980, there were 257 Jones Act ships. Today there are 93. So the fleet has more than halved in the last 40 years.
We look at the number of mariners — when you have fewer ships, that means you have fewer mariners. There was a government report done five years ago [by] a maritime working group that concluded in the event of a sustained sealift campaign, the military would be at least 1,800 mariners short of what’s needed to crew the U.S. fleet.
And then we look at shipbuilding. According to the numbers that I’ve encountered in my research over the last 20 years: [In] an average year, Jones Act U.S. shipyards build three ocean-going commercial ships per year. To put that number in context, a single shipyard in South Korea can build 60 ships or more in a year, and we’re stuck with three.
Last year, there were zero Jones Act ships delivered. So far this year, there has been one. There was supposed to be one more delivered for Pasha that was supposed to be delivered two years ago, and they still haven’t delivered it. They say Q4 2022. We’re running out of time — we’ll see. Next year, if that ship isn’t delivered, again we’ll be at zero.
So that’s where we’re at with shipbuilding in this country. And the few ships that are built are highly reliant on foreign components to build them. Now they say American built, well, what does that really mean? Because a lot of the components to build these ships, they come from South Korea.
For example, [for] one type of tanker built in 2006, I believe, each one of those ships required 500 containers from South Korea were brought over as well as 25 shipments of bulk components like the engine, the propeller — things that make the ship actually work. And the U.S. shipyard just takes those and they do a lot of assembly work. That’s what they do. So this notion that [the] Jones Act frees us from foreign reliance on ship building is an illusion.
Kent: OK, but what about the military aspect of that? OK, so we — let’s say we get in a conflict overseas and now we have to ship goods to help service that conflict. Those would presumably be done on Jones Act ships?
Grabow: Absolutely not. Very rarely are they done on Jones Act ships, and that makes sense. If you look at over history, [during] the Persian Gulf War, for example, there was only one ship that was taken from domestic trade, from Jones Act trade in the United States, and used to transport goods, supplies from military to Saudi Arabia.
In Operation Iraqi Freedom, I’ve only found, again, one Jones Act ship that was pulled out of trade to support military needs.
And this makes sense, because if you take out Jones Act ships, well, who’s going to take goods to Hawaii or Puerto Rico or Alaska or these other places? In fact, the head of U.S. Transportation Command last year in testimony before Congress was asked about the reliance on Jones Act ships, and he said — I’m going to paraphrase here — he said, in wargaming, we’ve concluded that we would not want to rely on Jones Act ships to undermine their economic viability. So we don’t really use Jones Act ships. Now, we do use…
Kent: In other words, if we pull the Jones Act ships out of the market, then who’s serving Hawaii?
Grabow: Exactly. Exactly. So it’s just very difficult to do. So what the military does — the primary means of commercial shipping are not Jones Act ships, they are U.S.-flagged non-Jones Act ships.
What that means:These are American-flagged ships that are foreign-built, so they violate the Jones Act. So these are ships that can transport goods internationally, but despite having an American flag and being crewed by Americans, it is illegal for them to transport goods in the United States, the country in which they are flagged.
Kent: Oh wait, so you’re saying that in my scenario — we do a military conflict overseas, we need to support that with goods — the ships that we use today to service that are not Jones Act ships?
Grabow: Exactly.
Kent: And why is that?
Grabow: So, the military has something called the Maritime Security Program. This is basically a subsidy given to 60 ships, they’re paid $5.3 million per year, I believe. And basically, in exchange for that, the military has the right to use those ships in time of war or national emergency.
So my attitude is, by all means, the military should have what it needs to do its job. And if they need more ships, then let’s increase those subsidies so they can have what they need to do the job.
I’ll add one other point: the virtue of subsidies. Not only is it cost transparent — we can all see how much it costs and we see what we get. You know, roughly 300 million gets you 60 ships. But it’s fair. It’s fair.
Under the Jones Act, the logic is: Well, people that use ships are those that are paying for these ships. So Hawaii, if this is national security meant to benefit all Americans, why are the non-contiguous states and territories disproportionately funding this?
You know, in the mainland, people don’t really rely on ships. You know, we have trucks, we have trains, we have other forms of transportation. But if this is national security for all Americans, why [are] Puerto Rico and Hawaii and Guam and Alaska footing a disproportionate part of the bill? It’s just, it’s — so there’s a fairness aspect and effectiveness aspect too.
Kent: Now I want to just do an audience check here. Are you able to hear clearly? Are we talking too fast or anything like that? OK. Just want to make sure. So, OK, good. Yes. OK, I’m told they can hear me really well.
Grabow: OK.
Kent: So for you, try to be crystal clear and speak right into that mic.
One more on the military.
Grabow: Yeah.
Kent: China. China, it has been said to be a huge threat worldwide and to the United States. And if the Jones Act were repealed or reformed, that would somehow disrupt the military’s, the Jones Act’s ability to assist in military operations, and we would be [having] those goods being brought by Chinese companies or foreign entities. Is that safe? I mean, so this is the argument.
Grabow: Yeah, this is a confusing argument, to be frank.
You know, my attitude is: If we want to avoid reliance on China, if we want to ensure that there are American-flagged ships out there available for the military, then by all means, let’s fund them.
Again, I have no problem with direct subsidies to ensure that the military has American-flaged ships, if that’s what our goal is.
What I know is right now with the Jones Act, we have a system that does not work. We have a smaller fleet. That we don’t have the Mariners. So it’s not working.
And while we’re talking about China, let’s keep in mind that while Jones Act advocates and these shipping companies say we need the Jones Act to stave off China because we’re worried about China — where do these guys send their ships to get repaired? China.
