72640 (Author at Cato Institute) https://www.cato.org/ en U.S. Ferry Systems Soaked by Maritime Protectionism https://www.cato.org/blog/ferry-systems-soaked-maritime-protectionism Colin Grabow <div data-embed-button="image" data-entity-embed-display="view_mode:media.blog_post" data-entity-type="media" data-entity-uuid="e3022cb4-ed8e-4ff8-b1e7-3275a931372c" class="align-center embedded-entity" data-langcode="en"> <p><img srcset="/sites/cato.org/files/styles/pubs/public/2020-01/washington%20state%20ferries.jpg?itok=CwMQTZNt 1x, /sites/cato.org/files/styles/pubs_2x/public/2020-01/washington%20state%20ferries.jpg?itok=ttjwCH2K 1.5x" width="700" height="467" src="https://www.cato.org/sites/cato.org/files/styles/pubs/public/2020-01/washington%20state%20ferries.jpg?itok=CwMQTZNt" alt="Washington State Ferries" typeof="Image" class="component-image" /></p></div> <p><span>Some of the country’s leading ferry systems are facing an increasingly precarious outlook. In Alaska, <a href="https://www.adn.com/politics/2020/01/18/gov-dunleavy-orders-panel-to-recommend-alaska-ferries-future/">questions</a> loom over the state‐​run ferry system’s future after the governor and legislature last year endorsed <a href="https://www.juneauempire.com/news/deep-ferry-cuts-on-verge-of-going-through/">paring</a> <a href="https://www.alaskapublic.org/2019/08/20/dunleavy-vetoes-ferry-funding-added-by-the-legislature-in-the-wake-of-cuts/">back</a> massive subsidies needed to keep it afloat. In Washington state, meanwhile, a spokesman for Washington State Ferries (WSF) last March <a href="https://www.seattletimes.com/seattle-news/as-ferry-system-is-hanging-by-a-thread-lawmakers-debate-transportation-budgets-to-fund-new-boats/">described</a> the ferry system — plagued by old vessels and a numerically insufficient fleet — as “hanging by a thread.” Users of the government‐​operated ferries <a href="https://komonews.com/news/local/double-whammy-state-ferry-fares-go-up-then-go-up-again">were hit</a> with a fare increase in October and will face another this May.</span></p> <p><span><span><span><span><span><span><span><span><span><span><span><span><span><span><span><span>These struggles can be at least partially explained by protectionist U.S. maritime laws. Ferries transporting vehicles — which is most such vessels in Alaska and Washington — are subject to the 1920 <a href="https://cato.org/jonesact">Jones Act</a>, while those transporting people fall under the Passenger Vessel Services Act of 1886. Both laws mandate that vessels engaged in domestic transport be U.S.-built.</span></span></span></span></span></span></span></span></span></span></span></span></span></span></span></span></p> <p><span><span><span><span><span><span><span><span><span><span><span><span><span><span><span><span>Politicians in Olympia, meanwhile, have worsened matters by mandating that WSF vessels not only be U.S.-built but constructed in Washington state. Not coincidentally, the Washington State Institute for Public Policy <a href="http://www.wsipp.wa.gov/ReportFile/1649/Wsipp_Washington-State-Ferry-Vessel-Procurement_Report.pdf">points out</a> that the state has “received only one to two bids on all new ferries constructed in the last 30 years.” That may be a windfall for Vigor Industrial’s <a href="https://vigor.net/facilities/seattle">Seattle shipyard</a> that has won most of these contracts, but it’s a kick in the teeth to everyone else.</span></span></span></span></span></span></span></span></span></span></span></span></span></span></span></span></p> <p><span><span><span><span><span><span><span><span><span><span><span><span><span><span><span><span>Forcing vessels to be purchased from coddled and uncompetitive U.S. shipyards means unnecessarily higher prices. Indeed, a <a href="https://hidot.hawaii.gov/wp-content/uploads/2018/01/DOT-Feasibility-Study-on-Inter-Island-and-Intra-Island-Ferry-Systems-December-2017.pdf">2017 study</a> by the Hawaii Department of Transportation into the feasibility of establishing a ferry system noted that the cost of vessel construction in the United States can be “significantly larger” than those built abroad.</span></span></span></span></span></span></span></span></span></span></span></span></span></span></span></span></p> <p><span>Hawaii would certainly know.</span></p> <p><span><span><span><span><span><span><span><span><span><span><span><span><span><span><span>In 2004 a company called Hawaii Superferry signed <a href="https://www.marinelink.com/news/contract-hawaii-austal323827">a contract</a> with Australia‐​headquartered Austal to build two catamaran ferries at its Alabama shipyard for <a href="http://www.professionalmariner.com/April-2012/Two-former-Hawaii-Superferry-catamarans-added-to-Navy-fleet/">$178 million</a>, or $89 million each ($123 million in 2019 dollars). In comparison, Austal announced last year that it was building a new catamaran ferry at one of its non‑U.S. shipyards for </span></span></span></span></span></span></span></span></span></span></span></span></span></span></span><a href="https://www.austal.com/news/new-115-metre-high-speed-catamaran-molslinjen-largest-ferry-be-built-austal">€</a><span><span><span><span><span><span><span><span><span><span><span><span><span><span><span><a href="https://www.austal.com/news/new-115-metre-high-speed-catamaran-molslinjen-largest-ferry-be-built-austal">83.65 million</a> or approximately $93 million. That’s tens of millions of dollars less for a vessel with <em>twice the passenger and vehicle capacity</em>. </span></span></span></span></span></span></span></span></span></span></span></span></span></span></span></p> <p><span>Another Austal ferry with a similar capacity as the Hawaii Superferry vessels, the <em><a href="https://www.austal.com/ships/spirit-ontario-tanger-jet-ii-dolphin-jet">Spirit of Ontario<span>,</span></a></em> was delivered in 2004 for <a href="https://www.nytimes.com/2004/10/26/nyregion/from-the-first-rochester-ferry-was-burdened-by-failings-in-fine.html">$42 million</a>, or roughly half the cost of the U.S.-built ferries. </span></p> <p><span><span><span><span><span><span><span><span><span><span><span><span><span><span><span><span>That local build requirements result in higher costs cannot be disputed. That, after all, is the entire point of such laws. If U.S. or Washington shipyards were able to compete on price then such measures would not exist.</span></span></span></span></span></span></span></span></span></span></span></span></span></span></span></span></p> <p><span><span><span><span><span><span><span><span><span><span><span><span><span><span><span><span>Maritime protectionism’s toll, however, does not stop with more expensive vessels. Faced with eye‐​popping acquisition costs, ferry systems often employ existing vessels well past their normal lifespan (WSF did not retire its 1927‐​built Steel Electric‐​class vessels until 2007, a full <em>eighty years </em>after they were built when their hand was suddenly forced by <a href="http://www.professionalmariner.com/December-January-2008/80-year-old-Puget-Sound-ferries-forced-out-of-service-by-cracks-in-their-hulls/">recurring cracks</a> in the hulls). An aging fleet, in turn, leads to higher maintenance expenditures as the vessels inevitably degrade. As a <a href="https://www.wsdot.wa.gov/ferries/assets/WSF2019AlternateServicePlan.pdf">2019 report</a> from the Washington Department of Transportation notes:</span></span></span></span></span></span></span></span></span></span></span></span></span></span></span></span></p> <blockquote><p><span><span><span><em>The </em>[WSF]<em> fleet has an average age of 29 years. Twelve of our remaining 22 ferries are more than 30 years old. Of those, four are at least 50 years old. This aging fleet requires more maintenance to deal with problems such as steel corrosion, replacing or repairing obsolete equipment, and preservation projects that have been deferred, leading to a higher risk of vessel breakdown.</em></span></span></span></p> </blockquote> <p><span><span><span><span><span><span><span><span><span><span><span><span><span><span><span><span>A 45‐​year‐​old ferry in the Alaska Marine Highway System, the <em>LeConte</em>, offers a recent example. Sent for an overhaul last October, workers discovered <a href="https://www.alaskapublic.org/2019/11/22/alaska-dot-leconte-ferry-repairs-to-take-six-months-fate-of-sister-ship-aurora-unclear/">$4 million</a> in additional work that had to be performed. A 56‐​year‐​old ferry undergoing service around the same time, the <em>Malaspina</em>, rang up a <a href="https://www.alaskapublic.org/2019/10/24/facing-a-16-million-repair-bill-state-to-pull-malaspina-ferry-out-of-service/">$16 million</a> repair bill. </span></span></span></span></span></span></span></span></span></span></span></span></span></span></span>Saltwater <a href="https://sciencing.com/effects-saltwater-metals-8632636.html">is tough</a> on steel.</span></p> <p><span><span><span><span><span><span><span><span><span><span><span><span><span><span><span><span>These costly‐​to‐​purchase, costly‐​to‐​maintain vessels have to be paid for somehow. That means either more taxpayer‐​funded subsidies (all taxpayers in the case of Alaska — a new $244 million ferry is slated to be paid for with <a href="https://www.alaskajournal.com/2017-06-14/marine-highway-supporters-look-new-ideas-amid-challenges">$222 million</a> in federal dollars), higher fares, reduced service, or a combination thereof.</span></span></span></span></span></span></span></span></span></span></span></span></span></span></span></span></p> <p><span><span><span><span><span><span><span><span><span><span><span><span><span><span><span><span>There’s a better way.</span></span></span></span></span></span></span></span></span></span></span></span></span></span></span></span></p> <figure role="group" class="align-center filter-caption"><div data-embed-button="image" data-entity-embed-display="view_mode:media.blog_post" data-entity-type="media" data-entity-uuid="434d1220-5989-4d93-9916-89332be3f914" data-langcode="en" class="embedded-entity"> <p><img srcset="/sites/cato.org/files/styles/pubs/public/2020-01/coastalinspirationbowportaerial.jpg.jpg?itok=t7hUUbEC 1x, /sites/cato.org/files/styles/pubs_2x/public/2020-01/coastalinspirationbowportaerial.jpg.jpg?itok=aXycFY8i 1.5x" width="700" height="525" src="https://www.cato.org/sites/cato.org/files/styles/pubs/public/2020-01/coastalinspirationbowportaerial.jpg.jpg?itok=t7hUUbEC" alt="Coastal Inspiration" typeof="Image" class="component-image" /></p></div> <figcaption><div class="figure-caption text-sans-alternate">BC Ferries’ German‐​built Coastal Inspiration ferry </div> </figcaption></figure><p><span>Like their neighbors in Alaska and Washington, British Columbia is also home to large ferry system called BC Ferries. Indeed, <a href="https://www.bcferries.com/onboard-experiences/fleet">its fleet</a> is actually more numerous than that of Alaska and Washington’s ferry systems combined. Unlike WSF and the Alaska Marine Highway System, however, BC Ferries<span> can shop internationally for its vessels. As a</span> <span>result, they are typically purchased <a href="https://dailyhive.com/vancouver/bc-ferries-island-class-hybrid-electric-ships-video">from</a><a href="https://biv.com/article/2017/05/third-and-final-salish-class-ferry-its-way-bc-pola"> European</a></span> <span><a href="http://www.professionalmariner.com/December-January-2008/Coastal-Renaissance-German-precision-for-Canadian-waters/">shipyards</a><span><span><span><span><span><span><span><span> </span></span></span></span></span></span></span></span><span><span><span><span><span><span><span><span>where BC Ferries receives far more value for its money. Limiting BC Ferries to Canadian shipyards, explains CEO Mark Collins, would force it to pay prices </span></span></span></span></span></span></span></span><a href="https://www.vancouverisawesome.com/transportation/bc-ferries-building-vessels-overseas-low-fares-1942702">30</a></span><a href="https://www.vancouverisawesome.com/transportation/bc-ferries-building-vessels-overseas-low-fares-1942702"> <span>–</span> </a><span><a href="https://www.vancouverisawesome.com/transportation/bc-ferries-building-vessels-overseas-low-fares-1942702">50 percent</a><span><span><span><span><span><span><span><span> higher for the vessels it buys</span></span></span></span></span></span></span></span> <span>—</span> <span>and result in a</span> <span>25 percent fare hike. </span></span></span></p> <p><span><span><span>This alternative scenario is the reality faced by U.S. ferry systems as a result of the Jones Act and similar laws.</span></span></span></p> <p><span><span><span>Such protectionism is not only a disservice to taxpayers but harmful to the U.S. maritime sector itself. By raising the cost of waterborne transport such policies discourage Americans, the inhabitants of a country laced with mighty rivers and thousands of miles of coastline, from fully unlocking their maritime bounty. And it’s hardly been a boon to U.S. commercial shipbuilding, which<span><span><span><span><span><span><span><span><span><span><span><span><span>—</span></span></span></span></span></span></span></span></span></span></span></span></span>denied the tough competition which invigorates other sectors of the economy<span><span><span><span><span><span><span><span><span><span><span><span><span>—has fallen <a href="https://www.cato.org/publications/policy-analysis/rust-buckets-how-jones-act-undermines-us-shipbuilding-national">well behind</a> its international counterparts.</span></span></span></span></span></span></span></span></span></span></span></span></span></span></span></span></p> <p><span><span><span><span><span><span><span><span><span><span><span><span><span><span><span><span>To fix the ills of U.S. ferries, as well as the broader maritime industry, repeal or serious reform of maritime protectionism must be firmly on the table. </span></span></span></span></span></span></span></span></span></span></span></span></span></span></span></span></p> Fri, 24 Jan 2020 12:48:04 -0500 Colin Grabow https://www.cato.org/blog/ferry-systems-soaked-maritime-protectionism New Legislation Highlights Lack of Jones Act Competition https://www.cato.org/blog/new-legislation-highlights-lack-jones-act-competition Colin Grabow <p>Just before Christmas, Rep. Ed Case (D‑HI),&nbsp;citing the Jones Act’s contributions to Hawaii’s high cost of living,&nbsp;introduced&nbsp;three bills taking aim at the protectionist law. The first such bill, the <a href="https://www.congress.gov/116/bills/hr5498/BILLS-116hr5498ih.pdf">Noncontiguous Shipping Relief Act</a>, would exempt all non‐​contiguous U.S. locations from the Jones Act — essentially Alaska, Guam, Hawaii, and Puerto Rico — while the second bill, the <a href="https://www.congress.gov/116/bills/hr5499/BILLS-116hr5499ih.pdf">Noncontiguous Shipping Reasonable Rate Act</a>, would limit shipping rates to the noncontiguous states and territories to no more than ten percent above international shipping rates for comparable routes.</p> <p>Perhaps most interesting, however, is the third piece of legislation. Known as the <a href="https://www.congress.gov/116/bills/hr5500/BILLS-116hr5500ih.pdf">Noncontiguous Shipping Competition Act</a>, the bill would grant Jones Act exemptions to any state or territory not served by at least three Jones Act ocean carriers, each of which must have at least 20 percent of the market. The bill, in other words, would grant exemptions from&nbsp;the law to&nbsp;those states and&nbsp;territories that suffer from monopolies or duopolies in the Jones Act trades.</p> <p>Which is to say, all of them.</p> <p>Ocean transport between the U.S. mainland and noncontiguous states and territories offers very little to choose from. Only two carriers, Matson and TOTE Maritime, provide ship service to and from Alaska while the Hawaii trade is the province of Matson and Pasha Hawaii (Matson admits as much in its most recent <a href="https://investor.matson.com/static-files/37eaeec2-946d-41fa-9dec-e8f589286d25">annual report</a>, noting that it only faces “one major U.S. flag Jones Act competitor” in both markets). In Puerto Rico, meanwhile, a&nbsp;<a href="https://3snn221qaymolkgbj4a0vpey-wpengine.netdna-ssl.com/wp-content/uploads/2018/07/Report_Impact-of-the-Jones-Act-on-Puerto-Rico_FINAL2.pdf">2018 report</a> sponsored by the pro‐​Jones Act American Maritime Partnership showed that 85 percent of the container capacity in its Jones Act&nbsp;trade is controlled by just two carriers, TOTE&nbsp;Maritime and Crowley.</p> <p>Duopoly after duopoly after duopoly.</p> <p>Compounding matters is that, due to the Jones Act’s U.S.-build requirement, the few carriers serving these areas must pay incredible sums for the ships they use. Matson, for example, paid approximately <a href="https://investor.matson.com/news-releases/news-release-details/matson-christens-second-aloha-class-vessel-kaimana-hila-philly">$918</a> <a href="https://investor.matson.com/news-releases/news-release-details/matson-christens-first-kanaloa-class-vessel-lurline">million</a> for its four most recent vessel acquisitions, while&nbsp;two ships on order from Pasha&nbsp;are said to have a&nbsp;combined price tag of over <a href="https://gcaptain.com/pasha-hawaii-confirms-order-two-lng-powered-containerships-keppel/">$400 million</a>. In a&nbsp;foreign shipyard, these vessels would likely cost anywhere from one‐​quarter to one‐​fifth as much. That’s hundreds of millions of dollars in extra costs to be borne by shippers, and ultimately consumers.</p> <p>Stifled competition and increased ship costs inevitably mean higher prices for transporting cargo to and from the U.S. mainland. That’s no small matter for the noncontiguous states and territories that overwhelmingly rely&nbsp;on shipping to acquire needed goods. And it’s not just more expensive transport. In some cases, the Jones Act fleet’s limited capabilities&nbsp;make the&nbsp;purchase of goods from the mainland <a href="https://www.cato.org/blog/want-americans-buy-us-products-dump-jones-act">outright impossible</a>.</p> <p>At this time, Rep. Case’s effort to relieve&nbsp;Hawaii and other noncontiguous parts of the United States from the Jones Act’s burden faces the longest of odds. Indeed, when he&nbsp;<a href="http://archives.starbulletin.com/2003/07/25/business/story3.html">introduced</a> three Jones Act reform bills in 2003 during a&nbsp;previous stint in Congress they did not receive so much as a&nbsp;committee hearing. It’s not clear that the political ground has sufficiently shifted&nbsp;in the intervening years to make passage a&nbsp;realistic outcome.</p> <p>But encouragement can still be found&nbsp;in Rep. Case’s willingness to <a href="https://youtu.be/ekaf6sXaIOM?t=35">speak</a> <a href="https://case.house.gov/news/documentsingle.aspx?DocumentID=112">out</a> about the issue in what is typically a&nbsp;pro‐​Jones Act echo chamber. While reforms to the Jones Act may not be imminent, perhaps the&nbsp;new legislation can help spark an&nbsp;overdue conversation about the costs stemming from this <a href="https://www.cato.org/publications/policy-analysis/rust-buckets-how-jones-act-undermines-us-shipbuilding-national">failed relic</a>.&nbsp;</p> Mon, 06 Jan 2020 15:35:49 -0500 Colin Grabow https://www.cato.org/blog/new-legislation-highlights-lack-jones-act-competition Colin Grabow and Inu Manak with Caleb Brown on the Jones Act https://www.cato.org/multimedia/cato-audio/colin-grabow-inu-manak-caleb-brown-jones-act Sun, 01 Dec 2019 03:00:00 -0500 Colin Grabow, Inu Manak, Caleb O. Brown https://www.cato.org/multimedia/cato-audio/colin-grabow-inu-manak-caleb-brown-jones-act Needed: Straight Talk on the Jones Act and LNG https://www.cato.org/blog/straight-talk-jones-act-lng Colin Grabow <p>Last week Aaron Smith, president and CEO of the Offshore Marine Service Association, testified before the House Subcommittee on the Coast Guard and Maritime Transportation. As the head of a group which <a href="https://www.offshoremarine.org/cpages/the-jones-act">ardently backs</a> the Jones Act it was no surprise that Smith used his <a href="https://transportation.house.gov/imo/media/doc/Smith%20OMSA%20Testimony.pdf">opening statement</a> to press for an even more restrictive interpretation of the law’s provisions. Shortly after that statement he then had this exchange with Rep. Bob Gibbs (R‑OH), the subcommittee’s Ranking Member:</p> <div data-embed-button="embed" data-entity-embed-display="view_mode:media.blog_post" data-entity-type="media" data-entity-uuid="b2add093-9678-4d3e-860f-452720a612fc" class="align-center embedded-entity" data-langcode="en"> <div class="embed embed--youtube js-embed js-embed--youtube"> <div class="responsive-embed"> </div> </div> </div> <blockquote><p><strong>Gibbs</strong>: “We’re exporting LNG now — largest producer in the world of natural gas and oil. And my understanding is…we pick up LNG shipments in the Gulf area and then they export to other countries but to get LNG in needed areas of the country, like in New England area for example, they have to get it from foreign. What can we do to adjust, fix it? How can we handle it so we can, Americans can burn LNG, natural gas, domestically‐​produced LNG and natural gas?”</p> <p><strong>Smith</strong>: “Sure. Thank you for the question, Ranking Member Gibbs. The American maritime industry is willing to meet any challenge. And in fact, what we’re best at is overbuilding the market. If you give us the signals that a market will be protected, we’re probably going to build too many ships for it. And if you, with these signals now that LNG is going to be protected by this administration, what we’re seeing is even the European trade magazines are already saying that there’s going to be U.S. LNG capacity. One of my members just launched an ATB, an articulated tug and barge, to transport LNG. And I know that they can take that design, and are taking that design, to produce more of those so we can have that. It is my understanding, although this isn’t necessarily exactly what we do on a day‐​to‐​day basis, but it’s my understanding that we are right now basically at the export…there is no extra capacity in the export terminals. Once there is, we will have the vessels capable to carry that.”</p> </blockquote> <p>Let’s review what happened here: Congressman Gibbs, perhaps mindful of New England’s need to <a href="https://www.bostonglobe.com/business/2018/01/29/tanker-unloads-lng-everett-terminal-that-contains-russian-gas/rewj1wKjajaKtLp79irzTI/story.html">import</a> Russian liquefied natural gas (LNG) last year — and Puerto Rico’s complete dependence on foreign LNG — asked how U.S. LNG can be transported to these places. Smith responded with talk of excessive shipbuilding, LNG bunkering barges, and a lack of export capacity.</p> <p>It was an astonishing display of misdirection.</p> <p>Beyond the bizarre notion that market “protection” (i.e. reduced competition) leads to oversupply — surely news to economics professors everywhere — Smith’s citing of barges as evidence of the Jones Act fleet’s ability to transport LNG is preposterous. There are a total of two such Jones Act‐​compliant vessels, the <em>Clean Jacksonville</em> and the recently‐​launched <em>Q‑LNG-4000</em>. Both are primarily used for the refueling of other vessels.