How might the Jones Act be altered to make US shipping competitive?

by Donald B. Frost

This 1920 law has been controversial since its passage. The territory of Alaska recognized how it hindered its economic development in 1922. It appealed to the Supreme Court to change the law by invoking the Commerce Clause of the U.S. Constitution which deals with commerce between the states. The Court refused to hear the case on the basis that Alaska was not then a state.

Today the most vocal entities seeking change are the non-contiguous states and territories (i.e. – those states and territories that do not actually touch the continental 48 states) of the United States – Alaska, Hawaii, Puerto Rico, the U.S. Virgin Islands, and the Pacific Territories. They do not have transportation alternatives (highway and rail) that the mainland states have to compete with water borne transport. They have two alternatives:

• Pay the high freight needed to defray the cost of protecting shipyards. This makes their exports to the mainland less competitive than imports from other nations, or passes on the added freight to the consumers on the mainland. In a hyper competitive global economy the default goes to imports meaning loss of jobs for the non contiguous economy and further balance of trade deficits for the nation as a whole.
• Import everything from foreign countries and/or export only to foreign countries. This means exporting manufacturing and process industry jobs to other nations that could be in the U.S.

In both cases manufacturing jobs are lost by building uncompetitively priced ships here. Cheaper ships mean more ships in operation which create more U.S. seafarer and ship repair jobs and improve service to the shippers.

Waivers:

Waivers that allow the use of foreign flag ships have been granted in times of national emergencies.

Exemptions:

• The U.S. Virgin Islands are exempt from US maritime cabotage laws. That exemption was part of an agreement made during World War I when the U.S. purchased the U.S. Virgin Islands from Denmark.
• American Samoa is also exempt as a result of the so-called Tripartite Convention of 1899 between the United States, United Kingdom and Germany. The Commonwealth of Northern Mariana Islands is exempt through the compact that provided for its annexation by the United States.
• Guam, Midway Island and Wake Island are also exempt from the U.S.-build requirement of the Jones Act.

The economies of Hawaii, Alaska and Puerto Rico are the most vulnerable. These states are seeking an exemption that would apply only to ships over one thousand gross tons. The reason for this is that the cost of building what are known as major ships in the United States is now well documented to be five times higher than in South Korea or Japan. The exemption they are seeking would allow foreign-built vessels that have been registered in the United States, fly the American flag, have U.S. owners and are manned by U.S. crews to carry cargoes between the contiguous United States and the noncontiguous jurisdictions.

This exemption is essentially the same as U.S. aviation cabotage rules that allow use of foreign-manufactured aircraft in any domestic trade in the United States, for example European built Airbus and Brazilian built Embraer.

With competition technological and environmental improvements are implemented far faster than building ships in the U.S. that depend solely on being able to finance them over 25 years.

The only impediment to change is the will of the people and its nationally elected officials. In Hawaii and Puerto Rico the people and local governing bodies’ calls for change are being ignored in Washington. As documented in the old Journal of Commerce 20 years ago, those special interests have a lot of money to spend on influencing and/or delaying votes that benefit the nation as a whole. Without competition, that money comes from those who have no choice – the taxpayers.

We have ample evidence in our crumbling transportation infrastructure that delay is not an option any longer.

---30---

Originally published in the Connecticut Maritime Association July, 2014 newsletter.  Republished by permission of author.

Donald B. Frost is:  A USCG licensed deck officer (Second Mate) with decades of commercial experience with ship owners, shippers and merchant traders. A logistics planner and consultant covering all surface modes of transport and bulk materials handling systems. A maritime arbitrator and expert witness in charter party disputes. An industry analyst and journalist.