Pull out your phone right now. Look at vesseltracker.com. Type in Horizon Reliance. It’s a Pasha ship. It’s sitting right now on the Yangtze River in Nantong, China, being repaired. They’re putting in a new engine in this 42-year-old ship so they can keep it going to at least, you know, 50 years. In a non-Jones Act world, this ship would’ve been scrapped long ago and replaced with something far more modern.
I have a photo of Matson executives in Nantong, China, at the COSCO shipyard there, celebrating their 50th ship getting repaired in China. So they take the savings from that and then they use it to fund lobbying efforts claiming we need the Jones Act to stave off China. You know, this is the reality.
Kent: OK, so we might get to more national security arguments in the Q&A, but I want to go to Hawaii.
So, in Hawaii, Grassroot Institute of Hawaii did a study in 2020 that calculated the economic cost of the Jones Act, and it put that number at $1.2 billion per year, which is about $1,800 per family. And so we’ve put that out there. That number has been going around the world. It was just in The Wall Street Journal yesterday, in fact, and, but a lot of shipping proponents have criticized that number and said it’s vastly overblown.
Well, the study was done by an economist named John Dunham, and so he has a lot of economic arguments. How would you respond, though, to folks who said that costs or projections of the Jones Act in Hawaii are way, way overblown, and actually, the Jones Act is minuscule?
I mean, what we hear is that, OK, when it comes to shipping, the fuel cost would be the same, whether it’s a Jones Act [ship] or not, and that’s a major cost factor in the trade. And so the Jones Act is only a tiny portion of the shipping cost, so it’s nothing to cry about.
Grabow: What we know for sure is that Jones Act shipping is much more expensive than international shipping. I mean, it’s inevitable. You take just the ships, the cost to build the ships. A Jones Act ship, a Jones Act container ship — the type used to transport goods to Hawaii — costs about five times more than one built in a foreign country.
Matson placed an order last month for new ships: three ships for a billion dollars. Those same ships overseas would cost more in the neighborhood of $60 to $70 million a piece, and now we’re paying 330 million a piece. Well, who’s paying for that? Huh? Consumers.
Then we have operating costs, crew costs. U.S.-flagged ships, according to the U.S. Maritime Administration, are almost three times more expensive to operate than foreign ships.
And then we just have very little competition. You know, here in Hawaii you have Pasha and Matson to choose from, and there aren’t just — the fleet is very small. As I said before, you know, 93 ships to meet the needs of the world’s largest economy.
You take ships are expensive to build, expensive to operate, and fewer number with limited competition, the inevitable result is expensive shipping far above that what you would find internationally.
So, I just, I guess I reject the notion that there’s some cost that — number one, we know it’s more expensive. And now we’re just splitting hairs over exactly how much more expensive. Well, is there some number we would say “That’s fine, that’s acceptable. You know, the extra cost is no big deal or something to dismiss”?
I looked, actually, on Matson’s website — if you Google “Matson car shipping,” they say on their website the starting price to send a car from the West Coast to Hawaii is $1,600. I don’t think that’s, you know, anything to dismiss. And then if you want send it to here in Maui, it’s going to be even more. You know, if you have a $16,000 car, that’s 10% of the price right there.
Kent: OK. But even the shipping companies, by the way, will admit, yes, there is some cost to the Jones Act, so they think it’s small. But whatever it is, it’s outbalanced, it’s paid for because of the advantages of being a U.S. company.
Matson has a dedicated port on the West Coast. So you remember during the pandemic there was a big shipping clog in Los Angeles, right? There were all these ships that couldn’t get into the port, but except for Matson ships, which could get into the port because of that dedicated line. And so we, you know, had scares about toilet paper in Hawaii, but we didn’t have to be scared because of that. So how do you respond to that?
Grabow: My response is: Let’s have competition, let the best company win. If Matson offers an outstanding value proposition — they have outstanding reliability and cost-effective shipping — then they should have nothing to fear from competition.
I think that the people that are scared of competition are those that don’t offer the best value, and I think it’s very instructive in that regard that Matson and Pasha are so adamant in keeping the Jones Act in place.
The Jones Act is a pointless law if it doesn’t drive up costs, remember? Because if they — these guys can prevail over foreign competition, why do we have the law? The entire law is premised on the idea [that] these guys can’t compete, that they don’t offer the best value.
Kent: But what about the argument about the dedicated port, though? I mean, Matson has one, but do the foreign shipping companies have dedicated ports too, or could they?
Grabow: I mean, there’s nothing in the Jones Act that mandates you have to have a dedicated port. This is, you know, this is — the fact they have one is outside of the Jones Act. And, you know, there’s nothing in U.S. law preventing foreigners from setting up their own terminals as well.
Kent: I see. Another argument in Hawaii, and this is, you know, I’ve talked to local shippers and freight forwarding companies, and they’ve given me this argument that Coke and Pepsi — so Coke and Pepsi at the store are about the same price, but the shipping cost or how does that go? The shipping cost is the same, but the price at the store is different or something.
Basically, the argument goes that any savings would not be passed on to consumers. So if the price to ship Pepsi were somehow more or something, then still at the store you’d still see them at the same price level. So there’s no guarantee that, you know, the grocery store will pass on those savings to consumers. So how would you respond to that?
Grabow: One of the first laws in economics is that there ain’t no such thing as a free lunch. Someone has to pay the piper, right? And we’ve already established that Jones Act shipping is more expensive than non-Jones Act shipping. That’s something we know.
And so these extra costs, what happens to them? Do we think that stores just say, “I’m going to take less profit. That’s how I’m going to respond to that”? No. That’s the last thing they’re going to do. The entire reason for existence is to make a profit. These are not charities.
So, now, it may not be that they raise prices. Maybe they reduce wages, you know. They reduce costs somewhere else. They have to. But someone has to pay the price for that.
You know, as far as the Coke and Pepsi example — yeah, I think the argument is that one has higher shipping costs than the other yet they are sold at roughly the same price.