</p> <p>What they are not used for, nor even capable of, is transporting bulk quantities of LNG for use in large‐​scale electricity generation. Neither vessel, in other words, will allow either New England or Puerto Rico to replace foreign imports with U.S. LNG.</p> <p>The <em>Clean Jacksonville</em>, for example, has an LNG capacity of <a href="https://www.rivieramm.com/opinion/what-did-we-learn-from-the-first-us-lng-barge-bunker-53985">2,200 m<sup>3</sup></a> while the <em>Q‑LNG-4000</em>’s capacity is — as its name implies—<a href="https://www.rivieramm.com/news-content-hub/news-content-hub/first-lng-bunker-atb-for-us-named-in-ceremonies-56206">4,000 m<sup>3</sup></a>. In comparison, the <em>Gaselys, </em>an LNG carrier that delivered Russian gas to New England in 2018, has a carrying capacity of <a href="https://www.ship-technology.com/projects/gasleyslng/">154,500m³</a>.</p> <p>LNG barges and LNG carriers both transport LNG in the same sense that bicycles and buses both transport people. But one is not a substitute for the other.</p> <p>The claim, meanwhile, that there is a lack of LNG export capacity to meet domestic needs doesn’t pass the smell test. Consider the following:</p> <ul><li>The United States is now the world’s <a href="https://www.eia.gov/todayinenergy/detail.php?id=40213">third‐​largest exporter</a> of LNG. This year alone new liquefication units to export LNG have come online at <a href="https://www.cheniere.com/terminals/sabine-pass/trains-1-6/project-schedules/">Sabine Pass</a>, <a href="https://www.cheniere.com/terminals/corpus-christi-project/liquefactions-facilities-trains-1-3/cc-schedule/">Corpus Christi</a>, <a href="https://cameronlng.com/2019/08/cameron-lngs-train-1-begins-commercial-operations/">Hackberry</a>, <a href="https://www.reuters.com/article/kinder-morgan-de-lng-terminal/update-2-kinder-morgan-to-have-all-elba-island-lng-units-in-service-by-mid-2020-ceo-idUSL2N271245">Elba Island</a>, and <a href="https://www.reuters.com/article/us-usa-lng-freeport/freeport-lng-ships-first-commissioning-cargo-from-texas-plant-idUSKCN1VP0BH">Freeport</a>.</li> </ul><ul><li>The International Gas Union’s 2019 <a href="https://www.igu.org/sites/default/files/node-news_item-field_file/IGU%20Annual%20Report%202019_23%20loresfinal.pdf">World LNG Report</a> shows 29 of 37 LNG‐​importing countries meeting at least some of their needs with U.S. LNG (and one of the importers listed that didn’t purchase U.S. LNG, Puerto Rico, is subject to the Jones Act). The idea that the United States has sufficient LNG to export it all over the world, yet none available for domestic maritime transport, seems suspect.</li> </ul><ul><li>An August 2018 McKinsey &amp; Co. <a href="https://www.mckinsey.com/industries/oil-and-gas/our-insights/the-impact-of-rising-us-lng-exports-on-global-markets">analysis</a> noted that foreign LNG purchased to meet New England’s needs the previous winter was “$1.6/mmbtu above the cost of loaded spot LNG” at the LNG export facility at Sabine Pass, Louisiana. “The core restriction preventing traders from capitalizing on this arbitrage” according to McKinsey, was not a lack of export capacity, but rather the Jones Act.</li> </ul><ul><li>A July 2019 <em>Wall Street Journal</em><em> </em><a href="https://www.wsj.com/articles/the-u-s-is-overflowing-with-natural-gas-not-everyone-can-get-it-11562518355">article</a> about the U.S. natural gas boom noted that “These days, it’s a hassle getting gas from drilling fields like the Marcellus and Utica shales in Appalachia, and the Permian Basin in West Texas, to customers in northern cities,” citing a lack of domestic LNG tankers and a “99‐​year‐​old law [that] prevents foreign tankers from shipping gas within the U.S.”</li> </ul><ul><li>A July 2019<a href="https://www.spglobal.com/platts/en/market-insights/special-reports/lng/lng-future"> report</a> from S&amp;P Global Platts states that “Platts Analytics estimates that as much as 60%-80% of US LNG was either swapped or sold on spot/​short‐​term tender in 2018.” The existence of such a vibrant spot market speaks to the availability of U.S. LNG for those willing to meet the market price.</li> </ul><p>Smith’s unwillingness to paint an accurate picture of the situation is understandable. Admitting that the Jones Act and the vessels that serve under its restrictions are incapable of meeting the U.S. economy’s needs would be a bitter pill to swallow. Indeed, it would call the law’s entire logic into question.</p> <p>So here’s the straight talk that Smith is unwilling to provide: the “fix” for allowing Americans to burn domestically‐​produced LNG is repeal or significant reform of the Jones Act.</p> <p>As long as the Jones Act exists in its current form, the ships needed to transport U.S. LNG to domestic customers will not. The math simply doesn’t add up. No LNG carrier meeting the Jones Act’s restrictions, particularly its costly U.S.-build requirement, will be competitive in the international transport market. And with purely domestic business insufficient to keep such a ship employed on a full‐​time basis, there is no economic case for its construction.</p> <p>It’s good to see members of Congress asking questions about the inability of Americans to consume U.S. LNG. But as long as the Jones Act lobby is tasked with responding, needed facts will remain elusive. </p> Tue, 19 Nov 2019 15:22:06 -0500 Colin Grabow https://www.cato.org/blog/straight-talk-jones-act-lng Assessing the Jones Act’s National Security Rationale https://www.cato.org/blog/assessing-jones-acts-national-security-rationale Colin Grabow <p>The Jones Act has been a blight upon the United States for nearly 100 years. That the law survives despite its well‐​documented costs can in large part be ascribed to frequently made <a href="https://www.wsj.com/articles/jones-act-protects-shipping-for-future-war-11573500562">claims</a> that it is vital to U.S. national security.</p> <p>Such claims should be greeted with a skeptical eye.</p> <p>As I explain in a <a href="https://www.cato.org/publications/policy-analysis/rust-buckets-how-jones-act-undermines-us-shipbuilding-national">new paper</a>, decades of evidence suggest any contributions made by the law to national security are vastly overstated. In fact, there is considerable reason to think the Jones Act is a net national security liability.</p> <p>The facts are these: under the Jones Act’s watch the U.S. maritime sector has suffered grievous setbacks. Numerous shipyards have closed, the domestic fleet’s numbers have dwindled, and the pool of mariners that the military draws upon to crew its sealift fleet has become <a href="https://www.maritime.dot.gov/sites/marad.dot.gov/files/docs/mariners/1026/mwwg-report-congress-finalr3.pdf">perilously shallow</a>. Rather than ensuring, as the law states in its purpose, a “merchant marine of the best equipped and most suitable types of vessels” capable of “serv[ing] as a naval or military auxiliary in time of war or national emergency” the Jones Act has produced a depleted, <a href="https://www.cato.org/blog/old-ships-still-abundant-jones-act-fleet">decrepit fleet</a> of limited capabilities.</p> <div data-embed-button="embed" data-entity-embed-display="view_mode:media.blog_post" data-entity-type="media" data-entity-uuid="edbbf904-04ac-4b43-a38a-cc29f8a75dae" class="align-center embedded-entity" data-langcode="en"> <div class="embed embed--infogram js-embed js-embed--infogram"> <div class="infogram-embed" data-id="6c1611a0-99a5-4183-843d-df394fbd2912" data-type="interactive" data-title="WEB: Jones Act Oceangoing Ships"></div> //--&gt; </div> </div> <p>The Jones Act is complicit in this decline. The law, after all, is rooted in an absurd logic: that to promote both a strong U.S. shipbuilding sector and domestic fleet the latter must be compelled to purchase from the former. The result is the achievement of neither, which is the predictable outcome of linking two protected, uncompetitive sectors together.</p> <p>U.S. commercial shipyards, oriented towards the captive Jones Act market, lack the scale and specialization that can only be achieved by building for the international shipbuilding market. As a result, the limited number of ships they produce are up to <em>five times</em> more expensive than those built abroad. It is a testament to their technological inferiority and lack of productivity — hallmarks of protected markets — that they do so while offering wages that <a href="https://www.nassco.com/pdfs/Shipbuilder-Assessment-American-Marine-Highway-NASSCO.pdf">are lower</a> than those of most leading shipbuilding countries.</p> <div data-embed-button="image" data-entity-embed-display="view_mode:media.blog_post" data-entity-type="media" data-entity-uuid="228c572e-db7b-4f00-889d-6344dd8c5274" data-langcode="en" class="embedded-entity"> <p><img srcset="/sites/cato.org/files/styles/pubs/public/2019-11/nassco3_1.jpg?itok=rKQXDvno 1x, /sites/cato.org/files/styles/pubs_2x/public/2019-11/nassco3_1.jpg?itok=XHW5durV 1.5x" width="642" height="537" src="https://www.cato.org/sites/cato.org/files/styles/pubs/public/2019-11/nassco3_1.jpg?itok=rKQXDvno" alt="International Shipbuilding Labor Rates" typeof="Image" class="component-image" /></p></div> <p>Jones Act carriers that operate these wildly expensive ships, meanwhile, are forced to pass their acquisition costs along to consumers in the form of higher shipping rates. This, in turn, means less demand for their services, and thus fewer ships and mariners. Where consumers have a choice, they almost invariably opt for other forms of transportation such as trucks, railroads, and pipelines. Indeed, the 99 ship Jones Act fleet almost exclusively operates where there is low elasticity of demand and little competition, serving the shipping‐​dependent noncontiguous states and territories and the needs of the world’s largest oil‐​producing country (tanker ships account for 57 of the fleet’s 99 ships and roughly 80 percent of its deadweight tonnage).</p> <p>Conceived in protectionist fallacies, the case for maintaining the 1920 Jones Act becomes ever more tortured given its increasingly glaring divorce from modern maritime realities. Among these:</p> <ul><li><strong>The sharp rise in cost differences between U.S. and foreign‐​built ships</strong>. Shortly after the Jones Act was passed a U.S.-built ship was typically about 20 percent more expensive than one built abroad. That cost difference can now reach 400 percent.</li> <li><strong>The increased specialization of commercial ships</strong>. The military places a premium on flexible vessels that can operate in a variety of port environments and carry different types of cargo, while the commercial sector prizes ships geared towards specific tasks that disperse their cargo in modern ports. This makes the ships of the Jones Act fleet less valuable to the military.</li> <li><strong>The heavy reliance of U.S.-built Jones Act ships on foreign capital, components, and know‐​how</strong>. Jones Act ships almost invariably use foreign designs and are heavily dependent on foreign sources for critical components such as the engine and propeller. Furthermore, the shipyards themselves are often the subsidiaries of foreign parent corporations. Any notion that the high price of Jones Act ships has produced a U.S. shipbuilding capability free of foreign dependence is entirely illusory.</li> </ul><p>A new approach is needed.</p> <p>Rather than maintain the Jones Act status quo with its opaque costs and inequitable burdens that are disproportionately placed upon Alaska, Hawaii, and Puerto Rico, the United States should consider some of the following measures to meet the U.S. military’s need for ships and mariners to transport supplies and equipment:</p> <ul><li><strong>The establishment of a civilian Merchant Marine Reserve</strong>. The military currently lacks needed certainty around the availability of manpower to crew its sealift vessels in wartime. U.S. merchant mariners, meanwhile, are not provided with the training and benefits commensurate with their role in assuring U.S. national security. A civilian Merchant Marine Reserve could help address this.</li> <li><strong>Wage subsidies to the employers of U.S. mariners</strong>. To make the employment of U.S. mariners more attractive, the United States could offer wage subsidies to those who employ them in exchange for an agreement that they be released for wartime service with guaranteed employment upon their return.</li> <li><strong>Allowing the use of foreign mariners in some circumstances</strong>. To ease crew shortages the United States should consider the use of foreign mariners in some circumstances. To help mitigate possible risks measures such as background checks and eligibility restrictions to citizens of certain countries could be implemented.</li> </ul><p>To learn more please read the paper in its entirety <a href="https://www.cato.org/publications/policy-analysis/rust-buckets-how-jones-act-undermines-us-shipbuilding-national">here</a> and visit Cato’s dedicated Jones Act <a href="https://www.cato.org/jonesact">webpage</a>.</p> Tue, 12 Nov 2019 12:07:50 -0500 Colin Grabow https://www.cato.org/blog/assessing-jones-acts-national-security-rationale Rust Buckets: How the Jones Act Undermines U.S. Shipbuilding and National Security https://www.cato.org/multimedia/cato-daily-podcast/rust-buckets-how-jones-act-undermines-us-shipbuilding-national Colin Grabow, Caleb O. Brown <p>The Jones Act prevents U.S. territories from buying U.S. products, and does almost nothing to protect the industries that advocates claim the law supports. Colin Grabow explains the implications in his new paper, “<a href="https://cato.org/publications/policy-analysis/rust-buckets-how-jones-act-undermines-us-shipbuilding-national">Rust Buckets</a>.”</p> Tue, 12 Nov 2019 03:00:00 -0500 Colin Grabow, Caleb O. Brown https://www.cato.org/multimedia/cato-daily-podcast/rust-buckets-how-jones-act-undermines-us-shipbuilding-national Rust Buckets: How the Jones Act Undermines U.S. Shipbuilding and National Security https://www.cato.org/publications/policy-analysis/rust-buckets-how-jones-act-undermines-us-shipbuilding-national Colin Grabow <div class="lead text-default"> <p>Since its inception, supporters of the Jones Act have claimed that the law is essential to U.S. national security. Although indefensible on economic grounds, Jones Act advocates argue that its restrictions promote the development of both a&nbsp;U.S. merchant marine and shipbuilding and repair capability that can be utilized by the country’s military in times of war. This rationale appears to be more of an article of faith than the product of rigorous analysis.</p> </div> , <div class="text-default"> <p>This paper examines the national security justification. Contrasting the Jones Act’s stated objectives with observable results, the law is revealed to be a&nbsp;national security failure. With dwindling numbers of ships, mariners, and shipyards, the U.S. military’s ability to leverage these civilian assets during times of war has been deeply compromised. This paper finds this maritime decline to be the predictable result of the Jones Act’s misguided protectionism, whose theoretical underpinnings are deeply at odds with both sound economics and modern maritime realities.</p> <p>Rather than continue this flawed policy, the Jones Act should be either repealed or significantly reformed. This paper proposes alternative methods for ensuring military access to civilian mariners that offer greater cost transparency and increased certainty of the mariners’ availability.</p> </div> , <div class="text-default"> <div data-experience="5dc466b1e9109e0020812832"></div> </div> , <h2 class="heading"> Introduction </h2> , <div class="text-default"> <p>If the Jones Act’s fortunes hinged on economics alone the law would have been repealed long ago. Economists who have studied the Jones Act are in near unanimity that it diminishes U.S. prosperity.<sup><a href="#_ednref1" id="_edn1">1</a></sup> A&nbsp;recent analysis published by the Organisation for Economic Co‐​operation and Development (OECD) estimates that the law’s repeal would increase U.S. economic output by up to $135 billion.<sup><a href="#_ednref2" id="_edn2">2</a></sup></p> <p>But Jones Act supporters inevitably respond that the law’s economic costs are justified by its contributions to U.S. national security. Indeed, the conventional wisdom on Capitol Hill is that the Jones Act plays a&nbsp;vital role in undergirding the U.S. military and protecting the U.S. homeland.</p> </div> , <div class="paragraph paragraph--type-horizontal-rule paragraph--view-mode-default ds-1col clearfix"> <div class="block-horizontal-rule-blocks block-horizontal-rule-blocks-short block- block"> <div class="block--inner"> <div class="spacer--standout"> <hr class="w-50" /> </div> </div> </div> </div> , <div class="text-default"> <p><strong>Related Content:</strong> <a href="https://www.cato.org/publications/commentary/jones-act-protecting-us-shipyards-death" target="_blank">The Jones Act Is Protecting U.S. Shipyards to Death</a></p> </div> , <div class="paragraph paragraph--type-horizontal-rule paragraph--view-mode-default ds-1col clearfix"> <div class="block-horizontal-rule-blocks block-horizontal-rule-blocks-short block- block"> <div class="block--inner"> <div class="spacer--standout"> <hr class="w-50" /> </div> </div> </div> </div> , <div class="text-default"> <p>The Jones Act — formally known as Section 27 of the Merchant Marine Act of 1920 — requires that vessels engaged in the domestic transport of goods be built in the United States, crewed by U.S. citizens, owned by U.S. citizens, and registered under the U.S. flag.<sup><a href="#_ednref3" id="_edn3">3</a></sup> The law’s advocates claim that these requirements bolster U.S. national security by ensuring the Department of Defense has wartime access to a&nbsp;merchant marine that can be used to transport military supplies and equipment. Indeed, the law itself lists in its stated purpose the necessity of a “merchant marine of the best equipped and most suitable types of vessels sufficient to carry the greater portion of its commerce and <em>serve as a&nbsp;naval or military auxiliary in time of war or national emergency</em> [emphasis added].“<sup><a href="#_ednref4" id="_edn4">4</a></sup></p> </div> , <aside class="aside--left aside pb-lg-0 pt-lg-2"> <div class="pullquote pullquote--default"> <div class="pullquote__content h2"> <p>Claims that the Jones Act is a&nbsp;national security asset have generally gone unchallenged and, as a&nbsp;result, this justification is more an article of faith than the result of rigorous analysis.</p> </div> </div> </aside> , <div class="text-default"> <p>Claims that the Jones Act is a&nbsp;national security asset have generally gone unchallenged and, as a&nbsp;result, this justification is more an article of faith than the result of rigorous analysis. Much has changed in the nearly 100&nbsp;years since the Jones Act became law, and the economic, maritime, and geopolitical realities that shaped policy in 1920 differ considerably from those of today. Taking account of these modern realities, this paper scrutinizes the Jones Act’s impact and concludes that the law has failed to bolster U.S. national security. In fact, it has likely subverted it.</p> </div> , <h2 class="heading"> The Essence of the National Security Rationale </h2> , <div class="text-default"> <p>Jones Act supporters claim that the law’s restrictions on foreign competition help foster a&nbsp;merchant marine and shipbuilding and repair capability that can be harnessed by the United States in times of war.<sup><a href="#_ednref5" id="_edn5">5</a></sup>&nbsp;This is the theory. The reality is quite different.</p> <p>In the early 1990s the Jones Act was put to the test. Following Iraq’s invasion of Kuwait, the United States rushed soldiers, military equipment, and supplies to Saudi Arabia. Although this military build‐​up was highly successful, the Jones Act’s ship contributions were marginal at most. Of the 269 Ready Reserve Force (RRF)<sup><a href="#_ednref6" id="_edn6">6</a></sup>&nbsp;and commercial ships chartered by the Military Sealift Command during the conflict,<sup><a href="#_ednref7" id="_edn7">7</a></sup>&nbsp;a&nbsp;mere 8&nbsp;were Jones Act – eligible, consisting of one roll‐​on/​roll‐​off (RO/RO) ship, one heavy‐​lift ship, and six tankers.<sup><a href="#_ednref8" id="_edn8">8</a></sup>&nbsp;Of these eight, just five entered the Persian Gulf and only the lone RO/RO, a&nbsp;dilapidated ship called the&nbsp;<em>Ponce</em>, transported equipment from the United States to Saudi Arabia.<sup><a href="#_ednref9" id="_edn9">9</a></sup></p> <p>Rather than the Jones Act ensuring even an adequate supply of U.S.-flagged ships, the United States found itself dependent on&nbsp;foreign‐​flagged vessels to transport the needed equipment and supplies. No fewer than 177 foreign‐​flagged commercial ships were chartered by the United States for the Persian Gulf War. Those ships transported 21.2 percent of total dry cargo and 26.6 percent of total unit cargo (U.S.-flagged commercial ships carried 12.7 percent of total unit cargo — cargo specific to particular military units — with the balance transported by U.S. government‐​owned vessels).<sup><a href="#_ednref10" id="_edn10">10</a></sup>&nbsp;So pressed was the United States for sealift capacity that it twice requested the use of Soviet‐​flagged cargo ships, but was rejected by Moscow both times.</p> <p>The situation was little better on the manpower front. The promised pool of Jones Act mariners to crew government‐​owned ships was found distressingly shallow, producing a&nbsp;scramble to find the needed personnel. As the U.S. military’s official history of the&nbsp;Transportation&nbsp;Command’s performance during Operations Desert Shield and Desert Storm points out:</p> </div> , <blockquote class="blockquote"> <div> <p>For Desert Shield/​Desert Storm, [the Maritime Administration (MARAD)] needed nearly 4,200 additional commercial mariners to crew the RRF [Ready Reserve Force]. Who were they? Many who heeded the unions’ call were former merchant mariners who came out of retirement. Some of those were veterans of World War II, the Korean War, and the war in Southeast Asia. Nearly 200 cadets from the U.S. Merchant Marine Academy, Kings Point, New York, also served, as did 6&nbsp;students and 6&nbsp;professors from Massachusetts Maritime College. Some were raw recruits. The Seafarers International Union expanded its entry‐​level training program from 60 to 200 students per month to help put bodies on ships fast. The union also increased skill‐​upgrading courses for firemen and steam engineers from once a&nbsp;quarter to once a&nbsp;month. The Marine Engineers Beneficial Association/​National Maritime Union, the Sailors Union of the Pacific, and other maritime unions developed similar programs to expand the pool.<sup><a href="#_ednref11" id="_edn11">11</a></sup></p> </div> </blockquote> <cite> </cite> , <div class="text-default"> <p>In explaining this lack of mariners, the report hints at the decline of the U.S. commercial fleet, of which Jones Act ships form more than half:</p> </div> , <blockquote class="blockquote"> <div> <p>Fewer ships meant fewer jobs for merchant mariners and, as a&nbsp;consequence, manpower had dwindled almost 60 percent since 1970 to a&nbsp;current level of about 10,000. MARAD projected that it would be less than half that amount by the turn of the century. In 1990, the average age of a&nbsp;U.S. merchant seaman was 49&nbsp;years old, which meant many of the mariners who manned the RRF ships during Desert Shield/​Desert Storm were in their 60s and 70s. At least two were in their 80s. The oldest was 92. There were teenagers as well.