New Maritime Report Marked by Factual Errors and Dubious Claims

by Colin Grabow, Cato Foundation, February 28, 2020

The Center for Strategic and Budgetary Assessments recently released a report on the U.S. maritime sector that has garnered considerable praise from the Jones Act lobby. That’s no surprise. Entitled Strengthening the U.S. Defense Maritime Industrial Base, the report explicitly calls for the Jones Act’s retention. Overlooked amidst the plaudits, however, are factual errors and dubious assertions that call its endorsement of the law into question. This blog post will lay some of these out.

Factual errors

The report includes a number of factual errors. In this section, I note these incorrect claims and provide a fact check.

Claim: “Of these 40,000 vessels [in the Jones Act fleet], about 8,000 are unpowered barges.”

Fact check: The source cited for this claim, the Maritime Administration’s Consolidated Fleet Summary and Change List, does not mention the word “barges” nor features the number 8,000. In fact, the number of Jones Act vessels accounted for by barges is far higher. A 2017 Congressional Research Service (CRS) report notes that 22,000 barges operate on the Mississippi River alone while the industry group representing U.S. barge operators, the American Waterways Operators, places the number of barges at over 31,000 (with another 5,500 tugboats and towboats). This is important because it illustrates that barges, rather than comprising 20 percent of Jones Act vessels, are responsible for 77 percent of this number.

Claim: “Containers, dry cargoes, and petroleum products are often carried across the United States by ship because it is usually cheaper than the transportation and handling needed to move material by truck or train car.”

Fact check: Waterborne container transport is almost non‐​existent among the 48 contiguous states. Every Jones Act‐​eligible containership serves the noncontiguous states and territories where alternative forms of transport such as truck and rail are not available. This lack of competitiveness against alternative forms of transport belies the report’s claim that it is usually cheaper than truck or train car.

Claim: “Today, the U.S.-flagged international fleet comprises 87 ocean‐​going vessels.”

Fact check: The source that is cited does not contain the number 87 and does not appear to break down the U.S. merchant fleet by ships operating in international versus domestic trades. According to the U.S. Maritime Administration, the number of ships exclusively operating in international trades as of January stood at 86.

Claim: “During Operation Desert Storm, in which the United States relied heavily on chartering foreign vessels, the crews of 13 foreign‐​flagged ships refused to go into a war zone and deliver their cargo.”

Fact check: As the U.S. Transportation Command’s history of that conflict points out, most of these 13 ships hesitated but ultimately did enter the war zone and delivered their cargo. Only four ships did not: two feeder vessels as well as the Qatari‐​flagged Trident Dusk (which ended its journey in Oman) and the Banglar Mamata, which saw its crew jump ship in Oakland before its voyage began (and, as a result, the Military Sealift Command canceled its contract with the ship’s operator).

Questionable assertions

In addition to factual errors, the report also makes a number of assertions that lack needed context or rest upon dubious logic. In this section, I present them along with a counterpoint.

Assertion: Around the time of the U.S. Civil War, “Great Britain strengthened its dominance of commercial shipping, aided by U.S. ships that joined its registry and the British government’s establishment of subsidies for the construction and operation of ships using new technologies such as steam propulsion.”

Counterpoint: This is, at best, incomplete. In 1849 Great Britain repealed protectionist laws knows as the Navigation Acts, which—like the Jones Act today—prohibited the use of foreign‐​built ships. Once these laws were removed the sector boomed. As a Library of Congress report points out, “In just over a decade [after the Navigation Acts’ repeal], there was a 52.5% increase in tonnage owned, and the yearly average of British tonnage which entered and cleared from British ports increased by 102.7%.” That the Navigation Acts’ repeal, arguably the most consequential change in British maritime policy of the 19th century, went unmentioned in explaining Britain’s rising fortunes at the time is a notable omission.

Assertion: “Due to improving efficiency and competitive pressures, the number of large ships in both [the Jones Act and international] fleets declined during past three decades.”

Counterpoint: Context here is important. It is true that ships have seen tremendous efficiency gains that enable more goods to be carried by fewer vessels. Yet the Jones Act fleet has not only been declining for decades in terms of ship numbers, but also deadweight tonnage (how much the ships can carry). Even as the U.S. economy and population have experienced considerable growth over the past 50 years, the Jones Act fleet’s deadweight tonnage is slightly less than what it was in 1970.

“Competitive pressures” perhaps offers more explanatory power here, with Jones Act ships operating in coastal waters of the U.S. mainland forced to compete with alternative forms of transport such as pipelines, trucks, and rail. Unmentioned by the report, however, is that the competitiveness of these ships is undermined by the Jones Act’s mandate that these vessels be U.S.-built—a provision that makes these ships up to five times more expensive than on the international market. In other words, this lack of competitiveness is at least partly due to the very law which the report advocates for.

Assertion: “The Jones Act’s requirements also apply to shipping between the contiguous United States and overseas territories and states, including Alaska, Hawaii, and Puerto Rico. Mandating that commercial ships moving between these areas be U.S.-flagged lessens the ability of adversaries to interfere with the integrity of states’ and territories’ commercial links to [the Continental United States (CONUS)]. It guards against the ability of China—with the world’s largest merchant marine and global port management system—to take over shipping to U.S. territories and gain local influence during peacetime, only to threaten or deny shipping to CONUS during a crisis or conflict.”