Kent: There you go. Yeah.
Grabow: Therefore, we know the shipping doesn’t really matter. But we don’t know that because shipping is one part of the cost. Well, how much did the Coke and Pepsi cost before shipping is added on? We don’t know that.
We also know that stores, you know, my understanding is they look at profit from a holistic perspective. They don’t look at every little product. Maybe they use Coke and Pepsi as a loss leader to drive traffic to the store, and then they raise prices on other goods. At the end of the day, they have to make a profit to stay in business.
Kent: I see. So basically economics, right? You have to understand how economics work, not just Coke and Pepsi or something like that, right?
What about with warehouse space? So Hawaii only has so much warehouse space. If we were to repeal the Jones Act or reform it somehow, now we’re relying on foreign companies that have longer trade routes, and then we would need bigger warehouses, and we don’t have enough warehouse space.
So we’re relying on this sort of shuttle service that Matson or Pasha provide to LA that presumably the foreign companies couldn’t. So how about that argument?
Grabow: So I think the argument here is that, yes, it costs more, but we get to save because we get more frequent service, so I don’t need as much warehouse space. So I save in those costs, and in the end, I come out ahead.
Well, if that’s true, then again, why are you scared of competition? You have the best value, you have more frequent service, then, you know, I don’t understand why they are so concerned with keeping out foreign competition. Yeah, it’s just unclear.
Let the free market decide who offers the best value. Matson and Pasha tell us, “We have the best value.” Well, that’s just words. That’s rhetoric. Let’s let the market decide. Let’s open the competition, and let’s see who really has it.
Kent: But for energy, you know, a lot of people say that energy to Hawaii is the ships bringing our oil to Hawaii and so forth. They’re kind of like a pipeline, and that pipeline is owned by American companies right now.
But if we were to change the Jones Act somehow, now our pipeline is owned by foreign companies, and isn’t that a threat, I mean, to reliability?
Grabow: Well, I think your premise is wrong. In fact, the majority of energy brought to Hawaii is from foreign sources on foreign ships.
So, yeah, you also hear this argument [that] we can’t rely on foreign ships. Guess what? You’re already reliant on foreign ships here in Hawaii. You go to the Port of Honolulu right now, you’ll find foreign ships in there. So, you know, let’s get rid of the notion that we can’t rely on foreigners because that’s already what we’re doing.
And I would think that if there were severe downsides and consequences from relying on these foreign shipping companies, that would have already been borne out, and we would have experienced that. And so, from what I can tell, that has not been the case.
Kent: OK, well, there is going to be more time for Q&A later. If you’ve got more questions specific to Hawaii, Colin can answer.
But I want to move, finally, to shipbuilding. So on shipbuilding, what we hear is, “We don’t want these old rust buckets, creaky ships from, that were built in foreign countries to use in our trade.” So, you know, what about that argument?
Grabow: The argument’s almost — the reality is almost the reverse. You tend to find older ships in the Jones Act fleet rather than abroad, and the reason is pretty obvious. We’ve made shipbuilding — the acquisition of new ships — very expensive in this country.
You know, I gave the Matson example: $330 million for a new ship versus, you know, more in the neighborhood of $60 million overseas. You make ships very expensive to buy, [then] people don’t want to buy new ships. They want to hold on to the ones they have for a very long time.
A few years ago, the head of the U.S. Maritime Administration, Admiral Buzby, was testifying before Congress, and they were talking about the age of what’s called the Ready Reserve Force. These are government-owned sealift ships. And he said, you know, these ships are like 45 years old, they’re so old. You know, in the international shipping market, it’s very rare to find ships older than 15 to 20 years. Well, not in Jones Act world.
You know, I just mentioned that ship in Nantong is 40 — is built in December 1980, still in service, and Pasha wants to keep it going for years to come, as evidenced by putting in the new engine and whatnot. So, in fact, U.S. shipping policy disincentivizes buying new, modern, more efficient ships.
You know, other countries, they do subsidies to try to make their shipping cheaper. And here, we kind of do the opposite — “Let’s make it artificially more expensive. Let’s force you to pay, you know, five times the world cost for new ships.” And that has obvious consequences for the efficiency and modernization of the fleet.
Kent: Okay, well, that’s the arguments. But I want to talk about collaboration. I mean, is there any room for — we hear, “Repeal the Jones Act. Keep it in place at all costs.” But isn’t there something in the middle? Isn’t there some kind of reform that both sides might be able to work together on? What would you say?
Grabow: Yeah, so I’ll — most times the Jones Act is presented in very binary fashion. Do we keep it? Do we get rid of it? I favor getting rid of it. Because, you know, I see my job is to advocate for the ideal policy that I think we should aim towards.
But, kind of the good news here is there are a whole spectrum of options between full repeal and status quo. We could do things like, right now [in] New England, winter’s coming, they need liquified natural gas. They can’t buy American liquified natural gas. Why not? There are no Jones Act-compliant LNG tankers to ship it.
So, we can ship LNG to China. We can’t send it to New England, we can’t send it to Puerto Rico — parts of our own country — because there are no ships. Why not have a waiver system so you can say, “Hey, there’s no American ship. I want to use the foreign ship.”
So that’s, you know, in the mainland, in Puerto Rico. Here in Hawaii — Hawaii uses propane. United States is the world’s leading exporter of propane. We can’t send it to Hawaii. Why not? There are no ships. No ships capable of transporting liquified petroleum gas. So Hawaii has to buy it from abroad as far away as West Africa. That doesn’t make any sense. That’s not just hurting Hawaiians, that’s not even helping the U.S. maritime industry.