<sup><a href="#_ednref12" id="_edn12">12</a></sup></p> </div> </blockquote> <cite> </cite> , <div class="text-default"> <p>Other actions to remedy the dearth of mariners included the waiving of licensing requirements and allowing crew members to sail with reduced qualifications.<sup><a href="#_ednref13" id="_edn13">13</a></sup> Yet despite such measures, the effort to secure sufficient manpower nearly met with disaster. When MARAD attempted to activate a&nbsp;second wave of 34 RRF ships to follow on its first wave of 55, it ran out of mariners from the U.S. crew pool before the activations could be completed. Fortunately, mariners from the Great Lakes fleet were willing and able to fill in after the lakes froze in January 1991.<sup><a href="#_ednref14" id="_edn14">14</a></sup></p> <p>The Gulf War was no anomaly. Crew shortages also proved a&nbsp;headache for U.S. logisticians during the Vietnam War. Speaking at the Naval War College in 1969, the commander of the Military Sea Transportation Service,<sup><a href="#_ednref15" id="_edn15">15</a></sup> Vice Admiral Lawson Ramage, called the merchant marine manpower pool “barely adequate,” adding, “Crew shortages and consequent ship delays have been a&nbsp;continuing problem almost from the outset of the Vietnam escalation.“<sup><a href="#_ednref16" id="_edn16">16</a></sup> Statistics bear this out, with 42 percent (592 of 1,405) of the National Defense Reserve Fleet/​Ready Reserve Force’s scheduled sailings delayed because of crew shortages during the years 1966 – 1968.<sup><a href="#_ednref17" id="_edn17">17</a></sup></p> <p>Downward pressure on the merchant mariner pool has not abated. The Jones Act fleet continues to atrophy, currently standing at a&nbsp;mere 99 ships, as seen in Figure 1.</p> </div> , <figure class="figure overflow-hidden figure--default figure--no-caption"> <div class="figure__media"> <div class="embed embed--infogram js-embed js-embed--infogram"> <div class="infogram-embed" data-id="6c1611a0-99a5-4183-843d-df394fbd2912" data-type="interactive" data-title="WEB: Jones Act Oceangoing Ships"></div>!function(e,i,n,s){var t="InfogramEmbeds",d=e.getElementsByTagName("script")[0];if(window[t]&amp;&amp;window[t].initialized)window[t].process&amp;&amp;window[t].process();else if(!e.getElementById(n)){var o=e.createElement("script");o.async=1,o.id=n,o.src="https://e.infogram.com/js/dist/embed-loader-min.js",d.parentNode.insertBefore(o,d)}}(document,0,"infogram-async"); </div> </div> </figure> , <div class="text-default"> <p>The effect of the Jones Act fleet’s decline on mariners was underscored by a&nbsp;2017 MARAD report, which warned that in a&nbsp;wartime scen­ario the United States would be at least 1,839 mariners short of the 13,607 needed to perform sustained sealift operations and to crew the U.S. commercial fleet.<sup><a href="#_ednref18" id="_edn18">18</a></sup></p> <p>Alarmingly, that projection represents a&nbsp;best‐​case scenario that assumes all mariners with unlimited credentials (i.e., able to serve on any size ship operating anywhere) are available and willing to crew sealift vessels as well as the U.S.-flagged commercial fleet. These civilian mariners provide their services on a&nbsp;volunteer basis, however, and the report admitted that their willingness to actually do so in a&nbsp;war or national emergency is “beyond prediction.“<sup><a href="#_ednref19" id="_edn19">19</a></sup></p> </div> , <div class="paragraph paragraph--type-horizontal-rule paragraph--view-mode-default ds-1col clearfix"> <div class="block-horizontal-rule-blocks block-horizontal-rule-blocks-short block- block"> <div class="block--inner"> <div class="spacer--standout"> <hr class="w-50" /> </div> </div> </div> </div> , <div class="text-default"> <p><strong>Related Content:</strong> <a href="https://www.cato.org/publications/commentary/jones-act-expensive-benefits-questionable">Jones Act Expensive, Benefits Questionable</a></p> </div> , <div class="paragraph paragraph--type-horizontal-rule paragraph--view-mode-default ds-1col clearfix"> <div class="block-horizontal-rule-blocks block-horizontal-rule-blocks-short block- block"> <div class="block--inner"> <div class="spacer--standout"> <hr class="w-50" /> </div> </div> </div> </div> , <div class="text-default"> <p>The situation is equally grim on the shipbuilding and repair front. From 1983 through 2013, approximately 300 shipyards closed<sup><a href="#_ednref20" id="_edn20">20</a></sup> and shipbuilding employment fell from 186,700&nbsp;in 1981<sup><a href="#_ednref21" id="_edn21">21</a></sup> to 94,000 as of 2018.<sup><a href="#_ednref22" id="_edn22">22</a></sup> Today a&nbsp;mere four shipyards in the United States are in the business of constructing large oceangoing commercial ships.<sup><a href="#_ednref23" id="_edn23">23</a></sup> One of those four, the Philly Shipyard, currently has no ships on its order book and as of July 2019 had seen its employment reduced to approximately 80 people.<sup><a href="#_ednref24" id="_edn24">24</a></sup></p> </div> , <aside class="aside--right aside pb-lg-0 pt-lg-2"> <div class="pullquote pullquote--default"> <div class="pullquote__content h2"> <p>Today a&nbsp;mere four shipyards in the United States are in the business of constructing large oceangoing commercial ships.</p> </div> </div> </aside> , <div class="text-default"> <p>The U.S. maritime industry’s dire state is obvious enough that even ardent supporters of the Jones Act, which was ostensibly meant to guarantee the industry’s welfare, concede that all is not well. Maritime Administrator Mark H. Buzby, for example, admitted in congressional testimony this year that U.S. commercial shipyards lack the “scale, technology, and the large volume ‘series building’ order books” to compete internationally. He noted that the five largest U.S. shipyards have collectively produced, on average, a&nbsp;mere five ships per year over the past five years.<sup><a href="#_ednref25" id="_edn25">25</a></sup> One senior official with a&nbsp;maritime union noted in 2018 that “the pool of licensed and unlicensed mariners has shrunk to a&nbsp;critical level” and that, absent changes, “the military will no longer be able to rely on the all‐​volunteer U.S. Merchant Marine.“<sup><a href="#_ednref26" id="_edn26">26</a></sup> Rep. John Garamendi (D‑CA), meanwhile, has questioned the country’s ability to keep its troops supplied if they were to repeat an invasion of Guadalcanal.<sup><a href="#_ednref27" id="_edn27">27</a></sup></p> <p>In 2018 the head of the U.S. Transportation Command, General Darren W. McDew, commented that while the Jones Act was intended to ensure a&nbsp;baseline level of business to support both U.S. shipping and shipbuilding, the domestic fleet’s dwindling size “demands that we reassess our approach.” The country, he added, may need to “rethink policies of the past in order to face an increasingly competitive future.“<sup><a href="#_ednref28" id="_edn28">28</a></sup></p> <p>The maritime status quo, of which the Jones Act plays a&nbsp;foundational role, appears increasingly untenable.</p> </div> , <figure class="figure overflow-hidden figure--default figure--no-caption"> <div class="figure__media"> <div class="embed embed--twitter js-embed js-embed--twitter"> <blockquote class="twitter-tweet"><p lang="en" dir="ltr" lang="en">Since 1980 the size of the Jones Act fleet has declined by more than half, meaning fewer jobs for U.S. mariners. The law isn’t working. <a href="https://twitter.com/hashtag/EndTheJonesAct?src=hash&amp;ref_src=twsrc%5Etfw">#EndTheJonesAct</a>. <a href="https://t.co/St0yeXuAOV">https://t.co/St0yeXuAOV</a> <a href="https://t.co/oJjqKkw7x8">pic.twitter.com/oJjqKkw7x8</a></p>— Cato Institute (@CatoInstitute) <a href="https://twitter.com/CatoInstitute/status/1194960933707304960?ref_src=twsrc%5Etfw">November 14, 2019</a></blockquote> </div> </div> </figure> , <h2 class="heading"> Jones Act: National Security Asset or Liability? </h2> , <div class="text-default"> <p>Given these realities, it seems increasingly apparent that the Jones Act’s contributions to national security are overstated and diminishing. In fact, the case stands on its merits that the law makes no contribution to national security and may even subvert it. There is considerable evidence that the Jones Act is a&nbsp;net national security liability.</p> <p>As already described, the Jones Act’s domestic‐​build requirement means that Americans must buy ships for domestic use that are far costlier than those constructed abroad, as U.S. commercial shipbuilding has degenerated into its current uncompetitive state. This results in fewer ships and fewer mariners to draw on in times of war or national emergency.</p> </div> , <aside class="aside--right aside pb-lg-0 pt-lg-2"> <div class="pullquote pullquote--default"> <div class="pullquote__content h2"> <p>There is considerable evidence that the Jones Act is a&nbsp;net national security liability.</p> </div> </div> </aside> , <div class="text-default"> <p>Jones Act advocates counter that the provision is ultimately beneficial because it promotes U.S. shipbuilding. But that assertion is mistaken on at least two counts. First, as a&nbsp;1985 government report notes, “sealift requirements for the initial stages of a&nbsp;modern major conflict depend more on the sufficiency of U.S.-controlled shipping — and on trained U.S. crews — than on shipbuilding capacity.“<sup><a href="#_ednref29" id="_edn29">29</a></sup> In other words, in the critical early stages of a&nbsp;conflict, a&nbsp;country’s shipbuilding capacity is less important than its ability to mobilize ships and crew — and the Jones Act’s domestic‐​build provision results in reductions of both. In addition, it is far from clear that the Jones Act has contributed to a&nbsp;more‐​robust shipbuilding capacity than would otherwise be the case.</p> </div> , <figure class="figure overflow-hidden figure--default figure--no-caption"> <div class="figure__media"> <div class="embed embed--twitter js-embed js-embed--twitter"> <blockquote class="twitter-tweet"><p lang="en" dir="ltr" lang="en">The head of <a href="https://twitter.com/DOTMARAD?ref_src=twsrc%5Etfw">@dotmarad</a> testified this year that it’s rare to see commercial ships older than 15-20 years of age. That’s not true of the Jones Act fleet, with 30 of its 99 ships at least 25 years old. <a href="https://twitter.com/hashtag/EndTheJonesAct?src=hash&amp;ref_src=twsrc%5Etfw">#EndTheJonesAct</a> <a href="https://t.co/24LgXYHEw6">https://t.co/24LgXYHEw6</a> <a href="https://t.co/1hPiGBT795">pic.twitter.com/1hPiGBT795</a></p>— Cato Institute (@CatoInstitute) <a href="https://twitter.com/CatoInstitute/status/1194257004694573058?ref_src=twsrc%5Etfw">November 12, 2019</a></blockquote> </div> </div> </figure> , <div class="text-default"> <p>That a&nbsp;law ostensibly meant to strengthen domestic shipbuilding by stifling foreign competition would have the opposite effect — a weakened industry — should not be a&nbsp;surprise. Some have argued that the rising fortunes of British commercial shipbuilding in the mid‐​1800s were due in part to the United Kingdom’s decision to discard its protectionist Navigation Acts. As author Clinton H. Whitehurst notes:</p> </div> , <blockquote class="blockquote"> <div> <p>Another major factor that contributed to British shipbuilding and shipping success was the repeal in 1849 of the last of the Navigation Acts … [T]he English‐​built ship was protected from foreign competition in that foreign ships were excluded not only from England’s colonial trade but from home trade as well. The result of this protectionism was, at best, a&nbsp;mixed blessing. While these statutes ensured English shipping profits, they acted as a&nbsp;tranquilizer with respect to improvements in building wooden sailing ships. As one British authority points out:</p> </div> </blockquote> <cite> </cite> , <div class="text-default"> <p>Protection from foreign competition resulted in British ship design of 1845 differing little from the style to be found in 1815. [And] … statistics confirm the overall stagnant nature of the British shipbuilding industry in the 35&nbsp;years before 1850.</p> </div> , <blockquote class="blockquote"> <div> <p>With repeal of the Navigation Acts, the shipowner was free to buy his vessels anywhere he chose. But a&nbsp;policy of “free ships” also meant the shipbuilder must be competitive. No longer could he take a&nbsp;year or more to construct a&nbsp;vessel for a&nbsp;trading opportunity that could be gone before the ship was delivered to her owner. The competitive British clipper ship was fair evidence of the success of the new policy.<sup><a href="#_ednref30" id="_edn30">30</a></sup></p> </div> </blockquote> <cite> </cite> , <div class="text-default"> <p>It is, of course, impossible to know exactly how U.S. shipbuilding would have fared absent the Jones Act and other protectionist maritime laws that preceded it. Improving on the existing record, however, would not seem to be a&nbsp;terribly difficult task. As already shown, recent decades have seen substantial declines in U.S. shipbuilding measured both in terms of the number of shipyards and the number of workers employed there. This should be entirely expected given the costly nature of the ships built in these U.S. yards. Such high costs reflect a&nbsp;long‐​standing qualitative gap between U.S. shipyards and their foreign peers.</p> <p>A 1983 government report authored by the now‐​defunct Office of Technology Assessment (OTA), for example, said that U.S. shipyards “generally employed lower levels of technology” than their foreign counterparts and had “not installed the level of modern shipbuilding technology necessary for high productivity in the construction of today’s major merchant ships.<sup><a href="#_ednref31" id="_edn31">31</a></sup> Comparing U.S. shipyards to those of Japan and South Korea, the report listed numerous ways in which the former fell short, which ranged from inferior levels of research and development to the reduced adoption of automation and robotics.</p> </div> , <div class="text-default"> <p>Two years later, a&nbsp;report issued by the U.S. International Trade Commission (USITC), citing industry observers, found that “the U.S. shipbuilding industry lags behind many of its foreign competitors in the use of modular construction techniques, in tooling, in the degree of automation, in the use of robotics, and in the methods of processing, joining, and assembling materials.“<sup><a href="#_ednref32" id="_edn32">32</a></sup> The report added that U.S. commercial shipyards “require approximately 40 to 60 percent more man‐​hours to construct the same ship as many foreign yards.”</p> <p>A 2001 Commerce Department study provided a&nbsp;similarly gloomy assessment, noting that U.S. shipbuilding productivity had not improved since the mid‐​1980s and that U.S. shipyards lagged their foreign counterparts in ship construction and design, shipyard layout, and product engineering. “Among shipbuilding nations,” the report added, “U.S. shipbuilders rank at or near the bottom in terms of productivity, <em>and the gap is widening </em>[emphasis added].“<sup><a href="#_ednref33" id="_edn33">33</a></sup></p> <p>A 2009 National Defense University (NDU) report suggested the picture was little changed. Once again comparing U.S. shipbuilders to those in Asia, the report found that the Asian yards offered lower prices, greater efficiency, and had higher industry best‐​practice ratings.<sup><a href="#_ednref34" id="_edn34">34</a></sup> An NDU report issued three years earlier, meanwhile, said that “a company representative [from a&nbsp;leading maritime consulting firm] familiar with the techniques employed by U.S. and European shipyards advised us that the U.S. shipbuilding industry is currently about fifteen years behind in implementing changes that would enhance productivity,“<sup><a href="#_ednref35" id="_edn35">35</a></sup> while a&nbsp;2016 NDU report noted that U.S. shipbuilding is “an average of twenty years behind international shipyards regarding advanced technology.“<sup><a href="#_ednref36" id="_edn36">36</a></sup></p> <p>Notably, both the OTA and the 2009 NDU reports suggested that the Jones Act was at least partly culpable for the yawning gap with foreign shipyards. The OTA report noted that, owing to federal shipbuilding subsidies (since discontinued), as well as the Jones Act, the United States has become an anomaly in the construction of major merchant ships. As the report states:</p> </div> , <blockquote class="blockquote"> <div> <p>In many other major maritime countries, shipbuilding is viewed on a&nbsp;global perspective. This is not the same in the United States, where only 1&nbsp;to 2&nbsp;percent of the world merchant fleet is now built. The U.S. shipbuilding industry is basically quite different from that of Europe, Japan, and Korea. Those countries have built most of today’s modern shipping fleets and compete for orders in a&nbsp;world market. The United States does not.</p> </div> </blockquote> <cite> </cite> , <div class="text-default"> <p>This is completely logical. The Jones Act’s U.S.-build requirement has incentivized American shipyards to orient themselves away from the competitive international market and toward this captive domestic shipbuilding market. This, in turn, means reduced output (a mere two or three oceangoing ships per year), less competition, and the failure to develop a&nbsp;specialized market niche.<sup><a href="#_ednref37" id="_edn37">37</a></sup> All of these missing elements are vital to increased productivity and lowered costs. As the OTA report points out:</p> </div> , <blockquote class="blockquote"> <div> <p>Briefly stated, U.S. yards have never had sufficient volume of merchant ship orders to specialize, to become truly expert, or to develop high efficiency. Flexibility to build many different varie­ties of ships and other marine equipment has been maintained in U.S. shipyards. Thus, the economies of mass production have seldom been adopted.<sup><a href="#_ednref38" id="_edn38">38</a></sup></p> </div> </blockquote> <cite> </cite> , <div class="text-default"> <p>The 2009 NDU report laid at least partial blame for the lack of U.S. shipbuilding competitiveness on “protectionist policies, such as the Jones Act, that have shielded domestic shipbuilders from the pressures of global competition,” while a&nbsp;2007 NDU report sounded a&nbsp;similar note:</p> </div> , <blockquote class="blockquote"> <div> <p>U.S. shipyards are not currently cost competitive in any of the major classes of large ships, and their annual market is limited to the six to ten large Jones Act ships destined for the domestic U.S. trade. Since the total Jones Act requirement is only a&nbsp;small fraction of the output of the largest Asian yards, the U.S. shipbuilding industry is locked in a&nbsp;cost/​quantity trap, one that it appears unlikely to escape.<sup><a href="#_ednref39" id="_edn39">39</a></sup></p> </div> </blockquote> <cite> </cite> , <div class="text-default"> <p>This lack of shipbuilding competitiveness has wreaked havoc within the maritime industry, thus undermining national security. As a&nbsp;2019 Congressional Research Service (CRS) report notes, the high cost of U.S. shipbuilding has prompted the Department of Defense to reconsider a&nbsp;plan requiring sealift ships to be built domestically and to instead focus on the purchase of foreign‐​built substitutes.<sup><a href="#_ednref40" id="_edn40">40</a></sup> “I can’t afford a&nbsp;lot of $600 million ships. I&nbsp;can’t really afford a&nbsp;lot of $400 million ships when I&nbsp;can go out and buy used RO/​ROs for $35 to $40 million,” said Secretary of the Navy Richard Spencer in May 2019.<sup><a href="#_ednref41" id="_edn41">41</a></sup> The head of U.S. Transportation Command, meanwhile, explained the decision to pursue used foreign‐​built ships during a&nbsp;March 2019 congressional hearing by noting that such vessels cost $25 – 60 million depending on age. New domestic‐​built ships, he added, would cost <em>twenty‐​six times</em> as much.<sup><a href="#_ednref42" id="_edn42">42</a></sup></p> <p>The U.S. military, in other words, has effectively been forced to look abroad to meet some of its ship construction needs because of cost inefficiencies encouraged by the Jones Act. As a&nbsp;2015 NDU report states, “The Jones Act creates an environment where the U.S. government must pay a&nbsp;premium to buy a&nbsp;world‐​class navy.“<sup><a href="#_ednref43" id="_edn43">43</a></sup></p> <p>Dependence on foreign‐​built ships to meet U.S. sealift needs is long‐​standing. Of the 46 vessels in the RRF, only 16 were constructed in U.S. shipyards. The 60 privately owned ships that participate in the Maritime Security Program are entirely foreign‐​built.<sup><a href="#_ednref44" id="_edn44">44</a></sup> So, the majority of the current putative sealift fleet is foreign‐​built and the U.S. Navy now plans to continue on the foreign‐​build path for the foreseeable future, given the destitute state of U.S. shipbuilding competitiveness.</p> </div> , <aside class="aside--left aside pb-lg-0 pt-lg-2"> <div class="pullquote pullquote--default"> <div class="pullquote__content h2"> <p>The lack of shipbuilding competitiveness has wreaked havoc within the maritime industry, thus undermining national security.</p> </div> </div> </aside> , <div class="text-default"> <p>This is nearly the exact opposite of what Jones Act supporters claim the law was meant to achieve.</p> <p>Among Jones Act shipping companies, the costs of this policy are also evident. High domestic shipbuilding costs mean these carriers pay higher prices for ships and must charge higher freight rates. Higher rates deter the use of coastwise shipping, which, in turn, decreases the demand for ships, resulting in fewer ships and mariners available in times of war and national emergency. It also means less repair and maintenance work for U.S. shipyards that are part of the defense industrial base.</p> <p>The paltry Jones Act fleet is lacking not just in raw numbers but also the diverse set of capabilities appropriate for an advanced economy. Ship types such as liquefied natural gas (LNG) carriers, liquefied petroleum gas carriers, and livestock carriers are entirely absent. Other ship types, although present, exist in extremely limited numbers. There are, for example, a&nbsp;mere two dry bulk ships — both of which are nearly 40&nbsp;years of age — and a&nbsp;single chemical tanker, built in 1968. The fleet also does not feature any heavy‐​lift vessels. This, according to the CRS, has forced the Department of Defense to use “&nbsp;‘national defense’ waivers of the Jones Act to move radar systems and newly built vessels on foreign‐​flag heavy‐​lift vessels.“<sup><a href="#_ednref45" id="_edn45">45</a></sup></p> <p>In addition, the Jones Act encourages the use of vessels that would be considered well past their useful life outside of the protected Jones Act market. Jones Act carrier Matson, for example, as of this writing employs a&nbsp;container ship, the <em>Lihue</em>, that was constructed in 1971. Another one of its ships, the RO/RO vessel <em>Matsonia</em>, was built in 1973 and in early 2019 suffered a&nbsp;major hull failure likely related to age‐​induced decrepitude.