Counterpoint: It is unclear why concerns about China should be used to justify the Jones Act’s blanket ban on ships from all countries—including those the United States has defense treaties with—from transporting goods between the noncontiguous states and territories and the U.S. mainland. If China is the problem then the logical solution is to grant Jones Act exemptions for U.S. defense allies based on national security concerns. Furthermore, the idea that the Jones Act prevents foreign control of the shipping to the noncontiguous states and territories is wishful thinking. In fact, the truth is closer to the opposite. Faced with the high cost of Jones Act transport to and from the U.S. mainland, the noncontiguous states and territories often instead purchase products from other countries where Jones Act restrictions do not apply. As a CRS report points out:

Comparing waterborne shipping volumes between 1960 and today, one finds that shipments received from the contiguous United States have increased only slightly, while shipments received from foreign sources have increased tremendously. Hawaii and Puerto Rico now receive more cargo from foreign countries than they do from the U.S. mainland. Hawaii and Puerto Rico now receive more cargo from foreign countries than they do from the U.S. mainland.

In some cases, the Jones Act makes it outright impossible for these areas of the country to buy products from the U.S. mainland. For example, the complete lack of LNG carriers in the Jones Act fleet means that Puerto Rico cannot purchase natural gas from the U.S. mainland. Instead, it must be purchased from abroad. Rather than, in the Jones Act’s absence, foreign ships transporting U.S. LNG to Puerto Rico, foreign ships are currently transporting foreign LNG to Puerto Rico. This hardly seems to be a policy improvement for anyone concerned about foreign influence over outlying parts of the United States.

Assertion: “The requirement that ships in the domestic fleet be U.S.-flagged and operated by crews of U.S. citizens or permanent residents reduces the likelihood foreign ships and mariners will illegally gain access to America’s inland waterways and associated infrastructure. Although geography limits how far inland large foreign‐​flagged ships would be able to travel, without the Jones Act’s requirements, foreign companies could buy domestic carriers that operate smaller vessels and barges that ply U.S. rivers and intercoastal waterways.”

Counterpoint: As CSBA’s report itself notes, access to U.S. internal waters by foreign‐​flagged ships is limited not by the Jones Act, but rather geographic realities. No oceangoing, deep draft ship is going to steam up the Mississippi to St. Louis in the Jones Act’s absence. It’s not physically possible. So then the objection seems to be that foreign companies could purchase U.S. subsidiaries that own tugboats and barges operating on the country’s rivers (although why this should be regarded as a concern is never explicitly stated).

It worth noting that such investment would almost certainly be subject to the CFIUS (Committee on Foreign Investment in the United States) process designed to identify potential national security red flags. In addition, foreign ownership of important parts of the U.S. maritime industry is nothing new. A number of prominent U.S. shipyards have foreign ownership such as Philly Shipyard (Norway), VT Halter (Singapore), Keppel AmFELS (Singapore), Austal USA (Australia), and Fincantieri Bay (Italy). Why foreign companies should (correctly) be allowed to own U.S. shipyards yet prohibited from owning the vessels produced at these yards, particularly those that operate on the country’s internal waters, is unclear.

Assertion: “[U.S.] waterways are maintained by dredgers and salvage operators…that keep clear more than 400 ports and 25,000 miles of navigation channels throughout the United States. A domestic dredging industry prevents the United States from depending on foreign companies to dredge its dozens of naval facilities, potentially opening up opportunities for sabotage or the depositing of underwater surveillance equipment.”

Counterpoint: The United States, via both the Jones Act and Dredge Act of 1906, is one of the few countries in the world that bans foreign dredge operators from offering their services. As a result, U.S. ports and waterways in need of dredging must choose from U.S. dredging companies that are both small in number and limited in their capabilities. For example, the largest hopper dredger in the U.S. fleet is the Ellis Island, with a capacity of 11,315 cubic meters. Meanwhile, a single Belgian dredging firm, Jan de Nul, offers nine such dredges with larger capacities (and a tenth scheduled for delivery this year). The upshot of being beholden to a small, limited U.S. fleet is higher dredging costs. In other words, the Jones Act and Dredge Act make it more difficult to maintain critical maritime infrastructure.

This is seemingly justified by the possibility of foreign companies engaging in sabotage and surveillance of U.S. naval facilities without these laws. But no evidence is presented to document the scale and significance of this alleged threat. More importantly, if this truly is a threat, why should protectionist laws be viewed as the optimal means of counteracting them? Would it not simply be more efficient to assign dredging work in military installations to a U.S. government agency (such as the U.S. Army Corps of Engineers) while allowing foreign dredgers to bid on civilian projects? This unwillingness to wrestle with trade‐​offs and the costs involved in the adoption of certain policies is one of the report’s unfortunate recurring themes. Indeed, the costs of many policies the report endorses are not even acknowledged.

The Big Picture

In its conclusion the CSBA report states, quite accurately, that the U.S. maritime industry, “is on a path toward continued decline, promising deleterious impacts on U.S. economic prosperity and national security.” This would suggest that a marked departure from current policy is in order. Yet the report recommends that the Jones Act, a longstanding cornerstone of U.S. maritime policy, be retained. But the law has contributed to the very maritime downfall that the report bemoans. The Jones Act, and in particular its domestic build requirement which forces U.S. carriers to pay many multiples the world price for the ships they operate, has proven to be as failed in practice as it is in theory. U.S. commercial shipyards, rather than rising to new heights on the back of this subsidy, are mired in a long‐​term slump reflective of their technological inferiority and inefficiency.

What the maritime industry is crying out for is a rethink of old policies. What this report gives, at least so far as the Jones Act is concerned, is more of the same. So long as the choice is made to embrace protectionism instead of competition the U.S. maritime decline will continue.