If we’re to allow foreign shipping in that instance, no one loses their job in the U.S. maritime ministry because this is not a service they even offer. It’s not even in shipbuilding. We haven’t built an LNG tanker in this country since 1980. So that’s…
Kent: When it comes to reform, though, so…
Grabow: Yeah, so that’s one kind of reform, I think, you know, that would improve matters. But another reform is, you know, talk about this U.S.-built requirement. This is bad commercially for consumers. We have to pay more for ships, that means higher prices.
Kent: So and just to be clear, I’m sorry.
Grabow: Yeah.
Kent: The ships, the U.S. ships, have to be built in America, they have to be mostly owned by Americans, they have to be mostly crewed by Americans, and they have to fly the American flag. So the reform you’re talking about is just the first plank I mentioned that they have to be built in America.
Grabow: Exactly. Let Americans get access to foreign-built ships at much less cost. My theory is: Cheaper ships means more ships. You make something more expensive, you get less of it. You make it cheaper, you get more of it.
More ships from a national security perspective — the thing the Jones Act is supposed to be about — I think that would be a good thing. It would be one argument if we had this vast shipbuilding base and lots of yards to support our military, but the Jones Act — we don’t.
Again, we’re building, you know, three ships in an average year, you know, in recent years, have been closer to, you know, zero or one. So I think that would be, you know, one logical place to start.
And again, these ships are mostly U.S. — in many ways, these are foreign-built ships already, so it’s not a big departure.
Kent: And if we did that — let’s say we did reform the shipbuilding so that U.S. companies could use foreign ships, foreign-built ships, in the Jones Act trade. What would happen? How would that change the market? How would that benefit us in any way?
Grabow: I think a few things. I think that if you had lower capital costs, it would — you know, we often talk about shipping in this country as purely something that affects the non-contiguous states and territories, and [on] the mainland, we kind of ignore it except for those places that don’t have enough pipelines, they have to rely on Jones Act tankers.
Well, if we had cheaper ships, maybe we could actually unlock some of that shipping. And all the traffic on I-95 that goes, you know, along the East Coast, we could use shipping up and down the East Coast. So I think there are opportunities to be unlocked there.
But also in the non-contiguous states and territories, we get more competition. Something that sometimes goes underappreciated is that actually these shipping companies, they like the U.S.-built requirement. They like the fact that these ships are so expensive. Why? Because it makes it so hard, so much harder to get in the game and to challenge them.
If the going price for a new ship is 300-plus-million-dollars, well, imagine, you know, how difficult that is to start up a new company and challenge the established interests.
When it comes to the airline industry, my understanding is that, you know, you can go out and lease some used planes and fairly relatively easily start up a new airline to challenge people. You can’t do that in Jones Act, in the Jones Act history.
Kent: So do you think then that if the Jones Act were reformed in that way, that we might see — right now we have two major shipping companies, Matson and Pasha. Would we see more?
Grabow: I don’t know if we’d see more, but it would certainly put them on their toes because they would know there’s the possibility of people jumping into the game if they’re overcharging.
Kent: Oh, so you’re saying that even if they didn’t…
Grabow: So I think just even the threat — the threat of competition, I think, would have value, you know, by itself.
Kent: So even if they — even if there wasn’t a foreign entry into the market, we might see prices drop somehow, or?
Grabow: Yes. I think that, again, if there was the prospect of — you know, I believe my understanding, at least, is that Hawaiian Airlines, their prices have dropped since Southwest got in the market.
And, you know, having the threat of other people jumping in, it keeps them on their toes, it forces them to be a bit honest in their pricing and offer people the best value that they can get. So, yeah, I think we would know that at the very least, they weren’t reaping exorbitant profits because, you know, again, the threat of competition.
Kent: Well, I want to move to a Q&A if folks have questions or comments about the Jones Act. Sean Mitsui, our finance director, can come around with a microphone, and you can pose your question.
But before we get to that, I want to ask one more thing that we’ve been wondering about this year is waivers. So in Puerto Rico, there was a hurricane that hit the islands this year, and there was — well, maybe you can tell the story about those waivers, and I’ll ask a follow-up question to that story.
Grabow: Yeah. So in September, Hurricane Fiona hit Puerto Rico, and the electrical power grid went down, and so people turned to generators.
We need diesel to fuel those generators, and there was a company in Puerto Rico that when this happened, they contacted, I think, BP and said, “Can you send us some diesel fuel.”
Well, there was a tanker on its way from Texas to Europe, and it diverted itself to Puerto Rico, full of 300,000 barrels of diesel fuel. Well, it sat there, but it couldn’t offload the diesel fuel because this was not a Jones Act ship.
And so a waiver request was submitted for this, and after some days, it was finally granted.
But this prompted a backlash from Congress, from leading committee members on the transportation committee in the House and Senate, basically saying the waiver process was not properly followed, that to do this, you first have to issue a survey, conduct a survey, to determine if there are American ships that could have done this, and this waiver was granted after the ship already left port.
So, I think, you know, the waiver was granted because the optics here were terrible. You had a ship full of diesel fuel that Puerto Rico wanted and needed and couldn’t offload, so eventually, they granted the waiver. But actually, this morning, I read that Congress is preparing legislation right now to tighten that waiver process and make it more difficult for that to happen again.
Kent: So if, for example, there was a hurricane that was going to hit Hawaii, and let’s say offshore, there was a cargo ship full of toilet paper, right? But it was a foreign ship, right? So would that ship or would we have to contact Congress for that to happen?
Grabow: Yes. I mean, as I read the law, if we’re going to go by the letter of the law, I think it would be incredibly difficult to issue that waiver because waivers are supposed to be for national defense. That’s the standard that has to be met. They said, you know, you can’t just say there’s an economic problem here, people need something. You have to claim it’s for national defense.
And there has to be a system where, first, the ship is in port, they say, “I need to transport this here, it’s for national defense,” you make sure that there are no other American ships available.