<sup><a href="#_ednref46" id="_edn46">46</a></sup></p> <p>As of August 2019, nearly one‐​third of the Jones Act fleet — 30 of 99 ships — was built in 1994 or earlier.<sup><a href="#_ednref47" id="_edn47">47</a></sup> Among the 42 nontanker ships, 26 were at least 25&nbsp;years of age. To place this in perspective, Maritime Administrator Rear Admiral Buzby testified before Congress in March 2019 that it’s “rare to find ships in the commercial world beyond 15 – 20&nbsp;years of age.“<sup><a href="#_ednref48" id="_edn48">48</a></sup> The advanced ages of these ships and their likely degraded condition would seem to call into question the Jones Act fleet’s ability to serve as a “naval or military auxiliary” in time of war or national emergency.</p> <p>Access to dramatically lower‐​priced foreign‐​built ships is one obvious solution. As a&nbsp;1985 report from the National Advisory Committee on Oceans and Atmosphere noted, “A modernized Jones Act fleet, including some low‐​cost, foreign‐​built vessels, would help not only the domestic ship operator, but the U.S. consumer at large and the Nation as a&nbsp;whole <em>by enhancing the defense utility of the U.S. flag fleet</em> [emphasis added].“<sup><a href="#_ednref49" id="_edn49">49</a></sup></p> <p>Evidence of the benefits of competition to both consumers and U.S. companies is abundant throughout the economy. In other forms of transportation not subject to domestic‐​build requirements — which is to say, <em>all</em> other forms of transportation — U.S. firms play leading roles. Within the auto sector, Ford and General Motors are among the world’s top five largest automakers<sup><a href="#_ednref50" id="_edn50">50</a></sup> and the United States produces more autos than any country except China.<sup><a href="#_ednref51" id="_edn51">51</a></sup> Among aircraft manufacturers, the United States is a&nbsp;global juggernaut, with Boeing ranked as the world’s largest in 2018.<sup><a href="#_ednref52" id="_edn52">52</a></sup></p> <p>That Boeing prospers in the absence of a&nbsp;domestic‐​build requirement is particularly noteworthy given the many similarities between the airline and shipping industries. Both are subject to cabotage restrictions, with foreign‐​registered airlines prohibited from transporting passengers or goods within the United States (with a&nbsp;limited exemption for Alaska).<sup><a href="#_ednref53" id="_edn53">53</a></sup> Like Jones Act ships, U.S.-registered airlines are also required to have at least 75 percent U.S. ownership. Furthermore, airlines play a&nbsp;key role in U.S. national security, with commercial aircraft often relied on in times of war to transport military personnel. In the Persian Gulf War, for example, more than 60 percent of the troops and 25 percent of the cargo airlifted were carried aboard civilian airliners.<sup><a href="#_ednref54" id="_edn54">54</a></sup> In 2003 nearly 500,000 troops were transported via the Pentagon’s Civil Reserve Air Fleet program.<sup><a href="#_ednref55" id="_edn55">55</a></sup></p> <p>Yet, despite this critical national security role, there has been no serious effort to impose a&nbsp;domestic‐​build requirement on U.S. airlines. This is perhaps because there is a&nbsp;recognition that such a&nbsp;mandate would impair the ability of U.S. airlines to acquire the aircraft needed to build their fleets and compete in a&nbsp;cost‐​effective manner. The pressure of international competition benefits the U.S. aircraft manufacturing industry by forcing it to constantly improve and innovate. A&nbsp;domestic‐​build requirement would reduce those incentives, leaving U.S. aircraft manufacturing in a&nbsp;weakened position.</p> <p>Productivity comparisons between shipbuilding, aircraft, and auto manufacturing are illuminating. According to the Commerce Department, output per employee in shipbuilding rose by 45 percent from 1977 to 1998, while over the same period auto assembly output per employee increased by 117 percent and aircraft assembly output rose 88 percent.<sup><a href="#_ednref56" id="_edn56">56</a></sup> Were the U.S. shipbuilding industry able to achieve similar productivity gains, it would reduce the cost of U.S.-built ships. This, in turn, would increase the number of vessels built and the number of U.S. mariners who crew them.</p> <p>Useful lessons may also be found in the examination of shipbuilding sectors from other highly developed countries. Norway and Finland, for example, do not have domestic‐​build requirements and they have less onerous cabotage restrictions than the United States.<sup><a href="#_ednref57" id="_edn57">57</a></sup> These two countries have a&nbsp;combined population that is nearly 30 times smaller than that of the United States, yet they feature shipbuilding employment that is only seven times smaller.<sup><a href="#_ednref58" id="_edn58">58</a></sup> Furthermore, both countries have internationally competitive shipbuilding segments — offshore service vessels and fishing vessels in the case of Norway,<sup><a href="#_ednref59" id="_edn59">59</a></sup> and cruise ships and icebreakers in the case of Finland (the country produces 70 percent of the world’s icebreakers).<sup><a href="#_ednref60" id="_edn60">60</a></sup></p> <p>The European Union, meanwhile, has approximately 40 large shipyards active in the global market for large seagoing commercial vessels.<sup><a href="#_ednref61" id="_edn61">61</a></sup> In contrast, the United States builds no oceangoing ships for export<sup><a href="#_ednref62" id="_edn62">62</a></sup> and as a&nbsp;2017 National Defense University report states, “There seems to be little prospect of U.S. shipyards winning much export business for commercial vessels.“<sup><a href="#_ednref63" id="_edn63">63</a></sup></p> <p>Such facts make it easier to understand why a&nbsp;2019 Organisation for Economic Co‐​operation and Development study concluded that, in the long term, repeal of the Jones Act has the potential to increase the U.S. commercial shipbuilding industry’s total output from $859 million to $1.47 billion — as well as raise its value‐​added by about $44 million (from $412 million).<sup><a href="#_ednref64" id="_edn64">64</a></sup></p> <p>Other factors also merit consideration in the national security calculus. The Jones Act is based on the notion that U.S. self‐​reliance — in this case, in terms of shipbuilding, ships, and mariners — is preferable to relying on foreigners, including U.S. allies and partners. Yet the Jones Act discourages the very self‐​reliance it is premised on. A&nbsp;2013 Government Accountability Office (GAO) report, for example, cited numerous anecdotes of importers in Puerto Rico choosing foreign goods over those produced in the United States because the high cost of Jones Act transportation made them too expensive. Among these examples were jet fuel sourced from Venezuela instead of the U.S. mainland, as well as other products from foreign sources including fertilizer, feed, corn, and potatoes.<sup><a href="#_ednref65" id="_edn65">65</a></sup></p> <p>Perhaps most infamously, the law also effectively forces Puerto Rico to source its natural gas from abroad, as there are no Jones Act – eligible ships to transport the fuel from the U.S. mainland. In 2018, Russian natural gas was imported into Massachusetts during a&nbsp;wintertime demand spike — despite the fuel’s domestic abundance — owing to the total lack of Jones Act ships.<sup><a href="#_ednref66" id="_edn66">66</a></sup></p> <p>Finally, it should be noted that, despite being commonly hailed as a&nbsp;national security asset, the Jones Act has regularly been suspended in times of war or national emergency, including World War II, the Persian Gulf War, and in the wake of various natural disasters. In other words, when the exact situations that the Jones Act was intended to address arise, the law often must be waived because it has failed so abjectly. At such times, reality intrudes and common sense prevails.</p> </div> , <h2 class="heading"> Destined to Fail </h2> , <div class="text-default"> <p>The Jones Act’s glaring deficiencies do not surprise, given the incongruity between the law’s objectives and the means by which it seeks to accomplish them. Based on a&nbsp;theoretical underpinning that is deeply at odds with modern maritime realities, the Jones Act’s failure is merely the law reaching its inescapable conclusion.</p> </div> , <h3 class="heading"> Shipping versus Shipbuilding </h3> , <div class="text-default"> <p>A desired U.S. capability to be able to construct and repair the large numbers of ships required in a&nbsp;global conflict helps explain the impetus for the Jones Act’s domestic‐​build requirement. By preventing Americans from using foreign‐​built ships to conduct domestic commerce, the law provides U.S. shipbuilders with a&nbsp;captive market. These U.S.-built ships, however, are vastly more expensive than those produced overseas. This means that the buyers of these ships are footing the bill for what amounts to a&nbsp;massive subsidy to the shipbuilding sector (to the degree that demand even exists for such expensive ships).</p> <p>Such extremely high price tags limit the demand for ships, raise the cost of transporting cargo, and consequently make water­borne transport a&nbsp;less attractive option for moving goods. This, in turn, means fewer ships are available to serve the needs of the U.S. economy and to respond effectively to national emergency. Meanwhile, U.S. shipyards — and their skilled workers — are themselves harmed because fewer ships means reduced opportunities to perform maintenance, repairs, and upgrade work. Moreover, the dearth of ships frustrates the policy goal of ensuring sufficient numbers of mariners to crew both government‐​owned and commercial ships in wartime.</p> <p>The inherent conflict between the protection of U.S. shipbuilding and the desire for robust U.S.-flagged shipping has not escaped the notice of military logisticians. Writing in the <em>Defense Transportation Journal</em> in 1993, former commander of the U.S. Transportation Command General Duane H. Cassidy said that if he was king for a&nbsp;day, one of his decrees would be to decouple the U.S.-flagged shipping industry and the shipbuilding industry. “The continued yoking of these two industries stifles competition for both,” Cassidy said. “Carriers, to be competitive, need to buy new ships where the market dictates, like any other U.S. business.“<sup><a href="#_ednref67" id="_edn67">67</a></sup></p> </div> , <figure class="figure overflow-hidden figure--default figure--no-caption"> <div class="figure__media"> <div class="embed embed--twitter js-embed js-embed--twitter"> <blockquote class="twitter-tweet"><p lang="en" dir="ltr" lang="en">The Jones Act mandates the use of U.S.-built ships that are up to five times more expensive than those built abroad. As a result of these high prices, Jones Act ships are often kept in service long past their normal expected useful life. <a href="https://twitter.com/hashtag/EndTheJonesAct?src=hash&amp;ref_src=twsrc%5Etfw">#EndTheJonesAct</a> <a href="https://t.co/24LgXYHEw6">https://t.co/24LgXYHEw6</a> <a href="https://t.co/CqnbMCf4H1">pic.twitter.com/CqnbMCf4H1</a></p>— Cato Institute (@CatoInstitute) <a href="https://twitter.com/CatoInstitute/status/1194801635060518913?ref_src=twsrc%5Etfw">November 14, 2019</a></blockquote> </div> </div> </figure> , <h3 class="heading"> Jones Act’s Limited Wartime Benefit to U.S. Shipbuilding </h3> , <div class="text-default"> <p>One of the Jones Act’s advertised benefits — a domestic capability to build large, ocean­going ships during times of war — has proven to be of limited utility. Since the Jones Act’s passage, the United States has been in only one conflict, World War II, that required a&nbsp;large increase in shipbuilding. In many of the other military interventions, such as the 1991 Persian Gulf War, the conflict ended long before a&nbsp;new ship could have been built had the necessity arisen.</p> <p>Even during World War II, however, it is not apparent that the Jones Act contributed much to the country’s shipbuilding capacity. Scant commercial shipbuilding took place in the years preceding the war and a&nbsp;vast expansion of U.S. shipbuilding capacity was required to meet the country’s wartime needs.<sup><a href="#_ednref68" id="_edn68">68</a></sup> An emergency shipbuilding program announced by President Franklin D. Roosevelt in January 1941 — nearly a&nbsp;year before the United States entered the war — for the construction of 260 cargo vessels, for example, necessitated approval for the construction of nine new shipyards.</p> </div> , <h3 class="heading"> Costlier Ships </h3> , <div class="text-default"> <p>When the Jones Act was passed, U.S.-built ships were estimated to be 20 percent more expensive than those built overseas.<sup><a href="#_ednref69" id="_edn69">69</a></sup> Since that time, the cost premium attached to vessels constructed in the United States has risen dramatically. As a&nbsp;2019 Congressional Research Service report points out:</p> </div> , <blockquote class="blockquote"> <div> <p>The cost differential increased to 50% in the 1930s. In the 1950s, U.S. shipyard prices were double those of foreign yards, and by the 1990s, they were three times the price of foreign yards. Today, the price of a&nbsp;U.S.-built tanker is estimated to be about four times the global price of a&nbsp;similar vessel, while a&nbsp;U.S.-built container ship may cost five times the global price, according to one maritime consulting firm.<sup><a href="#_ednref70" id="_edn70">70</a></sup></p> </div> </blockquote> <cite> </cite> , <div class="text-default"> <p>The picture worsens when the time required for construction is considered. A&nbsp;1981 GAO report found that “it takes about 2&nbsp;years longer to build oceangoing vessels in the&nbsp;United&nbsp;States than overseas,“<sup><a href="#_ednref71" id="_edn71">71</a></sup>&nbsp;while a&nbsp;1985 U.S.&nbsp;International&nbsp;Trade Commission study stated that “U.S.-built commercial ships take twice as long to build and cost two times as much money as many comparable foreign‐​built vessels.“<sup><a href="#_ednref72" id="_edn72">72</a></sup></p> <p>Anecdotal evidence suggests this remains the case. From 2018 through mid‐​2019, a&nbsp;total of four Jones Act self‐​propelled ocean­going ships were built in U.S. shipyards. Two of these were 3,600 TEU (“twenty‐​foot equivalent unit,” a&nbsp;measure of volume equivalent to a&nbsp;twenty‐​foot‐​long shipping container) container ships built by the Philly Shipyard, and the remaining two were hybrid container‐​RO/​RO&nbsp;vessels with a&nbsp;2,600 TEU cargo capacity as well as room for 400 vehicles that were built by VT Halter Marine. These four vessels required 35 to 42 months to construct, measured from the time the keel was laid to the official date of completion. In comparison, one of the largest container ships in the world, the 21,413 TEU capacity&nbsp;<em>OOCL Hong Kong</em>, completed in 2017, had a&nbsp;build time of 18 months (and cost at least $50 million less than each of the 3,600 TEU ships built by the Philly Shipyard).<sup><a href="#_ednref73" id="_edn73">73</a></sup></p> <p>Given such extraordinary cost differentials and the burden they put on the U.S. maritime sector, it is worth considering whether the Jones Act would be passed by Congress today.</p> </div> , <h3 class="heading"> Bifurcation of U.S. Shipbuilding </h3> , <div class="text-default"> <p>An important reason for the Jones Act’s U.S.-build requirement is that, presumably, it would help to ensure the existence of shipyards where vessels could be built for the U.S. military.<sup><a href="#_ednref74" id="_edn74">74</a></sup> But the degree of overlap between Jones Act commercial shipbuilding and naval shipbuilding is not nearly as great as many observers may believe. As a&nbsp;2019 report from the Center for Strategic and Budgetary Assessment notes, “most shipyards that build larger U.S. Navy and Coast Guard ships do not generally construct commercial vessels.“<sup><a href="#_ednref75" id="_edn75">75</a></sup> Of the country’s major commercial shipyards, only one — General Dynamics NASSCO — constructs both large naval (noncombatant) and commercial ships. The Philly Shipyard, which has built approximately half of all large ocean‐​going Jones Act commercial ships since 2000, does not build any military vessels.<sup><a href="#_ednref76" id="_edn76">76</a></sup></p> <p>A 2019 analysis performed by scholars at the American Enterprise Institute calculated that, for the six companies that have built naval and commercial vessels since 2000, Jones Act merchant vessels accounted for a&nbsp;mere 5&nbsp;percent of orders (by the number of ships).<sup><a href="#_ednref77" id="_edn77">77</a></sup> This finding dovetails with a&nbsp;2013 GAO report that noted the vast majority of military vessels are built at seven major shipyards, some of which “also construct a&nbsp;small number of commercial vessels.“<sup><a href="#_ednref78" id="_edn78">78</a></sup></p> <p>There is little reason to think this will change, given the increasingly distinct nature of commercial and naval shipbuilding. As a&nbsp;2001 Commerce Department report notes, “The technical specialization applied to a&nbsp;naval vessel is not applied to commercial ships, and the technology in both fields is advancing to such an extent that the two modes of construction are growing increasingly segregated.“<sup><a href="#_ednref79" id="_edn79">79</a></sup></p> </div> , <h3 class="heading"> U.S. Dependence on Foreign Components and Know‐​How </h3> , <div class="text-default"> <p>Jones Act supporters may be tempted to believe that the high cost of U.S.-built ships is a&nbsp;small price to pay for freeing the United States from dependence on foreign shipbuilding, but this “independence” is illusory. To comply with the Jones Act’s domestic‐​build mandate, ships must be assembled in the United States and all “major components of the hull and super­structure” fabricated domestically.<sup><a href="#_ednref80" id="_edn80">80</a></sup> This means, however, that other key parts of a&nbsp;ship can be — and often are — produced abroad. Even the steel plating used in a&nbsp;vessel’s construction can be of foreign origin provided it is delivered in “standard mill shapes and size.“<sup><a href="#_ednref81" id="_edn81">81</a></sup></p> <p>A container ship delivered by the Philly Shipyard in 2018, the <em>Daniel K. Inouye</em>, serves as a&nbsp;good example. While Jones Act – eligible, the ship includes numerous components that were sourced from foreign firms, including the main generator engines (Hyundai Heavy Industries, South Korea); steering gear (Rolls Royce, United Kingdom); auxiliary boiler (Alfa Laval, Denmark); propulsion engine (MAN Energy Solutions, Germany); maneuvering thruster (Kongsberg Maritime, Norway); and propeller (Hyundai Heavy Industries).<sup><a href="#_ednref82" id="_edn82">82</a></sup></p> <p>Beyond components, foreign know‐​how is also frequently required to construct many of the Jones Act fleet’s large ships. In 2006, one of the few U.S. shipyards that builds large oceangoing ships, General Dynamics NASSCO, signed a&nbsp;partnership agreement with Daewoo Ship Engineering Company that would see the South Korean firm “provide the detail designs, support services and some of the material necessary for ship production.“<sup><a href="#_ednref83" id="_edn83">83</a></sup> The fruits of this agreement are readily apparent, with Daewoo serving as the design agent for the Kanaloa‐​class ships currently being built at the shipyard.<sup><a href="#_ednref84" id="_edn84">84</a></sup> Philly Shipyard’s 2018 annual report, meanwhile, highlights its “access to global shipbuilding and design expertise with partners in Asia and Europe,” adding that the company typically seeks to “identify and license existing best‐​in‐​class designs and cooperate with the owners of such designs to make such modifications as are necessary.“<sup><a href="#_ednref85" id="_edn85">85</a></sup></p> <p>Foreign reliance can also be seen in liquefied natural gas carriers, a&nbsp;type of ship that doesn’t even exist in the Jones Act fleet. As a&nbsp;2015 GAO report noted, to build such a&nbsp;vessel — which has not been done in the United States since 1980<sup><a href="#_ednref86" id="_edn86">86</a></sup>—one shipyard acknowledged that it would likely have to “hire an additional 250 to 300 skilled Korean workers for the duration of the build time to ensure the work is done correctly.“<sup><a href="#_ednref87" id="_edn87">87</a></sup></p> <p>A Jones Act ship built in 2018, the <em>El Coquí</em>, nicely captures the U.S. reliance on foreigners in ship construction. Designed by Finnish company Wärtsilä using teams in Norway and Poland, it features a&nbsp;foreign‐​built engine and liquefied natural gas fuel tanks, while the shipyard that assembled the vessel, VT Halter, is the U.S. subsidiary of Singapore‐​based firm ST Engineering.<sup><a href="#_ednref88" id="_edn88">88</a></sup></p> <p>Shipyards in the United States may be engaged in limited construction of oceangoing commercial ships — albeit at frightfully high costs that would be even higher absent their access to foreign components — but it is an open question just how truly American these ships are or how meaningful the practical difference is between manufacturing these ships in the United States versus buying them from foreign yards.<sup><a href="#_ednref89" id="_edn89">89</a></sup></p> </div> , <h3 class="heading"> Wartime Availability of Allied Shipbuilding and Repair Facilities </h3> , <div class="text-default"> <p>Implicit in the Jones Act’s logic is that a&nbsp;premium should be placed on U.S. self‐​reliance for its shipbuilding and repair needs in time of war. Such thinking, however, ignores the fact that U.S. defense allies, particularly Japan, South Korea, and certain members of NATO, are some of the world’s leading shipbuilding countries. As a&nbsp;2006 NDU report points out:</p> </div> , <blockquote class="blockquote"> <div> <p>Another argument against overseas con­struction of naval ships is that access could be taken away, leaving the U.S. without the capacity to build ships when needed. This is unlikely since there are many yards that are allies, and it is unrealistic to assume all of them would simultaneously turn down revenues and deny access.<sup><a href="#_ednref90" id="_edn90">90</a></sup></p> </div> </blockquote> <cite> </cite> , <div class="text-default"> <p>It’s also worth pondering whether in conflicts with either China or Russia (cited by the 2017 National Security Strategy of the United States of America as “challeng[ing] American power, influence, and interests”), the United States would send its damaged ships to be repaired in the nearby shipyards of allied countries in Europe and Northeast Asia rather than having them limp or be towed back across the Pacific or Atlantic Oceans.