So happily, you know, if Hawaii needs toilet paper, and there happens to be a ship sailing by full of toilet paper, to go by the letter of the law, you can’t administer or grant a waiver.
So then it would be — but Congress can do what it wants. So, you know, hopefully, in this instance, Congress would ride to the rescue and enable the good people of Hawaii to get their toilet paper.
Kent: Congress would quickly pass a law.
Grabow: Yes.
Kent: [laughs] I see. But, OK, now pushing back on waivers, though, the proponents of the Jones Act say, “Well, the waivers don’t really help that much. I mean, if Hawaii really needs toilet paper, it can ask Matson, and maybe in a day or two, it could bring it.” Even the ones in Puerto Rico helped marginally, but not that much. So waivers are no big deal.
Grabow: I just think in time of emergency, we need maximum flexibility and maximum options on the table, and the Jones Act takes away options. It makes more — it introduces rigidity into the system, and I don’t think that’s good under any, in most circumstances, but certainly not in an emergency situation. We need all hands on deck and maximum flexibility to effectively respond to a crisis, and the Jones Act just introduces restrictions and limitations on our ability to quickly respond to people’s needs.
Kent: Alright, and make sure to keep that mic close to your lips too. I want to invite anyone to ask questions again if you’d like. Otherwise, I’ve got a whole list of questions. But yeah, go ahead. We’ve got a question right here from Hugh Starr.
Hugh Starr: Thank you very much. Great Q&A — very helpful. I’m curious, I — as I recall, was it representative or Senator Mike Lee…
Kent: Senator, yes.
Starr: From Utah or Wyoming and was very supportive along with [U.S.] Rep. [Ed] Case. It makes me wonder what other stakeholder groups or interest groups in Washington are lobbying for keeping the Jones Act in place that have nothing to do with the issues that the outer territorial states are dealing with.
Grabow: So, the primary supporters of the Jones Act, the people that are in D.C. making the case for keeping this law in place, it’s going to be the shipbuilders, for obvious reasons — you know, the law says we have to buy what they make. It’s the unions — the guys that crew these Jones Act ships, they’re unionized — Masters, Mates & Pilots Union, Marine Engineers’ Beneficial Association, Seafarers International, et cetera, et cetera.
And, of course, there’s the ship operators — Matson, Pasha. They, there are a number of — here’s the dynamic that we face:
I can, off the top of my head, probably list literally like a dozen organizations that one of their top three priorities is maintain the Jones Act, if not number one. In fact, there’s an organization called the American Maritime Partnership; their sole reason for existence is maintaining the Jones Act.
And , on the flip side, I can’t think of a single organization — lobbying group in Washington — that their primary purpose, or a top-three priority, is getting rid of the Jones Act. So, relatively speaking, it’s a small industry, and the losers far outnumber the winners when it comes to the Jones Act.
But it’s the classic case of concentrated benefits and dispersed costs. The people that benefit, they view this as existential. This is the ballgame for them, and they will do everything it takes to keep it in place.
And a lot of people are hurt by it, but it’s an annoyance. I don’t like it, but, you know, is this going to single-handedly drive me out of business? Maybe not.
And so, our politics reflect that. Our policies reflect that. So that’s why I think Mike Lee has been unable to get more support for his position, and same thing with Rep. Case.
Kent: And if there’s any other questions, otherwise, I have a question.
Grabow: Well, one thing I’ll add on to that.
Kent: Yeah. Go ahead.
Grabow: What’s curious is, I think in D.C., I think in the mainland, to the extent people think about the Jones Act, they think, “That’s a Hawaii problem. That’s an Alaska problem.”
And they think the dynamic that happens is that the politicians, the representatives from Hawaii and Alaska, they go to D.C., and they say, “We need to do something about the Jones Act.” Everyone says, “Ah, we don’t care about that.”
But it’s even worse than that because we have two senators from Hawaii that support the Jones Act. They actively cheerlead the Jones Act. Same thing in Alaska. And so it’s a difficult conversation to have in Congress. You say, “Yeah, we should get rid of the Jones Act,” and they say, “I don’t hear Hawaii complaining. I don’t hear Alaska complaining. In fact, they love it. They vote for it.”
Kent: Although the Maui County Council recently passed a resolution to reform the Jones Act, though.
Grabow: Yeah, I do want to give Rep. Case his due. He’s been out there making the case for the Jones Act — no pun intended — but you need more of that.
Kent: Well, I see two questioners over here, yeah.
Lena Staton: My concern would be the standards that a foreign country would use to build their ships. That just for safety reasons, how do we ensure that our ships will be as safe as those that are built on American soil because you get what you pay for, usually, you know, we are taught.
Grabow: That’s a great question. So my response would be, number one, let’s keep in mind that these are already, in many ways, these are foreign ships. They take a foreign design — so, not only the components, but the designs themselves are bought from Korean firms — and they will say, you know, “Here are our designs.” And actually, we usually buy the older designs that they sell us — they don’t sell their latest and greatest — and then we take the components, and we do the assembly work.
What we have are something called classification societies — these are organizations that basically sign off on the ship and say, “Yes, everything is up to speed,” and they evaluate these ships — and you need to do that to get insurance. If you don’t have someone signing off on this ship saying it’s on the up and up, then you’re not going to get insurance, you can’t be in business.
Furthermore, let’s keep in mind that the U.S. Coast Guard has the ability and the right to board these foreign ships and inspect them and make sure that everything is OK.
There’s something called the Paris MOU, memorandum of understanding, and it’s a — it does what, they do a ranking of different flag states. So again, you know, you have American-flagged ships, you know, ships from all over the world with different flags, and they rank them in terms of quality, basically saying, “OK, it roughly corresponds to if we stop the ship, what are the odds we’ll find something wrong?” You know?
And you have, they call — what they call the white list, the gray list and the black list. A couple of years ago, the U.S. flag was on the gray list. Now it’s on the white list. But you who else is on the white list? Like Panama’s on the white list. Some of the biggest, you know, shipping organizations’ flags in the world are on that list, and the U.S. actually is pretty middle lane within that white list — there are a number of countries that are far higher than us.
So, yeah, and then just as far as shipbuilding, you know, they’re all basically built to similar standards. There’s not…
Kent: It’s kind of like when I screw something together for IKEA or something.
Grabow: Yeah, and I’ll just say — and that’s kind of the real injustice, or one of the frustrating things about the Jones Act: We’re paying more and getting less. Or we’re, at least, we’re getting the same. There is no corresponding increase in quality.
In fact, you can make the opposite argument: that US-built ships are worse. We’ve at least in the past found evidence of that, and there’s a good reason for it.
I mentioned before — foreign shipyards. They might build 60 ships in a year, and Americans are building three. Well, who’s getting more experience? Who’s getting more expertise in that scenario? You know, who’s doing more welding and [is] more practiced in that and making sure everything fits together tightly?
Kent: Another question? I see a few, go ahead.
Valerie Lasciak: I’m Valerie Lasciak. I’m concerned because this a duality between the need for high-paying jobs because we have a very, very expensive economy and the desire for people and merchants to want to make more money by using inex—, foreign ships and inexpensive and the lack of expense there. So there seems to be a sort of self-serving lack of concern for Americans with good-paying jobs and the maintenance of that particular level of commerce.
I mean, if we really want to have an America that’s functioning well, then we should be able to afford, and we need to encourage people to pay for that type of living rather than saying, “Well, we’ll give everything to China. We can get this for two cents, this for four cents, that for five cents.”
And then China has the — takes care of everything. Then if anything happens between China and I because we don’t agree, we’re stuck.
Grabow: So, a few thoughts here. Thanks for the question. Number one, when we — well, one reason we need good paying jobs is because everything’s so expensive. Well, why is everything so expensive? Because of laws like this. That’s one thing I’d point out.
Number two: When Americans save money, you know, we don’t burn it. We take those savings, and we spend those on other things that create jobs, create other American jobs. I think the Jones Act is properly thought of — it’s a tax on domestic commerce. It’s a tax on Americans doing business with other Americans. And that’s not good for jobs.
You know, I used the example earlier of New England; they have to buy foreign LNG even though we’re the world’s leading exporters of it.
A few years ago, they imported natural gas — most of it comes from Trinidad and Tobago, but they bought it from Russia.
Puerto Rico earlier this year bought natural gas from Oman, halfway around the world.
The Jones Act makes it more difficult to buy American products. How can that be good for jobs?
I look at this as something that would unlock domestic supply chains and make it easier for Americans to trade and do business with each other. Right now, the Jones Act is kind of putting its thumb on the scale, saying, “No, buy the imported product instead of the American product.”
Now, I am not against imports whatsoever. I think imports play a valuable role in our economy, and they save us money, they contribute to our well-being. But just from an efficiency perspective, why is the government doing this? Why should we put, you know, Americans on the back foot when it comes to trade?
We’ve seen examples — I think maybe I was talking with you [gestures to Kent] or someone else about this last night. American lumber companies that want to ship lumber to the rest of the country, well they’re getting run over by their Canadians who get access. They get international shipping when they send to the U.S., whereas American firms have [to use] Jones Act shipping, so they’re losing market share to foreigners.
So I think you get the point. I think this is, ultimately, a tax on American jobs, and I don’t think we make ourselves more prosperous by making things cost more.
Kent: Do you think that there would be more American jobs if the Jones Act were repealed or reformed?
Grabow: So, you know…
Kent: It’s hard to say, you know, but yeah…
Grabow: Economists, you know, we also like to talk in — so basically, bottom line, how many jobs does this create or lose or something like that. And the reality is when it comes to trade, it’s not as much about job creation, it’s the quality of the jobs.
What we find with trade is freer trade — in this case, you know, opening up to shipping services — it leads to better jobs. Because we say, “OK,” for example, “China, you guys go assemble the iPhones, and what we do is we design the iPhones.”
The higher — you know, who makes more money? The guy stitching that iPhone together, or the person that’s writing software that makes that iPhone work? Well, that’s the kind of jobs we have here in the U.S., and they have the assembly jobs over there in China, and that’s what we find.
You know, they take the lower value add, we move up the value chain, and we get better jobs through trade.
Kent: That’s interesting. Oh, I think I saw another question over here.
Audience member: Yes. Is there an actual percentage figure number of how much more we pay being in Hawaii because of the Jones Act?
Kent: I know that UH [University of Hawaii] has come up with a figure of, I believe it was 1% of the economy. And now how do you, you know, whittle that down to like a price of milk or something? How many cents does that add to a price of milk?
We tried to slice that out in our economic study, but it’s, you know, it’s kind of like we treat [the] Jones Act as if it were a tax and then try to calculate how much that tax would be. So, you know, in some cases [it’s] a few pennies, but those pennies add up to a big cost at the end of the day. So, if you’d like to see that study, you can go to our website at grassrootinstitute.org.
Any other question? Yeah, there’s another question over here. Way, way over here, yeah. [chuckles]
Edith Pendleton: Thank you. My takeaway from this is that there seems to be a monopoly, you know, when you think of Matson. I hate to use labels. So do you think or would you agree that there is such a monopoly that’s existed?
Grabow: There’s a duopoly because there’s Pasha, so there’s two, but that’s not a lot [chuckles]. So, we can — safe to say, there’s very limited competition. Yeah, I think it’s safe to say, describe the Hawaii trade as a duopoly, and we find that all over the place.