<sup><a href="#_ednref91" id="_edn91">91</a></sup></p> </div> , <h3 class="heading"> Questionable Wartime Utility of Jones Act Ships </h3> , <div class="text-default"> <p>For the Jones Act – eligible ships that are assembled in U.S. shipyards, it is unclear how much benefit they offer in a&nbsp;wartime scenario. Built for commercial purposes, their capabilities do not always align with those demanded by the U.S. military. As a&nbsp;1984 Congressional Budget Office study noted:</p> </div> , <blockquote class="blockquote"> <div> <p>[T]here is a&nbsp;growing dichotomy between those features that produce a&nbsp;commercially efficient ship and those that yield ships more useful for support of military operations. In general, the most militarily useful ships tend to be:</p> <ul><li>Relatively small — able to go in and out of shallow or otherwise restricted waters;</li> <li>Flexible — able to carry a&nbsp;variety of cargoes; and</li> <li>Self‐​sustaining — able to load and off‐​load cargo without specialized shore facilities.</li> </ul><p>Unfortunately, these characteristics are at odds with those of the most efficient commercial ships, which tend to be large, specialized, and dependent on port facilities for efficient loading and offloading. This difference in the qualities that provide military utility as opposed to those that produce commercial efficiency leads to some fundamental difficulties in developing an effective national maritime policy.<sup><a href="#_ednref92" id="_edn92">92</a></sup></p> </div> </blockquote> <cite> </cite> , <div class="text-default"> <p>This gap between military and commercial needs appears to have only widened in the years since the Congressional Budget Office report was first authored. A&nbsp;2016 report from the National Defense University, for example, noted that the ships needed to transport military personnel and cargo “do not always line up with the vessels demanded by the market for moving commercial merchandise across the waterways.“<sup><a href="#_ednref93" id="_edn93">93</a></sup> A&nbsp;2015 CRS report, meanwhile, pointed out that “the trend toward highly specialized and larger ships in the commercial sector appears inconsistent with the military’s shipping needs.“<sup><a href="#_ednref94" id="_edn94">94</a></sup></p> <p>The CRS report’s description of RO/RO ships offers an instructive example:</p> </div> , <blockquote class="blockquote"> <div> <p>Roll‐​on/​roll‐​off ships are particularly useful for the military, and they make up a&nbsp;disproportionate share of the vessels eligible for cargo preference. In the commercial market, however, this ship type has evolved into specialized vessel types that do not offer the flexibility the military requires. One example is “pure car carriers,” ships designed around the weight and dimension of the passenger automobile and unable to accommodate the wider variety of equipment and supplies for which military sealift may be required. The military also seeks fast ships whose engines are fuel‐​inefficient relative to commercial carrier needs. Commercial vessels built during the past few years have generally been designed to operate at relatively slow speeds to conserve fuel, and this is potentially inconsistent with military needs.<sup><a href="#_ednref95" id="_edn95">95</a></sup></p> </div> </blockquote> <cite> </cite> , <div class="text-default"> <p>This divide between military and commercial shipping needs appears particularly pronounced in terms of U.S.-built ships — the basis of the Jones Act fleet. Indeed, a&nbsp;2010 CRS report flatly stated that “very few commercial ships with high military utility have been constructed in U.S. shipyards in the past 20&nbsp;years.” Consequently, when the Military Sealift Command has the need to charter a&nbsp;vessel, the report added, “nearly all of the offers are for foreign‐​built ships.“<sup><a href="#_ednref96" id="_edn96">96</a></sup></p> <p>Given such facts, it’s perhaps not surprising that the CRS stated in its 2015 report that the military value of the U.S. Merchant Marine — of which the Jones Act fleet is a&nbsp;key component — “may now have more to do with the crews than with the ships themselves.“<sup><a href="#_ednref97" id="_edn97">97</a></sup></p> </div> , &lt; class="paragraph paragraph--type-container-width paragraph--view-mode-default ds-1col clearfix"&gt; <figure class="figure overflow-hidden figure--default"> <div class="figure__media"> <div class="brightcove-player sizing-responsive"> <div> </div> </div> </div> <figcaption class="figure__caption"> <div class="modifiers modifiers-id-paragraph-108733 modifiers-type-paragraph modifiers-bundle-caption modifiers-display-default figure-caption text-sans-alternate"> <p>Puerto Rico poured $285 million to turn the old port of Ponce into a&nbsp;major transshipment hub for the container trade, dubbing it “Puerto de Las Américas,” but the expectation that ocean carriers would take advantage of a&nbsp;new, centrally located Caribbean facility has not panned out​.So far the port is mostly empty, unable to attract much business from ocean carriers. It is a&nbsp;virtual ghost town.Analysts point to the Jones Act as a&nbsp;reason for the port’s lack of appeal to carriers.</p> <p><a href="https://twitter.com/hashtag/EndTheJonesAct">#EndTheJonesAct</a></p> </div> </figcaption> </figure> , <h3 class="heading"> Limited Ship Availability </h3> , <div class="text-default"> <p>Further evidence for the devalued importance of Jones Act ships in a&nbsp;national security context is the limited availability of such vessels. Despite the pressing need for sealift during the Persian Gulf War, only a&nbsp;single Jones Act ship, the <em>Ponce</em>, was taken out of commercial service to support the military’s logistical needs. The reason for this may be that the limited number of Jones Act ships had to remain at home because they were vital to the country’s domestic transportation needs. This is particularly true in the case of its noncontiguous states and territories where the fleet’s container and RO/RO ships exclusively operate. Thus, pulling ships from those trades could introduce considerable havoc through the disruption of key supply linkages for the inelastic necessities that provide the basis for employing these costly ships.</p> <p>It is for this reason that even defenders of the Jones Act admit to the limited wartime utility of such vessels. “Today the only such [commercial] ships being built in the U.S. are those destined for Jones Act routes,” says Loren Thompson, chief operating officer of the Lexington Institute. “That is not a&nbsp;lot of vessels, and if war broke out most of them would already be engaged in other tasks.“<sup><a href="#_ednref98" id="_edn98">98</a></sup></p> </div> , <h2 class="heading"> Policy Alternatives </h2> , <div class="text-default"> <p>The Jones Act is a&nbsp;failure. Its goal of ensuring sufficient sealift capacity for U.S. military forces, however, is completely reasonable. Indeed, it is a&nbsp;necessity for U.S. national security.</p> <p>In a&nbsp;world where ships are ubiquitous and shipbuilding capacity for all kinds of vessels is deep and broad, the Jones Act could contribute to national security by focusing on the objective of ensuring a&nbsp;ready reserve of trained mariners to crew our sealift ships. If the Jones Act’s onerous and unusual domestic‐​build requirement alone were repealed, the supply of ships and the demand for mariners would rise.</p> <p>The following are three approaches to eliminating the current shortfall of U.S. mariners and for sustaining a&nbsp;sufficient number of sailors. Each could be implemented in conjunction with the Jones Act’s repeal.</p> </div> , <h3 class="heading"> Establish a&nbsp;Civilian Merchant Marine Reserve </h3> , <div class="text-default"> <p>The U.S. Merchant Marine occupies an interesting position within U.S. national security. Assigned a&nbsp;vital role in defense planning, its strategic value is reflected in the U.S. Merchant Marine Academy’s status as one of the country’s five military service academies. But, despite their importance to national security, most U.S. merchant mariners are not members of the military. Their civilian status and the absence of an attendant obligation that comes with military service make uncertain the numbers who would be willing and able to serve in a&nbsp;wartime scenario.<sup><a href="#_ednref99" id="_edn99">99</a></sup></p> <p>Beyond generating uncertainty, there are intrinsic disincentives for mariners to serve in times of conflict. For example, mariners are asked to place themselves in harm’s way, but are generally not considered veterans for the purpose of accessing related federal benefits.<sup><a href="#_ednref100" id="_edn100">100</a></sup> There are other complications, as well. John Konrad, founder of the maritime website <em>gCaptain</em>, notes that despite the critical military role played by civilian merchant mariners, the U.S. military does not provide them training on such important matters as how to join a&nbsp;military convoy or share information with Naval Intelligence.<sup><a href="#_ednref101" id="_edn101">101</a></sup></p> <p>One option for resolving this problem is to formalize the Merchant Marine’s role through the establishment of a&nbsp;civilian Merchant Marine Reserve — something akin to the reserve components of other military services. Members of this reserve would receive periodic training to keep them up‐​to‐​date on new ship technologies and systems, to obtain needed military knowledge and skills, and to help ensure their crewing licenses are maintained. They could then be called on in time of war or national emergency to crew government and/​or commercial ships needed to provide sealift. Those called up for wartime service would be provided with veteran’s benefits commensurate with the importance of this critical military service.</p> </div> , <aside class="aside--left aside pb-lg-0 pt-lg-2"> <div class="pullquote pullquote--default"> <div class="pullquote__content h2"> <p>The establishment of a&nbsp;civilian Merchant Marine Reserve would have at least three key advantages over the status quo.</p> </div> </div> </aside> , <div class="text-default"> <p>The establishment of such a&nbsp;reserve has been previously studied by the U.S. government. Reports authored by the Maritime Administration in 1987 and 1991 examined such an approach for ensuring a&nbsp;pool of qualified, committed mariners, and a&nbsp;1991 Department of Transportation Inspector General report recommended that such a&nbsp;program based on MARAD’s 1991 study be implemented. A&nbsp;1991 Department of Defense and Transportation Ready Reserve Force working group report also endorsed this approach.<sup><a href="#_ednref102" id="_edn102">102</a></sup></p> <p>The establishment of a&nbsp;civilian Merchant Marine Reserve would have at least three key advantages over the status quo.</p> <p>First, it would help remove uncertainty as to the number of mariners the U.S. government could rely on in a&nbsp;wartime scenario, since these mariners would be compelled to report for duty.</p> <p>Second, the federal funding of such a&nbsp;reserve would be a&nbsp;much more equitable system of providing military sealift. Under current arrangements, the cost of the Jones Act is disproportionately borne by the country’s noncontiguous states and territories that heavily rely on ocean transport for their trade with the U.S. mainland. This means that, to the extent the Jones Act provides a&nbsp;sealift capability for the U.S. military, it is disproportionately paid for by citizens of these states and territories, including poverty‐​stricken Puerto Rico. No other national defense program relies on such small portions of U.S. society in such a&nbsp;concentrated fashion.</p> <p>Third, such an approach would make the costs of providing military sealift transparent. By effectively funding much of the existing military sealift through the Jones Act, the costs are rendered opaque. Similarly, the law’s claimed benefits, such as the number of U.S. mariners that exist because of the Jones Act, are not known with any great precision. Federal funding would eliminate these unknowns and provide greater clarity about costs, benefits, and the tradeoffs between them.</p> <p>Furthermore, previous studies suggest the cost‐​effectiveness of a&nbsp;civilian reserve. The 1987 MARAD study placed the cost of such a&nbsp;program comprising 6,480 mariners at $46 million ($104 million in 2019 dollars).<sup><a href="#_ednref103" id="_edn103">103</a></sup> This amount is a&nbsp;small fraction of the loss in economic welfare that most analyses of the Jones Act attribute to the law.</p> </div> , <h3 class="heading"> Provide Merchant Marine Wage Subsidies </h3> , <div class="text-default"> <p>An alternative approach, or perhaps a&nbsp;complementary program, to the establishment of a&nbsp;Merchant Marine Reserve would be to offer wage subsidies to U.S. mariners in order to help preserve a&nbsp;pool of Americans who could crew U.S. ships in wartime or national emergency. Such subsidies would be paid to the employers of these U.S. seamen to boost the attractiveness of employing Americans. In exchange for such subsidies, these employers would be obligated to allow these crew members to serve aboard U.S. ships in time of war or national emergency without losing their employment.</p> <p>As with a&nbsp;Merchant Marine Reserve, such an approach would offer the advantages of greater equitability and transparency in the provision of U.S. sealift.</p> </div> , <h3 class="heading"> Allow the Wartime Use of Foreign Mariners </h3> , <div class="text-default"> <p>If the pool of U.S. mariners is deemed insufficient to meet both military and commercial needs in wartime, then policymakers should consider allowing foreign mariners to crew chartered auxiliary commercial sealift ships. Foreign citizens, it should be remembered, are allowed to enlist and serve in the U.S. military. Foreign citizens also have a&nbsp;history of providing support to the U.S. military in civilian capacities. In recent times, for example, tens of thousands of foreign nationals have helped carry out logistical functions while working on U.S. military bases in Iraq and Afghanistan.<sup><a href="#_ednref104" id="_edn104">104</a></sup></p> <p>The use of foreign crews on ships that transport U.S. military supplies is far from unprecedented. As already noted, dozens of foreign‐​flagged and foreign‐​crewed ships were used as part of the sealift effort in support of Operations Desert Shield and Desert Storm. In addition, a&nbsp;2002 GAO report notes that “about 43 percent of cargo shipped overseas in 2001 as part of deployments involving major equipment in support of overseas operations was carried on foreign‐​flagged ships.“<sup><a href="#_ednref105" id="_edn105">105</a></sup> There are no known instances of sabotage being conducted by foreign crew in either the 2001 deployments or as part of Desert Shield/​Desert Storm.</p> <p>That is not to deny that there are issues of concern. During the sealift effort in support of Desert Shield/​Desert Storm, 13 (out of 177) foreign‐​flagged ships either hesitated or refused to deliver their cargo to its final destination.<sup><a href="#_ednref106" id="_edn106">106</a></sup> To reduce the possibility of such occurrences or other associated risks, the U.S. military or Military Sealift Command could restrict senior positions on the ship to U.S. citizens. Another possible measure might be to perform background checks on these foreign mariners to prequalify them prior to the outbreak of hostilities and/​or restrict eligibility for this program to citizens of countries that have defense treaties with the United States.</p> </div> , <div class="paragraph paragraph--type-horizontal-rule paragraph--view-mode-default ds-1col clearfix"> <div class="block-horizontal-rule-blocks block-horizontal-rule-blocks-short block- block"> <div class="block--inner"> <div class="spacer--standout"> <hr class="w-50" /> </div> </div> </div> </div> , <div class="text-default"> <p><strong>Related Content: </strong><a href="https://www.cato.org/publications/commentary/obscure-shipping-law-leaving-new-englanders-cold">The Obscure Shipping Law Leaving New Englanders in the Cold</a></p> </div> , <div class="paragraph paragraph--type-horizontal-rule paragraph--view-mode-default ds-1col clearfix"> <div class="block-horizontal-rule-blocks block-horizontal-rule-blocks-short block- block"> <div class="block--inner"> <div class="spacer--standout"> <hr class="w-50" /> </div> </div> </div> </div> , <div class="text-default"> <p>While using foreign mariners may present risks, it should be remembered that the use of U.S. mariners is also not risk‐​free and that the current shortage of U.S. mariners presents its own significant risk.<sup><a href="#_ednref107" id="_edn107">107</a></sup></p> </div> , <h2 class="heading"> Conclusion </h2> , <div class="text-default"> <p>With the number of shipyards, ships, and mariners all in decline, the Jones Act can only be described as a&nbsp;massive policy failure. Worse, the law has produced an outcome that is perilously at odds with its stated goals. Policy­makers must consider either major reform of the law or outright repeal.</p> <p>The law’s failure was an utterly predictable consequence. Conceived in discredited protectionist fallacies, the Jones Act deprives U.S. shipbuilding of the most essential ingredients of continuous improvement and innovation: foreign competition. The law effectively has condemned U.S. shipbuilding to second‐​rate status, which becomes more apparent with each passing decade. Meanwhile, a&nbsp;country whose geography would seemingly make it destined for maritime commercial greatness has a&nbsp;domestic fleet whose size and strength continues to plumb new depths.</p> <p>A law meant to ensure maritime strength has delivered the exact opposite.</p> <p>After nearly 100&nbsp;years of failure, it’s time for a&nbsp;new approach. Shipbuilding and coastwise transportation in the United States must be exposed to the competition that has proved to be so successful for industries throughout the U.S. economy. Beyond the economic boon it will inspire, the Jones Act’s repeal would help restore the maritime industry’s former greatness and make the country safer and more prosperous.</p> </div> , <div class="paragraph paragraph--type-horizontal-rule paragraph--view-mode-default ds-1col clearfix"> <div class="block-horizontal-rule-blocks block-horizontal-rule-blocks-short block- block"> <div class="block--inner"> <div class="spacer--standout"> <hr class="w-50" /> </div> </div> </div> </div> , <h4 class="heading"> <h4>Related Content</h4> </h4> , <div class="text-center mb-standard"> </div> <div class="grid grid--4"> <div class="paragraph paragraph--type-grid-item paragraph--view-mode-default ds-1col clearfix"> <figure class="figure overflow-hidden figure--default figure--no-caption"> <div class="figure__media"> <img sizes="992px)453px,333px" width="333" height="187" alt="Grabow Daily Podcast" class="lozad component-image" data-srcset="/sites/cato.org/files/styles/grid_item/public/2019-11/grabow-pod.jpg?itok=UimBGhFR 333w, /sites/cato.org/files/styles/grid_item_lg/public/2019-11/grabow-pod.jpg?itok=S7-LyWZ- 453w, /sites/cato.org/files/styles/grid_item_xl/public/2019-11/grabow-pod.jpg?itok=wUmX0n_Z 543w, /sites/cato.org/files/styles/grid_item_2x/public/2019-11/grabow-pod.jpg?itok=jZ5aboLr 666w, /sites/cato.org/files/styles/grid_item_lg_2x/public/2019-11/grabow-pod.jpg?itok=aGNho2CZ 906w, /sites/cato.org/files/styles/grid_item_xl_2x/public/2019-11/grabow-pod.jpg?itok=n-i-dKqA 1086w" data-src="/sites/cato.org/files/styles/grid_item/public/2019-11/grabow-pod.jpg?itok=UimBGhFR" typeof="Image" /> </div> </figure> <h6 class="heading"><a href="https://www.cato.org/multimedia/cato-daily-podcast/rust-buckets-how-jones-act-undermines-us-shipbuilding-national"> Rust Buckets: How the Jones Act… </a></h6> </div> <div class="paragraph paragraph--type-grid-item paragraph--view-mode-default ds-1col clearfix"> <figure class="figure overflow-hidden figure--default figure--no-caption"> <div class="figure__media"> <img sizes="992px)453px,333px" width="333" height="187" alt="A wreck" class="lozad component-image" data-srcset="/sites/cato.org/files/styles/grid_item/public/2019-10/ship%203.jpg?itok=qGk5t28z 333w, /sites/cato.org/files/styles/grid_item_lg/public/2019-10/ship%203.jpg?itok=ic8LYk7D 453w, /sites/cato.org/files/styles/grid_item_xl/public/2019-10/ship%203.jpg?itok=iV9ebxuh 543w, /sites/cato.org/files/styles/grid_item_2x/public/2019-10/ship%203.jpg?itok=_67Mqbfg 666w, /sites/cato.org/files/styles/grid_item_lg_2x/public/2019-10/ship%203.jpg?itok=IfVEdD18 906w, /sites/cato.org/files/styles/grid_item_xl_2x/public/2019-10/ship%203.jpg?itok=Bcv1MA2T 1086w" data-src="/sites/cato.org/files/styles/grid_item/public/2019-10/ship%203.jpg?itok=qGk5t28z" typeof="Image" /> </div> </figure> <h6 class="heading"><a href="https://www.cato.org/blog/old-ships-still-abundant-jones-act-fleet"> Old Ships Still Abundant in… </a></h6> </div> <div class="paragraph paragraph--type-grid-item paragraph--view-mode-default ds-1col clearfix"> <figure class="figure overflow-hidden figure--default figure--no-caption"> <div class="figure__media"> <img sizes="992px)453px,333px" width="333" height="187" alt="Old American Ships" class="lozad component-image" data-srcset="/sites/cato.org/files/styles/grid_item/public/2019-11/GettyImages-625794310.jpg?itok=OJ3iFl8U 333w, /sites/cato.org/files/styles/grid_item_lg/public/2019-11/GettyImages-625794310.jpg?itok=BDln7yn6 453w, /sites/cato.org/files/styles/grid_item_xl/public/2019-11/GettyImages-625794310.jpg?itok=8GC0DaT2 543w, /sites/cato.org/files/styles/grid_item_2x/public/2019-11/GettyImages-625794310.jpg?itok=zU6kW4jl 666w, /sites/cato.org/files/styles/grid_item_lg_2x/public/2019-11/GettyImages-625794310.jpg?itok=d2yRi7P4 906w, /sites/cato.org/files/styles/grid_item_xl_2x/public/2019-11/GettyImages-625794310.jpg?itok=iJiMvD8x 1086w" data-src="/sites/cato.org/files/styles/grid_item/public/2019-11/GettyImages-625794310.jpg?itok=OJ3iFl8U" typeof="Image" /> </div> </figure> <h6 class="heading"><a href="http://cato.org/blog/want-americans-buy-us-products-dump-jones-act"> Want Americans to Buy U.S. Products? Dump… </a></h6> </div> <div class="paragraph paragraph--type-grid-item paragraph--view-mode-default ds-1col clearfix"> <figure class="figure overflow-hidden figure--default figure--no-caption"> <div class="figure__media"> <img sizes="992px)453px,333px" width="333" height="187" alt="Old Shipwrecked Boat" class="lozad component-image" data-srcset="/sites/cato.org/files/styles/grid_item/public/2019-11/GettyImages-884058894.jpg?itok=1yEqh_Ap 333w, /sites/cato.org/files/styles/grid_item_lg/public/2019-11/GettyImages-884058894.jpg?itok=V8M9SNik 453w, /sites/cato.org/files/styles/grid_item_xl/public/2019-11/GettyImages-884058894.jpg?itok=yFYpNnCh 543w, /sites/cato.org/files/styles/grid_item_2x/public/2019-11/GettyImages-884058894.jpg?itok=HGIfg-DK 666w, /sites/cato.org/files/styles/grid_item_lg_2x/public/2019-11/GettyImages-884058894.jpg?itok=Sb4VrSCg 906w, /sites/cato.org/files/styles/grid_item_xl_2x/public/2019-11/GettyImages-884058894.jpg?itok=pABXugtz 1086w" data-src="/sites/cato.org/files/styles/grid_item/public/2019-11/GettyImages-884058894.jpg?itok=1yEqh_Ap" typeof="Image" /> </div> </figure> <h6 class="heading"><a href="https://www.cato.org/blog/midst-energy-boom-us-set-import-russian-lng"> Why Is an Energy Powerhouse Importing… </a></h6> </div> </div> , <div class="paragraph paragraph--type-horizontal-rule paragraph--view-mode-default ds-1col clearfix"> <div class="block-horizontal-rule-blocks block-horizontal-rule-blocks-short block- block"> <div class="block--inner"> <div class="spacer--standout"> <hr class="w-50" /> </div> </div> </div> </div> , <div class="text-default"> <h4>Citation</h4> <p class="text-sans-alternate">Grabow, Colin. “Rust Buckets: How the Jones Act Undermines U.S. Shipbuilding and National Security” Policy Analysis No. 882, Cato Institute, Washington, DC, November 12, 2019. <a href="https://www.cato.org/publications/policy-analysis/rust-buckets-how-jones-act-undermines-us-shipbuilding-national">https://​doi​.org/​1​0​.​3​6​0​0​9​/​P​A.882</a>.</p> </div> Tue, 12 Nov 2019 00:00:00 -0500 Colin Grabow https://www.cato.org/publications/policy-analysis/rust-buckets-how-jones-act-undermines-us-shipbuilding-national Want Americans to Buy U.S. Products? Dump the Jones Act. https://www.cato.org/blog/want-americans-buy-us-products-dump-jones-act Colin Grabow <p>Jones Act supporters <a href="https://thehill.com/blogs/congress-blog/politics/441167-mr-president-america-needs-the-jones-act">often</a> <a href="https://www.realcleardefense.com/articles/2019/02/16/america_second__waiving_the_jones_act_114189.html">argue</a> that the law, which mandates the use of U.S.-flagged, U.S.-built vessels that are at least 75 percent U.S. owned and crewed for purposes of domestic transport, epitomizes President Trump’s philosophy of “America First.” But as a&nbsp;new <em>Wall Street Journal<span> </span></em><a href="https://www.wsj.com/articles/america-first-kill-the-jones-act-11572822910"><span>editorial</span></a> points out, the truth is perhaps closer to the opposite:</p> <blockquote><p>[The Jones Act is] a&nbsp;particular problem for liquid natural gas, since there are zero LNG&nbsp;tankers that meet Jones Act rules. That means Puerto Rico effectively is barred from importing gas from LNG terminals in Georgia or Louisiana. As a&nbsp;result, it apparently turned to Siberia. The same happened two winters ago in New England, where gas is short due to a&nbsp;lack of pipeline capacity. A&nbsp;tanker of Russian gas was unloaded in Boston. How is this an “America First” policy?</p> </blockquote> <p>The problem goes well beyond LNG. There are no Jones Act‐​compliant liquefied petroleum gas (LPG) carriers either, so Hawaii, New Hampshire, and Puerto Rico must meet&nbsp;their propane needs by <a href="https://www.enverus.com/blog/dislocations-in-the-us-propane-market-and-the-jones-act/">importing it</a> from as far away as West Africa. This is happening even though the United States is the world’s <a href="https://bpnews.com/index.php/publications/magazine/current-issue/830-u-s-is-world-s-largest-lpg-exporter-but-when-will-market-balance">top LPG exporter</a>. The United States is also one of the world’s <a href="https://oec.world/en/profile/hs92/2714/">leading exporters</a> of asphalt, but the absence&nbsp;of Jones Act <a href="https://marine-offshore.bureauveritas.com/sites/g/files/zypfnx136/files/media/document/BV_AsphaltCarriers_V3%20PAP%20BD.pdf">asphalt carriers</a>&nbsp;means&nbsp;that Hawaii must <a href="https://www.roadsbridges.com/how-kalaeloa-facility-has-served-asphalt-industry-hawaii-over-decade">import it</a> from abroad.</p> <p>Even when the&nbsp;appropriate Jones Act ships&nbsp;actually exist, they are typically much more expensive to use. Their high costs are such that California imports&nbsp;oil <a href="https://www.reuters.com/article/us-nigeria-oil-usa-graphic/go-west-nigerian-oil-skirts-u-s-shale-boom-in-journey-to-california-idUSKCN1VU1HL">from Nigeria</a>—going around the tip of South America — instead of the Gulf Coast. The journey may be far longer, but the cost of Jones Act shipping helps tip the math in favor of African oil.</p> <p>That’s no surprise. A&nbsp;<a href="https://www.gao.gov/archive/1999/rc99191.pdf">1999 GAO report</a> found that it was three times more expensive to send oil from Alaska to the Gulf Coast than to the Jones Act‐​exempt U.S. Virgin Islands. Amazingly, that’s despite the latter journey, via Cape Horn, taking twice as long (84 versus 41&nbsp;days). A&nbsp;2014 Congressional Research Service <a href="https://fas.org/sgp/crs/misc/R43390.pdf">report</a> found that shipping oil aboard Jones Act tankers from Texas to refineries in the Northeast was up to three times more expensive than shipping the oil to Canada.</p> <p>A <a href="https://www.gao.gov/assets/660/653046.pdf">2013 GAO report</a> examining the Jones Act’s impact on Puerto Rico, meanwhile, described expensive Jones Act transport being a&nbsp;decisive factor in the decision to source products such as corn, potatoes, and fertilizer from abroad instead of domestically. The importation of jet fuel from Venezuela was also mentioned. This, according to the report, was due to the “difficulty in finding available Jones Act vessels to transport jet fuel and, when vessels are available, the high cost of such shipments compared to shipping the product from foreign countries.”</p> <p>Let’s be clear: there is absolutely nothing wrong with Americans purchasing foreign products. Access to imports raises both productivity and consumer welfare. But just as the United States should not shun goods made abroad, neither should the U.S. government effectively place its thumb on the scale in favor of imports through misguided policies&nbsp;such as the Jones Act. At the very least, Americans should have the <em>option</em>&nbsp;of&nbsp;buying U.S.&nbsp;products, which is a&nbsp;current de facto impossibility for many given the Jones Act fleet’s decayed&nbsp;state.</p> <p>Truly putting “America first” should mean&nbsp;substantial reform or repeal of the Jones Act.</p> Mon, 04 Nov 2019 15:17:14 -0500 Colin Grabow https://www.cato.org/blog/want-americans-buy-us-products-dump-jones-act The Jones Act, Liquified Natural Gas, and Russia https://www.cato.org/multimedia/cato-daily-podcast/jones-act-liquid-natural-gas-russia Colin Grabow, Caleb O. Brown <p>When Puerto Rico wants to buy liquified&nbsp;natural gas, it’s pointless to buy from America. Thank the Jones Act. Colin Grabow comments.</p> Fri, 01 Nov 2019 16:38:19 -0400 Colin Grabow, Caleb O. Brown https://www.cato.org/multimedia/cato-daily-podcast/jones-act-liquid-natural-gas-russia Why Is an Energy Powerhouse Importing Russian LNG? https://www.cato.org/blog/midst-energy-boom-us-set-import-russian-lng Colin Grabow <div></div> <p>In the coming days a Spanish‐​flagged ship, the <em>Catalunya Spirit</em>, <a href="https://finance.yahoo.com/news/puerto-rico-turns-russian-gas-135526578.html">will deliver</a> a shipment of Russia‐​originated liquefied natural gas (LNG) to Puerto Rico. Bizarrely, the United States — a <a href="https://lngfacts.org/wp-content/uploads/2019/07/2018-World-LNG-Importers-and-Exporters-by-Country.pdf">leading exporter</a> of LNG — is nonetheless importing it from a geopolitical rival. And this isn’t a first. Last year a supply of Russian LNG <a href="https://www.washingtonpost.com/business/economy/tanker-carrying-liquefied-natural-gas-from-russias-arctic-arrives-in-boston/2018/01/28/08d3894c-0497-11e8-8777-2a059f168dd2_story.html">arrived in Boston</a> amidst a spike in demand to fight off the winter cold.</p> <p>So what gives?</p> <p>Basically, the Jones Act. This 1920 law mandates that vessels transporting cargo within the United States must be U.S.-registered, at least 75 percent U.S.-owned, at least 75 percent U.S.-crewed, and U.S.-built. But no ships capable of transporting LNG in bulk quantities that meet these requirements exist. Of the world’s more than <a href="https://www.igu.org/sites/default/files/node-news_item-field_file/IGU%20Annual%20Report%202019_23%20loresfinal.pdf">525 LNG carriers</a>, not a single one is Jones Act‐​compliant. And so even as ships laden with U.S. LNG voyage to countries as distant as <a href="https://www.energy.gov/sites/prod/files/2019/09/f66/LNG%20Monthly%202019_2.pdf">India and Japan</a>, it cannot be sent by water to other parts of the United States.</p> <p>This is almost certain to remain the case so long as no changes are made to the Jones Act. The law’s strictures virtually guarantee that transporting U.S. LNG to Puerto Rico, or via ship to any other part of the United States, will never make economic sense.</p> <p>The cost of ship construction alone is prohibitive. According to the <em>Wall Street Journal</em>, a U.S.-built LNG carrier would cost <em>over </em><a href="https://www.wsj.com/articles/philadelphia-shipyard-fights-again-for-its-life-11555520301"><em>half a billion dollars more</em></a> than one purchased from a South Korean shipyard ($700 million versus $180 million). Beyond the general inefficiency of U.S. commercial shipyards, this differential is explained by a lack of expertise — U.S. shipyards have not built an LNG carrier since 1980. In a <a href="https://www.gao.gov/assets/680/673976.pdf">2015 GAO report</a> one U.S. shipyard admitted that to build such a ship it would have to “hire an additional 250 to 300 skilled Korean workers for the duration of the build time to ensure the work is done correctly.”</p> <p>Crewing the ship with Americans still further diminishes the attractiveness of a Jones Act‐​compliant LNG carrier. U.S.-flagged ships are estimated to have operating costs in excess of <a href="https://www.everycrsreport.com/files/20190517_R45725_0cf46bab3c583b70e4ff53076e46db495e9d4bfa.pdf">$6 million per year</a> compared to ships operating under foreign flags, with U.S. crews the primary cost driver.</p> <p>To make the math pencil out, a Jones Act‐​compliant LNG carrier would have to charge rates well above those of foreign‐​flagged carriers. This would cut into the savings of using cheap U.S. LNG in the first place, if not erase it entirely. And when such a ship was not delivering LNG to Puerto Rico, how would it earn its keep? For deliveries to international destinations the ship would have to compete against foreign‐​flag vessels with far lower costs. Any U.S.-built and U.S.-crewed LNG carrier would almost certainly be unemployable and unviable on a long‐​term basis.</p> <p><a href="https://www.youtube.com/watch?v=Oq4YQgxMquQ">Flying cows</a> and the importation of Russian gas — the gross inefficiencies wrought by the Jones Act would be laughable were they not so serious.</p> Wed, 23 Oct 2019 11:00:25 -0400 Colin Grabow https://www.cato.org/blog/midst-energy-boom-us-set-import-russian-lng Old Ships Still Abundant in the Jones Act Fleet https://www.cato.org/blog/old-ships-still-abundant-jones-act-fleet Colin Grabow <p>Four years ago today the United States suffered a&nbsp;horrible maritime tragedy with the sinking&nbsp;of the Jones Act‐​qualified containership <em>El Faro</em>. Caught in the midst&nbsp;of Hurricane Joaquin during its voyage from Jacksonville, Florida to San Juan, Puerto Rico, the ship was lost with all hands. Although investigations performed by the <a href="https://media.defense.gov/2017/Oct/01/2001820187/-1/-1/0/FINAL%20PDF%20ROI%2024%20SEP%2017.PDF">Coast Guard</a> and <a href="https://www.ntsb.gov/investigations/AccidentReports/Reports/MAR1701.pdf">National Transportation Safety Board</a> largely assigned blame for the disaster to the ship’s captain for his failure to divert away from the storm, the <em>El Faro</em>’s advanced age also garnered <a href="https://www.nytimes.com/2015/10/15/us/sinking-of-cargo-ship-el-faro-raises-questions-about-age-of-us-fleet.html">considerable attention</a>. Built in 1975, the ship was 40&nbsp;years old when it slipped&nbsp;beneath the heaving waves.</p> <p>For an oceangoing ship that is ancient. A&nbsp;ship’s useful life is commonly estimated to be anywhere from 20 to 30&nbsp;years, and some observers place that figure even lower. U.S. Maritime Administrator Mark H. Buzby has&nbsp;<a href="https://www.youtube.com/watch?v=xQu4gdxoE1Y&amp;feature=youtu.be&amp;t=2375">testified before Congress</a>&nbsp;that “in the commercial world it’s rare to see a&nbsp;ship beyond about 15 or 20&nbsp;years.”</p> <p>But ships long past their normal useful lifespan remain&nbsp;abundant within the Jones Act fleet. Just last week <a href="http://www.shipspotting.com/photos/middle/5/8/5/2941585.jpg">the <em>Lihue</em></a>, the world’s second‐​oldest containership at 48&nbsp;years of age, was placed <a href="https://splash247.com/american-48-year-old-boxship-reactivated/">back in service</a> by carrier Matson after being laid up for 11 months. And that’s not even the oldest Jones Act ship. The <em>Chemical Pioneer</em>, a&nbsp;vessel <a href="https://en.wikipedia.org/wiki/Sea_Witch_(container_ship)#Aftermath">partially made</a> from the charred hulk of a&nbsp;wrecked containership, was built in 1968.&nbsp;A&nbsp;general cargo ship, the <em>Coastal Trader</em>, was built in 1963.</p> <p>The evidence goes beyond anecdotes. According to the Maritime Administration’s <a href="https://www.maritime.dot.gov/sites/marad.dot.gov/files/oictures/DS_USFlag-Fleet_20190815_0.xlsx">latest statistics</a>, 30 of the 99 Jones Act ships in existence were built in 1994 or earlier. The Jones Act fleet’s nine general cargo ships average 35&nbsp;years of age while its two dry bulk ships average 38. Jones Act containerships may seem like spring chickens at 24&nbsp;years of age, but their youth is very much a&nbsp;Jones Act‐​specific context; their international counterparts average <a href="https://unctad.org/en/PublicationsLibrary/rmt2018_en.pdf">a&nbsp;mere 12</a>.</p> <p>Fortunately, a&nbsp;handful of new ships are on the way. Matson’s ships <em>Lihue</em> and the 1973‐​built <em>Matsonia</em> are set&nbsp;to be replaced by the <em>Lurline</em>, slated for delivery later this month, and another ship also named the <em>Matsonia</em> next year. Carrier Pasha Hawaii, meanwhile, will take delivery of <a href="https://www.pashahawaii.com/news-media/news/505/pasha-hawaii-celebrates-steel-cutting-mv-george-iii-keppel-amfels">two containerships</a> next year. Even after removal of these elderly&nbsp;ships and the addition of new ones the Jones Act fleet’s containerships will still average at least 20&nbsp;years of age.</p> <p>And then the fleet will once again start to advance in age. No additional orders for new ships are on the books and, as maritime publication <em>Marine Log</em> <a href="https://issuu.com/marinelog/docs/marine_log_june_2019/31">reported in June</a>, “nobody is seeing much of a&nbsp;market developing for further replacement oceangoing Jones Act containerships or tankers.” In other words, after 2020 it will likely be years until the next new Jones Act ship&nbsp;arrives.&nbsp;</p> <p>This reluctance to purchase new ships despite the fleet’s relative decrepitude is easily explained by the Jones Act’s prohibition on the use of dramatically cheaper foreign‐​built ships. Matson’s latest two ships have a&nbsp;reported price tag of <a href="https://www.bizjournals.com/pacific/news/2016/08/25/matson-orders-two-new-shipping-vessels-at-a-cost.html">$511 million</a>&nbsp;for the pair. The construction of similar vessels&nbsp;abroad likely would have cost <a href="https://www.everycrsreport.com/files/20190517_R45725_0cf46bab3c583b70e4ff53076e46db495e9d4bfa.pdf">one‐​fifth as much</a>. These high prices serve as a&nbsp;barrier to market entry, raise the cost of transportation, and result in U.S. mariners plying their trade aboard ships that should have been retired long ago.</p> <p>Reform, if not outright repeal, is urgently needed.</p> Tue, 01 Oct 2019 15:04:59 -0400 Colin Grabow https://www.cato.org/blog/old-ships-still-abundant-jones-act-fleet An Opportunity for Trump to Lead on Jones Act Reform https://www.cato.org/blog/opportunity-trump-lead-jones-act-reform Colin Grabow <p>President Donald Trump and U.K. Prime Minister Boris Johnson met on the sidelines of the G7 summit this weekend, and among the issues discussed was a possible <a href="https://www.cato.org/publications/white-paper/ideal-us-uk-free-trade-agreement-free-traders-perspective">U.S.-U.K. free trade agreemen</a><a href="https://www.cato.org/publications/white-paper/ideal-us-uk-free-trade-agreement-free-traders-perspective">t</a>. In <a href="https://www.whitehouse.gov/briefings-statements/remarks-president-trump-prime-minister-johnson-united-kingdom-working-breakfast-biarritz-france/">public remarks</a> Johnson made clear his desire that such a deal include cabotage privileges for U.K.-flagged ships:</p> <blockquote><p>PRESIDENT TRUMP: We’re having very good trade talks between the UK and ourselves. We’re going to do a very big trade deal — bigger than we’ve ever had with the UK.<br /><br /> And now, they won’t have it. At some point, they won’t have the obstacle of — they won’t have the anchor around their ankle, because that’s what they had. So, we’re going to have some very good trade talks and big numbers.<br /><br /> PRIME MINISTER JOHNSON: Talking of the anchor — talking of the anchor, Donald, what we want is for our ships to be able to take freight, say, from New York to Boston, which at the moment they can’t do. So, we want cabotage. How about that?<br /><br /> PRESIDENT TRUMP: Many things — many things we’re talking about.<br /><br /> PRIME MINISTER JOHNSON: That would be a good thing.</p> </blockquote> <p>Preventing British ships from transporting goods between two U.S. ports is the <a href="https://www.cato.org/project-on-jones-act-reform">Jones Act</a>. Passed in 1920, the law restricts domestic waterborne transport to vessels meeting four conditions: they must be U.S.-built, U.S.-flagged, at least 75 percent U.S.-owned, and at least 75 percent U.S.-crewed.<br /><br /> Given Johnson’s comments, it seems likely that British trade negotiators will seek an exemption from this law for U.K.-flagged ships. If granted, their U.S. counterparts will surely demand the removal of various trade barriers to the $2.6 trillion U.K. economy. For Americans this would be an economic twofer, providing them access to a wider range of transport options as well as expanded export opportunities.<br /><br /> Unfortunately, history does not augur in favor of such an outcome. When presented with demands for Jones Act relief U.S. trade negotiators have invariably refused to cede even an inch of ground — an intransigence which reflects the power of the lobbyists who back the law. Indeed, during bilateral trade negotiations with Canada in the 1980s the Jones Act lobby was able to persuade more than half the members of the Senate and House to sign resolutions declaring the Jones Act <a href="https://www.nytimes.com/1987/10/12/business/international-report-pact-with-canada-splits-us-industry.html">off the table</a>.<br /><br /> But there was a price to be paid. Not only were Americans denied the ability to use Canadian vessels for domestic transport but — as a former Canadian diplomat <a href="https://twitter.com/DonaldRMackay/status/1165972827419418624">points out</a>—the Jones Act was used as a means to deflect from areas where Canadians were loath to part with their own protectionist policies:</p> <div data-embed-button="image" data-entity-embed-display="view_mode:media.blog_post" data-entity-type="media" data-entity-uuid="c83ce08f-31e4-44b6-9722-f87d4c4bd9d5" data-langcode="und" class="embedded-entity"> <p><img srcset="/sites/cato.org/files/styles/pubs/public/wp-content/uploads/mackay.png?itok=TQy2Ij1Y 1x, /sites/cato.org/files/styles/pubs_2x/public/wp-content/uploads/mackay.png?itok=xdcXbpFh 1.5x" width="602" height="532" src="https://www.cato.org/sites/cato.org/files/styles/pubs/public/wp-content/uploads/mackay.png?itok=TQy2Ij1Y" alt="Mackay" typeof="Image" class="component-image" /></p></div> <p>Americans are still paying the price for Jones Act protectionism. Continued U.S. obstinacy over the law in trade negotiations is undoubtedly met with corresponding moves from its negotiating partners. That’s how the game is played.</p> <p>During talks that eventually resulted in the U.S.-South Korea free trade agreement, for example, South Korea — home to one of the world’s largest shipbuilding industries — no doubt raised the issue of the Jones Act’s U.S.-build requirement. U.S. negotiators did not accommodate them, and it’s a safe assumption that barriers to the South Korean economy which otherwise could have been removed were left in place (rice, which was <a href="https://fas.org/sgp/crs/row/IF10733.pdf">specifically excluded</a> from the deal by South Korea, seems one strong possibility). <br /><br /> This is just another one of the myriad ways in which the Jones Act harms the United States. These harms include: higher <a href="https://fas.org/sgp/crs/misc/R43653.pdf">transportation</a> <a href="https://www.newyorkfed.org/medialibrary/media/regional/PuertoRico/report.pdf">costs</a>; <a href="https://www.cato.org/publications/commentary/better-way-unclog-nyc-streets-repeal-jones-act">increased congestion</a> and highway maintenance costs; more pollution; the <a href="https://www.cato.org/blog/puerto-rico-lng-jones-act">inability</a> of Americans to buy U.S. products; and increased barriers to U.S. exports from our trading partners. The tally from these various costs is surely dizzying.<br /><br /> Boris Johnson has done President Trump a favor. With the Jones Act now on the negotiating table, an opportunity has been presented to expand economic freedom at home and increase export opportunities for U.S. businesses abroad. It’s one that Trump should seize.</p> Mon, 26 Aug 2019 15:27:00 -0400 Colin Grabow https://www.cato.org/blog/opportunity-trump-lead-jones-act-reform For More U.S.-Flag Ships, Lift the Domestic‐​Build Requirement https://www.cato.org/blog/more-us-flag-ships-lift-domestic-build-requirement Colin Grabow <div data-embed-button="image" data-entity-embed-display="view_mode:media.blog_post" data-entity-type="media" data-entity-uuid="2f520fc0-7b33-41b5-bcb8-62d066648779" data-langcode="und" class="embedded-entity"> <p><img srcset="/sites/cato.org/files/styles/pubs/public/wp-content/uploads/cape_ray2.jpg?itok=UNjIp6Ed 1x, /sites/cato.org/files/styles/pubs_2x/public/wp-content/uploads/cape_ray2.jpg?itok=n8g3FaYS 1.5x" width="700" height="399" src="https://www.cato.org/sites/cato.org/files/styles/pubs/public/wp-content/uploads/cape_ray2.jpg?itok=UNjIp6Ed" alt="Cape Ray" typeof="Image" class="component-image" /></p></div> <p>Maritime Administrator Mark Buzby has a problem. As head of the Maritime Administration he is charged with crewing and operating the Ready Reserve Force (RRF), a government‐​owned fleet used for the rapid deployment of U.S. military forces. Speaking at a Navy League‐​sponsored breakfast earlier this week, however, Buzby <a href="https://www.c-span.org/video/?463578-1/rear-admiral-mark-buzby-maritime-strategy">expressed worry</a> there aren’t enough mariners to operate these ships. The RRF, while used in a military role, relies upon civilian mariners to operate them in wartime scenarios. And those mariners are in short supply.<br /><br /> In fact, a <a href="https://www.maritime.dot.gov/sites/marad.dot.gov/files/docs/mariners/1026/mwwg-report-congress-finalr3.pdf">2017 government report</a> found that for a sustained sealift campaign the United States faces a deficit of approximately 1,800 mariners for those needed to crew the RRF and maintain commercial fleet operations — and that’s in a best‐​case scenario. The obvious remedy according to Buzby: increase the number of U.S.-flag ships to provide more employment opportunities.</p> <blockquote><p>“We believe we’re around 1,800 mariners short. So how do you make that up? That’s the question I get asked every single time. We need more places for people to work in peacetime. We need more…we need a larger U.S.