[In] Alaska, it’s Matson and TOTE. Going to Puerto Rico, there are two companies that have, I think, 85% of the market. So this is something, a recurring theme we find in Jones Act markets.
So, you know, my favored approach is repeal the Jones Act and basically, you know, throw open the doors and say, “Any shipping company from anywhere, you can serve the market.”
Or, you know, as we mentioned earlier, one poss— another possibility would be allow Americans [to] get access to foreign-built ships at much cheaper prices, and if they could do that, it would be easier to start up a competitor and enter the market with — you could even, not even buy a new ship, you could go charter a used ship from the international market at even lower cost and try to challenge.
Kent: OK, but there’s something about that that sounds a bit scary, I guess I should say. You know, a lot of people in Hawaii work for Matson, and that sounds scary to them. And also, Matson is a reliable friend of Hawaii, you might say, and if international companies came in, even if they compete with Matson — let’s say they competed so well that they kick Matson out.
Well, now we have international companies doing our domestic trade, and they may be fair weather friends. Let’s say the market drops and suddenly it’s not so profitable to service the Hawaii market. Well, off they go, and now we don’t have shipping. So, you know, that’s a strong argument, I guess, against your position.
Grabow: You know, I buy a lot of my food from only two stores — Jaya and Whole Foods — and if they were to go out of business, would I not be able to buy food anymore, you know? No, of course not because someone else would step in that market and want to serve it.
Hawaii is a market. Shipping is notorious for how competitive it is and the low margins you typically find in this business, and if Matson or others went out of business, absolutely others would step in to fill the gap.
And, you know, this isn’t theoretical. We see this over and over in any number of industries. When one person exits, someone else enters. If there’s money to be made, people will rise to the occasion.
Also point out, it’s useful to keep in mind that [the] U.S. Virgin Islands, they are exempt from the Jones Act. American Samoa is exempt from the Jones Act. Do they have problems with shipping reliability? Not that I’ve ever heard of.
In fact, in the 1970s, I believe, there was an effort to subject the U.S. Virgin Islands to the Jones Act, and they fought it. They said, “No way. We don’t want any part of that.” And I think it’s very instructive that the parts of the country that don’t deal with the Jones Act have never indicated any interest in being subjected to it.
Kent: And so what about an exemption for Hawaii or Guam or, yeah?
Grabow: Absolutely. I think this would be another reform to start and just say, OK, the U.S. mainland, for example, the contiguous 48 states, well, we have options, right? We don’t, I don’t have to use a Jones Act ship, I can find ways around it. [For] Hawaii, it’s a different story. And those parts of the country that don’t have alternative transportation options, it’s worth granting exemptions to them.
Kent: So do you think that Hawaii pays disproportionately, then, for the Jones Act? And, yeah …
Grabow: We know this. We know this. I mentioned earlier, there are 93 Jones Act ships. I believe something — every single container ship in the Jones Act fleet, I want to say there’s a neighborhood of 30 of them, they are 100% deployed in the noncontiguous trades, right?
There is no Jones Act container ship that runs up and down, again, the East Coast or the Gulf Coast. There’s one ship that goes from Texas to Florida, and then on to Puerto Rico. But without the noncontiguous trades, we basically wouldn’t have Jones Act container ships. So we know that these parts of the country are funding those ships. They wouldn’t exist without the Jones Act, so we know they’re paying for it.
Kent: So shouldn’t they pay us, then? I mean, like, what if we taxed other states to pay for the cost that Hawaii has to pay for the Jones Act? I mean, is that… [chuckles]
Grabow: Yeah, I mean, you could do that. It would just be — at least that would bring the costs out in the open…
Kent: Not that I’m for taxes, by the way, but…
Grabow: No, no, it’s not something we’re advocating, but, you know, at least if we saw that the rest of the country had to compensate Hawaii and the rest, we would see — there is a dollar number assigned to the Jones Act, and we say “This is the extra cost.”
Because right now, we’re kind of fumbling in the dark. You know, one point I like to make is, I think to have good policy, you need a sense of costs and benefits. And you weigh those against each other and you can say, “Yeah, that makes sense” or “No, that doesn’t make sense.” Well, how do we do that with the Jones Act? Now how much does it cost?
I mean, you guys put out a report, that’s great. But admittedly, you know, it’s a report, and it’s not the last word on the topic. So we’re kind of of guessing or you’re taking stabs at what the costs are, and what are the benefits? Are we going to argue that absent the Jones there would be zero U.S. ships, zero mariners, zero shipbuilding?
So I just think we need to make these costs transparent and bring it out in the open or we’re kind of having this debate without all the facts, and that’s frustrating.
Edith Pendleton: So, my final question is: Would you think that component manufacturing — which is globally, not just trend, but it’s the modality — do you think it will open up shipbuilding as an industry in the U.S. if we reform the Jones Act?
Grabow: I think shipbuilding in this country would look, it would definitely look different.
It’s a complicated question, because if you took away [the] Jones Act, number one: What’s driving shipbuilding in this country, it’s actually not even the Jones Act, it’s military shipbuilding. It’s building goods, vessels for the Navy and the Coast Guard.
Kent: And that’s protected by the Buy American Act?
Grabow: By the Bur— something called the Burns-Tollefson Amendment. And, yeah, I think there was a government report that came out last year that said that’s like 79% of the shipbuilding revenue is from military contracts. So, you know, it’s possible that they would just focus on that and say, “You know what? This is my bread and butter anyway.”
And right now these U.S. shipyards, they build the occasional Jones Act ships. A lot of the biggest U.S. shipyards built nothing for the Jones Act. Newport News, they build, you know, aircraft carriers. They haven’t built a commercial ship, I think, since the 1990s. Bath Iron Works, they haven’t built — another major shipyard — they haven’t built a commercial vessel in decades.
In fact, there are zero U.S. shipyards that build combatant vessels for the Navy that also build commercial ships, so we see a very little overlap.