-flag fleet by probably about 45 ships.”</p> </blockquote> <p>Notably, Buzby is an ardent supporter of the Jones Act, the 1920 law which restricts the domestic waterborne transport of goods to vessels that are U.S.-built, U.S.-flagged, at least 75 percent U.S.-crewed, and at least 75 percent U.S.-owned. Indeed, at the same event he listed defending the law remains as among his top priorities. Yet the Jones Act’s U.S.-build requirement is a direct impediment to realizing the goal of more U.S.-flag ships.<br /><br /> That’s because commercial ships built in U.S. shipyards are expensive — frightfully so. A May 2019 <a href="https://www.everycrsreport.com/files/20190517_R45725_0cf46bab3c583b70e4ff53076e46db495e9d4bfa.pdf">Congressional Research Service report</a> found that a U.S.-built tanker is roughly quadruple the price of a foreign‐​built vessel, while a U.S.-built container ship may be quintuple the price of one constructed abroad. For perspective, the same report said that the cost premium attached to U.S.-built ships shortly after the Jones Act’s passage was 20 percent.<br /><br /> This rise in price has correlated with a pronounced decline in the number of Jones Act‐​compliant ships. Fewer ships means fewer mariners to crew the RRF fleet.</p> <div data-embed-button="image" data-entity-embed-display="view_mode:media.blog_post" data-entity-type="media" data-entity-uuid="c1fb7c2c-312e-4ce0-92cf-7c402792118a" data-langcode="und" class="embedded-entity"> <p><img srcset="/sites/cato.org/files/styles/pubs/public/wp-content/uploads/crschart1.png?itok=yRdJiUIA 1x, /sites/cato.org/files/styles/pubs_2x/public/wp-content/uploads/crschart1.png?itok=dLPZLncl 1.5x" width="521" height="360" src="https://www.cato.org/sites/cato.org/files/styles/pubs/public/wp-content/uploads/crschart1.png?itok=yRdJiUIA" alt="ships" typeof="Image" class="component-image" /></p></div> <p>It stands to reason that if Americans had access to cheaper ships that there would be more of them. But don’t take my word for it — U.S. shipyards themselves admit that high prices are a deterrent to the use of the ships they build.<br /><br /> In 2007 the Metal Trades Department of the AFL-CIO <a href="https://boilermakers.org/node/207">filed suit</a> against the U.S. Coast Guard over its ruling allowing the use of foreign‐​built equipment modules in the construction of ships deemed to be U.S.-built. Unsurprisingly, U.S. shipyards <a href="https://www.govinfo.gov/content/pkg/USCOURTS-paed-2_07-cv-00145/pdf/USCOURTS-paed-2_07-cv-00145-1.pdf">sided with the Coast Guard</a>. Preventing the use of foreign‐​built components, Aker Philadelphia Shipyard and General Dynamics‐​NASSCO argued, would make U.S.-built ships more costly and less attractive to purchase. That would mean both less shipbuilding and fewer vessels in the Jones Act fleet.<br /><br /> As Aker (now known as the Philly Shipyard) stated:</p> <blockquote><p>[p]reventing shipbuilders from using more efficient methods in constructing vessels will increase the vessel owners’ capital cost. This in turn will increase the rates that the vessel owners must charge, decreasing their competitiveness and further reducing their share of the domestic transportation market. The lower market share will lead to a reduction in the size and number of vessels needed to fulfill the demand for domestic shipping.</p> </blockquote> <p>If more expensive ships means fewer ships, the reverse logically holds true — cheaper ships means more of them. And the cheapest solution of all would be to allow Americans to transport goods using ships built in other countries, just as they can for all other forms of transportation. That’s not just a good way to expand the U.S.-flag fleet, it’s what free people should be allowed to do.</p> Fri, 23 Aug 2019 12:10:00 -0400 Colin Grabow https://www.cato.org/blog/more-us-flag-ships-lift-domestic-build-requirement For More Short Sea Shipping, Get the Federal Government Out of the Way https://www.cato.org/blog/legalize-short-sea-shipping Colin Grabow <div data-embed-button="image" data-entity-embed-display="view_mode:media.blog_post" data-entity-type="media" data-entity-uuid="4955b303-7fa1-4dfa-992b-fcbcf20349ad" data-langcode="und" class="embedded-entity"> <p><img srcset="/sites/cato.org/files/styles/pubs/public/wp-content/uploads/containership.jpg?itok=hFihqpJi 1x, /sites/cato.org/files/styles/pubs_2x/public/wp-content/uploads/containership.jpg?itok=CasboVEk 1.5x" width="700" height="467" src="https://www.cato.org/sites/cato.org/files/styles/pubs/public/wp-content/uploads/containership.jpg?itok=hFihqpJi" alt="containership" typeof="Image" class="component-image" /></p></div> <p>Freight transport on the country’s coasts and inland waterways, more commonly known as short sea shipping, is in a pitiable state. Despite being the most <a href="https://www.iea.org/newsroom/energysnapshots/average-freight-energy-intensity-and-activity.html">energy‐​efficient method</a> of freight transport it accounts for a <a href="https://fas.org/sgp/crs/misc/R44367.pdf" target="_blank">mere 6 percent</a> of domestic tonnage moved. The corresponding figure in Europe is <a href="https://europa.eu/european-union/file/1232/download_en?token=xCql9RmY" target="_blank">40 percent</a>. Instead of using waterborne transport, Americans place about 75 percent of their freight on trucks. That means more highway congestion, more highway maintenance, and more pollution.<br /><br /> This is unlikely to change if a recent House Coast Guard and Maritime Transportation Subcommittee <a href="https://transportation.house.gov/committee-activity/hearings/the-subcommittee-on-coast-guard-and-maritime-transportation-hearing-on_--short-sea-shipping-rebuilding-americas-maritime-industry">hearing on short sea shipping</a> is any indication. <br /><br /> At the hearing, Ranking Member Rep. Bob Gibbs (R‑OH) <a href="https://www.youtube.com/watch?v=wG7aF9EISis&amp;feature=youtu.be&amp;t=3144">noted various explanations</a> for the dearth of short sea shipping such as ports configured to handle large vessels (rather than smaller ones more suitable for short sea shipping), a reluctance by shippers to switch to new transportation modes, and financing difficulties faced by shipbuilders. Maritime Administrator Mark Buzby, meanwhile, <a href="https://youtu.be/wG7aF9EISis?t=3638">laid primary blame</a> for short sea shipping’s relatively minimal usage on insufficient awareness of this transport option. <br /><br /> Although numerous causes were proffered one of the most glaring obstacles to domestic short sea shipping mysteriously went unmentioned: the Jones Act. Passed in 1920, the law restricts domestic waterborne transport to vessels that are U.S.-flagged, U.S.-crewed, U.S.-owned, and U.S.-built. </p> <p>Many people may be surprised to learn that plenty of ships laden with cargo already travel between U.S. ports. Off South Carolina, for example, the containership <em><a href="https://www.marinetraffic.com/en/ais/home/shipid:151708/zoom:8">Maersk Kowloon</a> </em>is currently sailing from Norfolk to Charleston, while another containership, the <a href="https://www.marinetraffic.com/en/ais/home/shipid:727611/zoom:8"><em>Spirit of Auckland</em></a>, is about to complete its journey from Baltimore to Charleston. Further north the containership <a href="https://www.marinetraffic.com/en/ais/home/shipid:1574978/zoom:8"><em>Dole Ecuador</em></a> is headed to Wilmington from Port Everglades, and a vehicles carrier, the <a href="https://www.marinetraffic.com/en/ais/home/shipid:419081/zoom:8"><em>Fremantle Highway</em></a>, is making its way from Jacksonville to Baltimore. <br /><br /> None of these vessels, however, meet the Jones Act’s requirements. Thus, while numerous ships regularly travel between U.S. ports — where they drop off goods imported from abroad or pick up products destined for foreign markets — Americans are barred from using them for the purpose of domestic transport. <br /><br /> These non‐​Jones Act‐​eligible ships that ply U.S. coastal waters constitute a de facto conveyor belt of which Americans cannot take advantage. Instead, goods traveling between those cities must find alternative means of transport, such as trucks or rail, as there are no Jones Act‐​eligible containerships providing service along the East Coast.<br /><br /> While repealing the Jones Act is one obvious solution, even relatively modest changes to the law would help promote short sea shipping. Elimination of the law’s U.S.-built requirement, for example, would make the ships used in short sea shipping vastly cheaper to buy. A containership that costs $50 million to build in South Korea could easily cost $250 million if constructed in the United States.<br /><br /> The high cost of purchasing these U.S.-built vessels helps explain why many ships are kept in service beyond their normal useful life, which then leads to higher operating costs. As a <a href="https://fas.org/sgp/crs/misc/R44367.pdf" target="_blank">2018 Congressional Research Service (CRS) report</a> notes:</p> <blockquote><p>The domestic ship fleet is significantly older, on average, than the world fleet, because high construction costs discourage replacement of older U.S.-built vessels. Older ships are costlier to operate because they are less fuel‐​efficient, have less automation and therefore require more crew, and have higher maintenance costs.</p> </blockquote> <p>Ships that are expensive to buy and operate reduce short sea shipping’s competitiveness by raising the cost of freight. This is not just intuitive, but also well‐​documented. Consider:</p> <ul><li>A 2017 <a href="https://fas.org/sgp/crs/misc/R44831.pdf" target="_blank">CRS report</a> entitled “Revitalizing Coastal Shipping for Domestic Commerce” noted the high cost of U.S.-built ships designed for coastal transport, which it placed at six to eight times higher than those built abroad (a <a href="https://www.everycrsreport.com/files/20190517_R45725_0cf46bab3c583b70e4ff53076e46db495e9d4bfa.pdf">more recent CRS report</a> placed this cost differential at five times greater for containerships).</li> </ul><ul><li>A <a href="https://www.gao.gov/new.items/d05768.pdf" target="_blank">2005 Government Accountability Office repor</a>t on short sea shipping highlighted the observation from relevant stakeholders that the Jones Act’s requirements “may increase the start‐​up costs of [short sea shipping] operations because ships built in U.S. shipyards tend to be more expensive than vessels that can be acquired from the global market.” The same report also noted interviews with operators of a short sea shipping service in the Gulf Coast who “said that, in general, the high capital costs of U.S.-flag vessels are affecting their ability to expand operations and keep shipping prices competitive with trucking…”</li> </ul><ul><li>A <a href="https://www.maritime.dot.gov/sites/marad.dot.gov/files/docs/intermodal-systems/marine-highways/3111/ecmhi-m-95-study-final-report.pdf" target="_blank">2013 report</a> conducted by the engineering and design firm Parsons Brinckerhoff on behalf of several state and local government agencies identified vessel costs as a leading obstacle to short sea shipping along the I‑95 corridor, estimating the cost of acquiring vessels at “13−25 percent of total service costs depending on the service pattern and vessel.”</li> </ul><ul><li>A <a href="https://www.maritime.dot.gov/sites/marad.dot.gov/files/docs/intermodal-systems/marine-highways/3116/amhreportfinalreport10282011updated.pdf">2011 report</a> prepared for the U.S. Maritime Administration noted that an easing of the Jones Act’s requirements could impact short sea shipping’s startup and operational costs, “particularly if foreign‐​built vessels are allowed, even if for limited periods of time.”</li> </ul><p>Despite such evidence, not a word about the high cost of ships was uttered nor a note of dissent sounded against the Jones Act at last month’s hearing. So long as federal legislators remain unwilling to acknowledge such obstacles the promise of short sea shipping will continue to go unrealized, our highways unnecessarily congested and polluted, the cost of transportation raised, and the U.S. economy’s competitiveness undermined.</p> Mon, 01 Jul 2019 12:57:33 -0400 Colin Grabow https://www.cato.org/blog/legalize-short-sea-shipping Keeping Up with the Jones Act https://www.cato.org/multimedia/events/keeping-jones-act Colin Grabow, Daniel J. Ikenson, Jeff Vanderslice <p>The Jones Act is back in the news, with legislation introduced this year to repeal the law and the White House said to be considering a&nbsp;limited waiver of the law for the transport of liquefied natural gas. It’s about time. For nearly 100&nbsp;years, the Jones Act has served as a&nbsp;burden on the U.S. economy and has raised transportation costs, damaged the environment, and even harmed U.S. exports. In the course of doing so, it has also manifestly failed to achieve its stated policy goals, with U.S. shipbuilding and the Jones Act fleet itself in a&nbsp;decades‐​long decline. Questions also abound about the law’s contribution to national security, as illustrated by the shortage of merchant mariners to crew the government‐​owned vessels in times of war and the Navy unable to afford ships from vastly uncompetitive U.S. shipyards to meet its sealift needs.</p> <ul> <li><a href="https://www.cato.org/project-on-jones-act-reform">Learn more about the Jones Act</a></li> </ul> Tue, 04 Jun 2019 16:51:00 -0400 Colin Grabow, Daniel J. Ikenson, Jeff Vanderslice https://www.cato.org/multimedia/events/keeping-jones-act New Report Exposes Jones Act’s Flaws https://www.cato.org/blog/new-report-exposes-jones-acts-flaws Colin Grabow <p>Evidence of the <a href="https://www.cato.org/project-on-jones-act-reform">Jones Act’s</a> failures continues to mount. Just weeks after the release of an <a href="https://www.cato.org/blog/oecd-report-calculates-major-gains-jones-act-reform">OECD study</a> predicting substantial gains from the law’s repeal, the Congressional Research Service (CRS) has a <a href="https://www.everycrsreport.com/files/20190517_R45725_0cf46bab3c583b70e4ff53076e46db495e9d4bfa.pdf">new report out</a> which places the law’s shortcomings in sharp relief.<br /><br /> The report’s description of U.S. shipbuilding is particularly eyebrow‐​raising. Rather than bolstering this sector through the Jones Act’s domestic build mandate, the CRS notes the sector has experienced a steady deterioration in competitiveness since the law’s passage:</p> <blockquote><p>A 1922 government report on shipbuilding indicated that U.S.-built ships cost 20% more than those built in foreign yards. The cost differential increased to 50% in the 1930s. In the 1950s, U.S. shipyard prices were double those of foreign yards, and by the 1990s, they were three times the price of foreign yards. Today, the price of a U.S.-built tanker is estimated to be about four times the global price of a similar vessel, while a U.S.-built container ship may cost five times the global price, according to one maritime consulting firm.</p> </blockquote> <p>Unsurprisingly, this loss of competitiveness has translated into commercial ship output that amounts to barely a rounding error in total global production:</p> <blockquote><p>The Merchant Marine Act of 1970 (P.L. 91 – 469) added as an additional objective of U.S. maritime policy to have a merchant marine “supplemented by efficient facilities for building and repairing vessels.” U.S. shipyards typically build only two or three oceangoing ships per year, and none for export, so they do not achieve economies of scale. There may be gaps of several years in between orders for container ships. In recent years, the demand has been sufficient to sustain one shipyard that builds only commercial ships. However, this yard stated that its employment had fallen below 100 people and that it had no vessels under construction or on order as of March 31, 2019.</p> </blockquote> <p>The relationship between the Jones Act and the commercial shipbuilding sector’s travails is almost <a href="https://www.cato.org/publications/commentary/jones-act-protecting-us-shipyards-death">certainly causal</a>. Drawn to a captive domestic market, U.S. shipyards have not sought to compete internationally and thus cannot achieve scale. This focus on the U.S. market means fewer opportunities for specialization and related productivity gains, while the lack of international competition reduces the need for improvement and innovation.<br /><br /> The result is spiraling costs and decreased demand for U.S.-built ships, leaving shipyards with less output to spread their fixed costs across. It’s a vicious cycle that shows no sign of ending. <br /><br /> These spiraling shipbuilding costs aren’t just an economic problem. While the Jones Act is often justified on national security grounds, the high cost of domestic shipbuilding encouraged by this law has also impaired the military’s ability to source its sealift ships from U.S. shipyards: </p> <blockquote><p>The cost differential is also an issue for Department of Defense officials in charge of military sealift ships. As discussed later in this report, the military has modified a plan to build sealift ships domestically, finding it unaffordable, and instead will buy more used foreign‐​built cargo ships. Since U.S. shipyards do not build vessels for export, they are not required to compete with foreign shipyards on price or vessel characteristics.</p> </blockquote> <p>Indeed, just last week the Secretary of the Navy <a href="https://www.maritime-executive.com/article/navy-secretary-calls-for-used-ship-buy-to-recapitalize-sealift-fleet">said that</a> he “can’t really afford a lot of $400 million ships when I can go out and buy used [roll‐​on/​roll‐​off ships] for $35 to $40 million.” And if high ship costs are a deterrent to notorious spendthrift Uncle Sam, the effect is surely no less pronounced within the broader maritime industry.<br /><br /> These high ship acquisition costs, as well as operating costs at least 2.7 times those of foreign‐​flagged vessels, help explain why demand for U.S. coastwise shipping has declined despite the many advantages of ocean transport:</p> <blockquote><p>While domestic ships are carrying fewer tons of freight today than they did in the 1950s, their most direct competitors, railroads and pipelines, are carrying more. Domestic ships have lost market share to land modes even though ships have economic advantages. Ocean carriers do not need to acquire and maintain rights‐​of‐​way like railroads and pipelines. They can move much more cargo per trip and per gallon of fuel than trucks and railroads. Although ships are slower than truck and rail modes, many shippers are willing to sacrifice transit time for substantially lower costs, as long as delivery schedules are reliable.</p> </blockquote> <p>Also seemingly explained is the lack of coastal shipping to transport containers arriving aboard large cargo ships from abroad. Instead of being placed on smaller ships as part of a hub‐​and‐​spoke system, they are placed on rail and roads, with the latter leading to increased <a href="https://www.cato.org/news-releases/2019/4/2/new-billboards-blame-onerous-jones-act-snarling-traffic-along-eastern">highway</a> <a href="https://www.cato.org/publications/commentary/better-way-unclog-nyc-streets-repeal-jones-act">congestion</a>:</p> <blockquote><p>Transshipment of international containerized cargo by feeder ships is prevalent abroad, but the practice does not exist in the United States. The Jones Act would require such ships be U.S.-built, ‑crewed, and ‑owned. Lack of transshipment services increases demand for rail and road connections to ports, as smaller feeder container ships do not play a role in distributing international containerized cargo among U.S. ports.</p> </blockquote> <p>Not everyone, however, can take refuge from the Jones Act through the use of overland forms of transportation, and the CRS report notes that the Jones Act fleet tends to “operate in markets where shippers have little alternative.” This means the non‐​contiguous states and territories of <a href="https://www.cato.org/publications/commentary/alaska-lawmakers-must-get-serious-about-jones-act-repeal">Alaska</a>, <a href="https://www.cato.org/publications/commentary/jones-act-expensive-benefits-questionable">Hawaii</a>, and <a href="https://www.cato.org/publications/commentary/2020-democratic-hopefuls-need-stop-pandering-actually-commit-helping-puerto">Puerto Rico</a> which have little choice but to suffer the law’s exorbitant costs. <br /><br /> Meanwhile, high ship acquisition costs also undoubtedly play a role in <a href="https://www.cato.org/blog/jones-act-fleet-high-costs-limited-capabilities">the absence</a> of entire ship types from the Jones Act fleet, and the advanced age and insufficient quantities of those that do exist:</p> <blockquote><p>Not all ship designs are represented in the Jones Act fleet. “Project cargo” or “heavy‐​lift” vessels are often used to carry oversized pieces of equipment such as smaller vessels, ship engines and modules, wind turbine parts, and power generation equipment. They would be useful for moving dredging fleets to project sites. There have not been any such vessels in the Jones Act fleet in recent decades. The Department of Defense has used “national defense” waivers of the Jones Act to move radar systems and newly built vessels on foreign‐​flag heavy‐​lift vessels. This type of cargo typically does not generate regular shipments in any one region; thus these ships would likely need to extend their market reach beyond the United States to include the international market. However, the higher cost structure of Jones Act operators is an obstacle to competing for international shipments.<br /><br /> Two dry bulk ships are in the oceangoing Jones Act fleet, and they appear to be mostly inactive, possibly because they are nearly 40 years old. This is twice the economic life of a ship in the global fleet (where ships are typically sent for scrapping between 15 and 20 years of age). The sole Jones Act‐​qualified chemical tanker was built in 1968. No LNG tankers are in the Jones Act fleet despite new domestic markets as a result of the shale gas boom. The lack of sufficient Jones Act‐​qualified tanker capacity to move booming shale oil production coastwise added to pressure for lifting the crude oil export ban in 2015.