I think that there would be a lot of focus on military, but also I think that they would focus maybe on more specialized vessels, smaller vessels. This is what we see in Europe. They don’t build big ships like they do in Asia. They tend to focus on things like dredging vessels or icebreakers or high-end shipping vessels or vessels [to] service the offshore oil industry — things like that — kind of specialized high-end vessels, and I think maybe that’s an analog for where the U.S. might go.
I just think that we are the world’s most advanced economy. I think Americans are incredibly ingenious, inventive and competitive people. And I just reject the notion that absent the Jones Act, Americans will kind of throw up their hands and go, “We have nothing to offer this industry” and walk away.
Kent: OK, well, I want to wrap up. We’ll have time for one more question back here. And, but basically, I wanted to ask what the future — I want to ask, what is the future that you project for the Jones Act? Is it here to stay forever and ever, or do you think there is an inkling of an opportunity for reform or change?
Grabow: I’ll give you the optimistic case for reform or change, and that’s that the Jones Act is becoming, as time goes on, is becoming more and more divorced from its goals. Shipbuiding costs continue to escalate. The competitiveness of the U.S. fleet continues to fall. The size of the U.S. fleet continues to fall. Shipbuilding numbers are falling.
By any reasonable metric, it’s failing. And the costs, I think, are getting higher and higher. And we’re getting into these absurd situations like New England might freeze this winter in part because they can’t get access to American energy because they lack access to efficient shipping. So I think the costs are becoming more apparent. It’s becoming harder to defend.
And we’re seeing more people wake up to this. In Congress, you know, we mentioned [Sen.] Mike Lee. We saw in, I think, September, eight members of Congress from the Left after the hurricane hit Puerto Rico call for a one-year waiver of the Jones Act for Puerto Rico, including AOC [Alexandria Ocasio-Cortez], you know, for example.
We see Rep. [Ed] Case, we see Rep. Perry of Pennsylvania — he introduced a bill earlier this year that would suspend or exempt LNG shipments from the Jones Act. Sen. [Ted] Cruz of Texas also introduced legislation to exempt it. So we’re seeing more and more voices.
If you look in the media, you know, this year, I saw there was a New York Times column entirely devoted to the Jones Act and the cost of it. Business Insider had a 1,500-word piece. They reach out to me to write all about the Jones Act. We’re seeing, I think, more and more appetite and interest in this topic, so that’s, I think, the case for optimism.
Kent: Alright, so and one last question here. I think it was right back there. Yeah? Yeah.
Audience member: As I understand it, the Jones Act is supposed to protect American labor, basically, and without that, how much of American labor would be lost?
Grabow: So, if we want to make the assumption that absent the Jones Act, everyone working on an American ship loses their job, let’s just use that as a hypothetical. Last I checked, there are around — mariners employed on oceangoing ships, those 93 ships I mentioned — a few years ago, the number, there were about 3,400 Americans that worked on these ships, and that’s back when there were 99 ships in the fleet.
So I would assume the number is somewhere in the neighborhood of 3,000 Americans that work on these ships. And my attitude is if we want to employ them, we think that’s a valuable thing, then we should subsidize them and put them, make the cost transparent. You know, I mentioned the maritime security program earlier. If we think this is a profession that is needed, we need Americans that we can rely on, then let’s subsidize them and put these costs out in the open.
Kent: And for shipbuilding?
Grabow: Shipbuilding, the, is difficult because we have the entire shipbuilding industry. I want to say last I checked, 110,000 jobs, but again, the vast majority of those, it’s defense — it’s not commercial.
And then you take that roughly 20% of the revenues derived from the commercial side. Well, a lot of that is like barges and tugboats and smaller vessels. I think certainly on the barge side, actually, Americans are reasonably competitive because they build hundreds of them per year. They have scale, and also then you have to factor in transport costs of moving, say, a barge from China to the U.S.
So the numbers — well, I’ll put it like this: The Jones Act lobby, they released a report several years ago. They claimed that the Jones Act creates 650,000 jobs, and they never explained how they got there. And one day I was on the Ship[builders] Council of America’s website, poking around as one does, and I found they [were] having an upcoming meeting, and they had meeting materials, and I downloaded them.
I started looking through it, and they had the executive summary of this report where they justified the 650,000, and they say there are actually, according to their own numbers, there are about 95,000 people that are directly employed in the Jones Act. This is shipbuilding, this is mariners, these are people that work for the shipping companies — altogether. So 95,000 total using their own numbers. So I assume that’s an upper bound, we can assume. You know, it’s not going to be higher than that.
And, you know, that’s a big number. You know, in a Hawaii context and in the context of the United States — 330 million people — it’s a small number. And I think, of course, any discussion of those numbers has to be weighed against how many jobs are we losing because of the Jones Act? How many jobs would exist without this law? You know, how many more jobs in the energy industry, for example?
Kent: But some of the — and some of those jobs might not be lost, too, as you mentioned in the…
Grabow: Right. You know, we’re talking worst case — I don’t think that, you know, we go from 95,000 maritime jobs to zero. That makes no sense to me. Because the vast majority of jobs aren’t even exposed to foreign competition.
You know, guys that work on the Mississippi River — you know, we’re not going to have no Jones Act foreigners going up and down the Mississippi. Because there’s still things like U.S. tax laws, U.S. immigration laws that they are all subject to.
Kent: Alright. Well, thanks so much for listening to this very wonky — admittedly — topic, but let’s give Colin a round of applause. Thank you.
[applause]
And now you are all bonafide wonks on the Jones Act, so. Now you can give this. Thanks so much for coming. Again, I’m Joe Kent, executive vice president of the Grassroots Institute. If you’d like to learn more about us, you can talk to Sean Mitsui there. Thanks so much and aloha.