</p> </blockquote> <p>One result is that despite the economy’s continued expansion, and thus increased transportation needs, the number of ships and amount of cargo they carry are in long‐​term decline:</p> <div data-embed-button="image" data-entity-embed-display="view_mode:media.blog_post" data-entity-type="media" data-entity-uuid="c1fb7c2c-312e-4ce0-92cf-7c402792118a" data-langcode="und" class="embedded-entity"> <p><img srcset="/sites/cato.org/files/styles/pubs/public/wp-content/uploads/crschart1.png?itok=yRdJiUIA 1x, /sites/cato.org/files/styles/pubs_2x/public/wp-content/uploads/crschart1.png?itok=dLPZLncl 1.5x" width="521" height="360" src="https://www.cato.org/sites/cato.org/files/styles/pubs/public/wp-content/uploads/crschart1.png?itok=yRdJiUIA" alt="ships" typeof="Image" class="component-image" /></p></div> <div data-embed-button="image" data-entity-embed-display="view_mode:media.blog_post" data-entity-type="media" data-entity-uuid="4475ae98-e688-47f5-8817-bafa0600c473" data-langcode="und" class="embedded-entity"> <p><img srcset="/sites/cato.org/files/styles/pubs/public/wp-content/uploads/crschart2.png?itok=nBB1QWXL 1x, /sites/cato.org/files/styles/pubs_2x/public/wp-content/uploads/crschart2.png?itok=1pJVYPUv 1.5x" width="517" height="359" src="https://www.cato.org/sites/cato.org/files/styles/pubs/public/wp-content/uploads/crschart2.png?itok=nBB1QWXL" alt="cargo" typeof="Image" class="component-image" /></p></div> <p>The report is rife with examples of the Jones Act’s inability to meet its stated aims. It points out, for example, that the law “has not succeeded in meeting the stated policy goal of sustaining a growing merchant marine that carries an increasing proportion of the nation’s commerce.” The objective of “providing shipping service on all routes essential for maintaining the flow [of commerce] at all times” and having the “safest” types of vessels are similarly unmet, with the CRS stating that “the Jones Act fleet does not appear to achieve either of these goals.” The report adds that “One can also question whether the policy objective of having ‘the best equipped and most suitable types of vessels’ has been achieved.”<br /><br /> The failure of protectionist policy is one of the world’s more predictable phenomena, and prior to its passage some appeared to foresee its problems and urge a different course. As the CRS report points out, the minority report to a 1919 House committee report to the bill that would become the Jones Act called for an approach based on competition and the removal of restrictions:</p> <blockquote><p>…in order to build up and sustain an American merchant marine it is absolutely necessary to remove every restriction against American merchants acquiring ships, whether built in the United States or out of the United States, at the lowest possible price, in order to enable them to compete with other nations in the transportation of the commerce of the world…Our American iron and steel manufacturers were unable to compete until they had to. When they had to they did compete successfully. Our shipbuilders can and will do likewise.</p> </blockquote> <p>And more than 50 years ago the Lyndon B. Johnson administration accurately stated that protectionism and federal largesse would not reverse the U.S. merchant marine’s dwindling fortunes:</p> <blockquote><p>At a 1967 congressional hearing, Alan Boyd, Secretary of Transportation in the Lyndon B. Johnson Administration, testified that the U.S. merchant marine was “too small, too old, and too unproductive,” and stated, “you do not revitalize an industry by flooding it with Federal dollars and imprisoning it within a wall of protection.”</p> </blockquote> <p>These voices, however, have been consistently ignored in favor of those advocating yet more protectionism and government intervention, the very policies that led to the U.S. maritime sector’s current predicament. But their record of failure has never been starker or more plain to see. It’s time for a new approach based on the principles of free markets, openness, and competition whose record of success is unsurpassed. It’s a plan just crazy enough to work. </p> Thu, 23 May 2019 12:07:25 -0400 Colin Grabow https://www.cato.org/blog/new-report-exposes-jones-acts-flaws Jones Act Expensive, Benefits Questionable https://www.cato.org/publications/commentary/jones-act-expensive-benefits-questionable Colin Grabow, Michael Hansen <div class="lead text-default"> <p>Beyond mere tweaks, reforms to the Jones Act are necessary, given that the Act’s costs to Hawaii are more substantial and its benefits far more elusive than indicated.</p> </div> , <div class="text-default"> <p>The Jones Act refers to several federal domestic shipping laws, the best known of which is Section 27 of the Merchant Marine Act of 1920 regulating the domestic transportation of goods by water.</p> <p>These laws require a&nbsp;vessel in domestic trade be built and registered in the United States and mostly owned and crewed by U.S. citizens.</p> <p></p> </div> , <aside class="aside--right aside pb-lg-0 pt-lg-2"> <div class="pullquote pullquote--default"> <div class="pullquote__content h2"> <p>The argument that removal of the Jones Act would leave the noncontiguous jurisdictions — Alaska, Hawaii, Guam and Puerto Rico — without adequate shipping, meanwhile, is completely specious and used by Jones Act interests to scare the public.</p> </div> </div> </aside> , <div class="text-default"> <p>While most countries with coastlines and navigable rivers have similar laws regulating their domestic waterborne commerce — known as maritime cabotage — the U.S. system is the world’s most restrictive. This is primarily due to the requirement vessels in domestic trade be constructed at a&nbsp;shipyard in the U.S. typically at five times the cost of comparable ships built in Asia.</p> <p>The Merchant Marine Acts passed between World Wars I&nbsp;and II had the stated purpose of promoting “a merchant marine of the best equipped and most suitable types of vessels to carry the greater portion of its commerce and serve as a … military auxiliary.” That remains current U.S. shipping policy.</p> <p>Clearly, these laws and policy have failed. Today, less than 2&nbsp;percent of the seaborne foreign trade is carried by U.S. flag ships, domestic ocean shipments have declined by 95% since 1980, the U.S. flag oceangoing fleet has declined by 93% since 1960, and effectively none of the privately‐​owned ships providing military sealift are drawn from the U.S.-built fleet.</p> <p>A key failure has been to produce a&nbsp;fleet of suitable ships to meet the nation’s domestic ocean transportation needs. There are just 99 oceangoing Jones Act‐​qualified ships including 57 tankers and 25 containerships in narrow capacity ranges. In comparison, there are approximately 42,000 foreign‐​flag ships trading worldwide incorporating a&nbsp;wide variety of types and capacities. Most types are absent from the Jones Act fleet including liquefied natural gas carriers and livestock carriers.</p> <p>The argument that removal of the Jones Act would leave the noncontiguous jurisdictions — Alaska, Hawaii, Guam and Puerto Rico — without adequate shipping, meanwhile, is completely specious and used by Jones Act interests to scare the public.</p> <p>Even if Hawaii were independent as it was before annexation in 1898 and foreign vessels could operate unfettered in trade with the U.S. mainland, any shipping company using foreign vessels would have a&nbsp;vested interest in providing competitive, reliable, high‐​quality services as is done routinely in open trades around the world.</p> <p>The notion that the Jones Act protects many jobs in Hawaii is similarly fallacious. The Act only applies to employment onboard ships and construction of domestic vessels. Most Act employment in the Hawaii trade is onboard the interstate containerships and the local shipbuilding industry is extremely limited. The vast majority of maritime jobs in Hawaii, including stevedoring, military and commercial ship repair and other ancillary ship services, are not subject to the Jones Act and would exist without it.</p> <p>There are certain changes to the Jones Act that would improve ocean shipping, lower costs and better address natural disasters in the noncontiguous jurisdictions, as alluded to in a&nbsp;recent editorial&nbsp;<a href="https://www.staradvertiser.com/2019/04/29/editorial/our-view/editorial-jones-act-has-benefits-for-isles/" target="_blank" rel="noreferrer">(“Jones Act benefits isles,” Our View, Star‐​Advertiser, “April</a> <a href="https://www.staradvertiser.com/2019/04/29/editorial/our-view/editorial-jones-act-has-benefits-for-isles/" target="_blank" rel="noreferrer">29)</a>.</p> <p>The editorial suggested a&nbsp;fine‐​tuning to obtain “consumer‐​cost gains”; previously, a&nbsp;March 2013 editorial urged Hawaii legislators to adopt a&nbsp;resolution asking the Congress to exempt the noncontiguous jurisdictions from the domestic build requirement for seagoing ships (“Modify Jones Act to assist Hawaii”). This remains an effective starting point to address shipping costs.</p> </div> , <div class="text-default"> <section role="article" about="/node/308551" class="node node-type-embed-promo"><header><h2><span>Related</span> </h2> </header><div class="promo_content"> <h1> <a href="https://cta-redirect.hubspot.com/cta/redirect/4957480/a091e719-54ee-4f20-99c2-f3ee3109e1ee"><img alt="Blame the Jones Act" data-src="https://object.cato.org/sites/cato.org/files/social-images/jones_act_icon2.jpg" class=" lozad" /></a> <span class="hs-cta-wrapper" id="hs-cta-wrapper-a091e719-54ee-4f20-99c2-f3ee3109e1ee"><span class="hs-cta-node hs-cta-a091e719-54ee-4f20-99c2-f3ee3109e1ee" id="hs-cta-a091e719-54ee-4f20-99c2-f3ee3109e1ee"><a href="https://cta-redirect.hubspot.com/cta/redirect/4957480/a091e719-54ee-4f20-99c2-f3ee3109e1ee"><img class="hs-cta-img lozad" id="hs-cta-img-a091e719-54ee-4f20-99c2-f3ee3109e1ee" alt="Blame the Jones Act" data-src="https://no-cache.hubspot.com/cta/default/4957480/a091e719-54ee-4f20-99c2-f3ee3109e1ee.png" /></a></span> //--&gt; </span> </h1> <p>Justified on national security grounds as a means to bolster the U.S. maritime industry, the unsurprising result of this law has been to impose significant costs on the U.S. economy while providing few of the promised benefits. </p><p> </p></div> <footer><div> <span class="hs-cta-wrapper" id="hs-cta-wrapper-04f0c539-63ab-4f8c-9782-bec8bac5f1f1"><span class="hs-cta-node hs-cta-04f0c539-63ab-4f8c-9782-bec8bac5f1f1" id="hs-cta-04f0c539-63ab-4f8c-9782-bec8bac5f1f1"><a href="https://cta-redirect.hubspot.com/cta/redirect/4957480/04f0c539-63ab-4f8c-9782-bec8bac5f1f1"><img class="hs-cta-img lozad" id="hs-cta-img-04f0c539-63ab-4f8c-9782-bec8bac5f1f1" alt="Learn More" data-src="https://no-cache.hubspot.com/cta/default/4957480/04f0c539-63ab-4f8c-9782-bec8bac5f1f1.png" /></a></span> //--&gt; </span> </div> </footer></section> </div> Tue, 21 May 2019 16:03:00 -0400 Colin Grabow, Michael Hansen https://www.cato.org/publications/commentary/jones-act-expensive-benefits-questionable Chinese Ships on the Mississippi River: Just Another Jones Act Tall Tale https://www.cato.org/blog/chinese-ships-mississippi-river-just-another-jones-act-tall-tale Colin Grabow <p>Did you know that the Jones Act prevents Chinese ships from sailing on the Mississippi River? That, at least, is what Rep. Brian Babin (R‑TX) claimed in a <a href="https://www.youtube.com/watch?v=HZK6XgiycgY">recent speech</a> on the House floor. For dramatic effect the congressman <a href="https://pbs.twimg.com/media/D6tYncXXkAAwSjo.jpg">used a picture</a> of a ship flying an oversized Chinese flag with St. Louis’s Gateway Arch prominently displayed in the background:</p> <div data-embed-button="image" data-entity-embed-display="view_mode:media.blog_post" data-entity-type="media" data-entity-uuid="1ebd3b05-e9a1-4217-930e-e4296480db09" data-langcode="und" class="embedded-entity"> <p><img srcset="/sites/cato.org/files/styles/pubs/public/wp-content/uploads/babin.png?itok=AodjNj1i 1x, /sites/cato.org/files/styles/pubs_2x/public/wp-content/uploads/babin.png?itok=78AgZur5 1.5x" width="700" height="370" src="https://www.cato.org/sites/cato.org/files/styles/pubs/public/wp-content/uploads/babin.png?itok=AodjNj1i" alt="Babin" typeof="Image" class="component-image" /></p></div> <p>“This is a hypothetical picture, thank goodness,” said the Texas congressman. “A Chinese‐​built vessel, subsidized by their communist regime, operated by the Chinese and delivering Chinese goods all in the very heartland of the United States of America. But this could easily become a reality if the Jones Act is waived.” <br /><br /> Other Jones Act supporters have made similar warnings. Clay Maitland, the chairman of the Merchant Marine Policy Coalition, <a href="http://www.maritimetv.com/Events/Clay-Maitland_Video-Series/VideoId/3664/UseHtml5/True">stated last week</a> that his support of the Jones Act was “all about preventing the Chinese government from getting control of our inland waterways,” while in 2017 the president and CEO of Jones Act carrier Tote Inc. <a href="http://www.dailyprincetonian.com/article/2017/10/temporary-jones-act-waiver-directly-affects-town-company">said that</a> the law’s repeal could result in North Korean barges and tugboats operating on the Mississippi River. And just last year the American Maritime Partnership, a Jones Act advocacy group, ran the following internet ad:</p> <div data-embed-button="image" data-entity-embed-display="view_mode:media.blog_post" data-entity-type="media" data-entity-uuid="2c6db47f-5957-4964-86f6-82d465e98432" data-langcode="und" class="embedded-entity"> <p><img srcset="/sites/cato.org/files/styles/pubs/public/wp-content/uploads/amp_mississippi.jpg?itok=uUgF61_B 1x, /sites/cato.org/files/styles/pubs_2x/public/wp-content/uploads/amp_mississippi.jpg?itok=zbweK04Y 1.5x" width="700" height="597" src="https://www.cato.org/sites/cato.org/files/styles/pubs/public/wp-content/uploads/amp_mississippi.jpg?itok=uUgF61_B" alt="amp" typeof="Image" class="component-image" /></p></div> <p>Leaving aside the desirability of foreign ships operating on the Mississippi River, does the Jones Act actually prevent this from happening? Well, no. The Jones Act restricts the domestic waterborne transport of goods to vessels that are U.S.-flagged, U.S.-built and at least 75 percent U.S.-crewed and owned. It says absolutely nothing, however, about the ability of foreign ships to operate on inland waterways. <br /><br /> In fact, there are foreign ships operating on U.S. inland waterways at this very moment. Indeed, <a href="https://www.marinetraffic.com/en/ais/home/centerx:-90.2/centery:30.1/zoom:9">a quick peek</a> reveals numerous such vessels on the Mississippi River as far north as Baton Rouge and still more on <a href="https://www.marinetraffic.com/en/ais/home/centerx:-75.4/centery:40.0/zoom:11">the Delaware</a> and <a href="https://www.marinetraffic.com/en/ais/home/centerx:-122.9/centery:46.0/zoom:9">Columbia Rivers</a> headed to and from Philadelphia and Portland. <br /><br /> That foreign ships are not more prevalent on inland waterways is a matter of simple physics: they’re too large. The ship used in Rep. Babin’s hypothetical picture, the <em>CSCL Africa</em>, has a <a href="https://www.fleetmon.com/vessels/cscl-africa_9286011_32282/?language=en">draft of 11 meters</a> (36 feet). The Mississippi River around St. Louis <a href="https://graphics.stltoday.com/apps/river-gauges/">lacks the depth</a> to support such a vessel. This helps explain why the U.S. Army Corps of Engineers only maintains a <a href="https://www.nps.gov/miss/riverfacts.htm">9‑foot shipping channel</a> north of Baton Rouge but a 45‐​foot shipping channel south of it. <br /><br /> But even the idea of smaller‐​sized foreign vessels on the country’s inland waterways is largely a figment of the Jones Act lobby’s imagination. A 1999 U.S. International Trade Commission <a href="https://www.usitc.gov/publications/332/pub3201.pdf">report</a> which examined the Jones Act’s economic impact said that it did not bother including inland waterways in its analysis because U.S. operators there “do not appear to be significantly vulnerable to foreign competition that may occur in the absence of Jones Act restrictions.”<br /><br /> This is in large part because foreign vessels would still have to comply with U.S. laws and regulations unrelated to the Jones Act. As Michael Hansen of the Hawaii Shippers Council <a href="https://www.grassrootinstitute.org/2016/05/beltway-think-tanks-defend-jones-act-on-basis-of-homeland-security/">points out</a>:</p> <blockquote><p>…[T]he inland waterways barge industry is the least threatened by Jones Act reform or outright repeal. Even a full national repeal of maritime cabotage would be an insufficient condition for achieving continuous employment of foreign flag vessels operating in purely U.S. domestic trade. This is especially true for foreign shipping to displace purely domestic inland waterways traffic. This is primarily due to the extra‐​cabotage legal and regulatory web enveloping the inland waterways – from immigration, customs, taxation, business registration, labor, health and safety, to wage and hour – which would prevent a foreign flag vessel from being continuously employed in domestic service.</p> </blockquote> <p>In addition, U.S. builders of smaller vessels such as barges are much more internationally competitive. This means that inland waterways operators are able to purchase vessels at prices similar to those found overseas, thus boosting their ability to compete. As the USITC states, “…operators in the inland trade acquire vessels from the internationally competitive U.S. barge and smaller shipbuilders and so have substantially more competitive capital costs.”<br /><br /> Jones Act or not, Chinese ships or North Korean barges cruising the American heartland’s innermost waterways isn’t going to happen. The American people deserve more facts and less scaremongering. </p> Tue, 21 May 2019 13:24:00 -0400 Colin Grabow https://www.cato.org/blog/chinese-ships-mississippi-river-just-another-jones-act-tall-tale Colin Grabow discusses Republicans and free trade on Radio Atlantic https://www.cato.org/multimedia/media-highlights-radio/colin-grabow-discusses-republicans-free-trade-radio-atlantic Thu, 16 May 2019 11:05:00 -0400 Colin Grabow https://www.cato.org/multimedia/media-highlights-radio/colin-grabow-discusses-republicans-free-trade-radio-atlantic Trump’s Trade War Throws Good Money After Bad https://www.cato.org/publications/commentary/trumps-trade-war-throws-good-money-after-bad Colin Grabow <div class="lead text-default"> <p>Since taking office, President Trump has spoken at one time or another of reaching trade deals with China, Japan, the European Union, Canada and Mexico among others. But all that has so far been achieved is higher tariffs and a&nbsp;plunging stock market. The president’s vaunted trade agenda appears in tatters.</p> </div> , <div class="text-default"> <p>On the trade war’s Pacific front, the imposition of tariffs on $250 billion worth of Chinese imports has failed to persuade Beijing to open up its market. But it has raised the cost of production for U.S. businesses and the cost of living for American families as well as led to retaliatory tariffs on nearly all U.S. exports. More than mere tariffs will be required for China to meet American demands, with U.S. negotiators&nbsp;<a href="https://t.co/Z6Yw3S1sxR" target="_blank">reportedly admitting</a>&nbsp;their inability to “force any changes that aren’t in China’s interest.”</p> <p></p> </div> , <aside class="aside--right aside pb-lg-0 pt-lg-2"> <div class="pullquote pullquote--default"> <div class="pullquote__content h2"> <p>Perhaps the most maddening aspect of this sordid trade saga is that it didn’t have to be this way.</p> </div> </div> </aside> , <div class="text-default"> <p>Well, who could have seen&nbsp;<em>that</em>&nbsp;coming?</p> <p>And now things are set to get even worse. Faced with China’s continued refusal to meet his demands,t Trump has threatened to double down by imposing tariffs on all imports from China. It’s unclear why this will succeed where his previous efforts failed, but anyone considering a&nbsp;new phone, computer or television should consider making that purchase sooner rather than later.</p> <p>China, however, is only the most glaring example of Trump’s trade misadventures.</p> <p>A trade deal with the EU has thus far failed to show signs of materializing, which is no surprise given that the two sides seem unable to even agree on negotiating objectives. Rather than opening its market to U.S. exports, the EU has so far done the opposite, slapping tariffs on products&nbsp;<a href="https://www.bloomberg.com/news/articles/2018-11-21/tariffs-make-u-s-bourbon-an-endangered-species-in-european-bars" target="_blank">such as bourbon</a>,&nbsp;<a href="https://www.theglobeandmail.com/business/article-eu-tariffs-gutting-the-already-fading-us-jeans-industry/" target="_blank">jeans</a>&nbsp;and&nbsp;<a href="https://www.bizjournals.com/twincities/news/2018/06/26/eu-motorcycle-tariff-aims-at-harley-but-hits.html" target="_blank">motorcycles</a>&nbsp;in retaliation for Trump’s steel and aluminum tariffs. And the EU is&nbsp;<a href="https://www.bloomberg.com/news/articles/2019-05-13/eu-is-ready-to-retaliate-as-trump-s-auto-tariff-deadline-nears" target="_blank">said to be readying</a>&nbsp;more such measures if Trump proceeds with plans to impose tariffs on foreign autos.</p> <p>It’s a&nbsp;similar story with Japan, about which there’s been much talk about a&nbsp;trade deal but little in the way of actual movement. As with the EU, there seems to be little common ground on the scope of such a&nbsp;deal, and Japan may be more interested in using talks to forestall threatened auto tariffs than actually reaching an agreement.</p> <p>Even the one deal that Trump has managed to conclude, the U.S.-Mexico-Canada Agreement (USMCA), is facing a&nbsp;daunting path to congressional approval. The Democrat‐​controlled House is far from eager to hand the president a&nbsp;victory, while Sen. Charles Grassley (R‑IA)&nbsp;<a href="https://www.wsj.com/articles/trumps-tariffs-end-or-his-trade-deal-dies-11556479697" target="_blank">has vowed</a>&nbsp;that Senate passage is an impossibility so long as metals tariffs on Canada and Mexico — which have triggered retaliatory measures that have hurt Iowa farmers— remain in place.</p> <p>Trump’s tariff‐​centric trade policy hasn’t only made it more difficult to conclude trade agreements with other countries, it’s also made it harder to make deals with members of his own party.</p> <p>Perhaps the most maddening aspect of this sordid trade saga is that it didn’t have to be this way.</p> <p>One of the president’s first actions upon taking office was to withdraw from the Trans‐​Pacific Partnership (TPP), a&nbsp;trade agreement that included 11 other members of the Asia‐​Pacific region. Among them, Canada, Japan and Mexico. Rather than spending time and energy trying to secure deals with these countries, he could have taken the one already on the table, which was superior in most regards to the eventual deal he did get with Canada and Mexico and far more comprehensive than anything he stands to get from Japan.</p> <p>Passage of the trade deal would have also placed pressure on China to curtail some of its most objectionable trading practices. By placing Beijing on the outside looking in, a&nbsp;U.S.-led TPP would have provided a&nbsp;strong incentive for China to improve its standards with an eye towards eventual membership.</p> <p>Instead, we’ve been left with an absurd trade war in which victory is always just a&nbsp;tariff away. But so far all it has produced is plenty of tariffs and no victories.</p> </div> Mon, 13 May 2019 14:16:00 -0400 Colin Grabow https://www.cato.org/publications/commentary/trumps-trade-war-throws-good-money-after-bad New Study Sees Major Gains from Jones Act Reform https://www.cato.org/blog/oecd-report-calculates-major-gains-jones-act-reform Colin Grabow, Inu Manak <p>Last year, the Cato Institute <a href="https://www.cato.org/publications/policy-analysis/jones-act-burden-america-can-no-longer-bear">released a policy analysis</a> highlighting the often-overlooked costs of the Jones Act to the American economy. Far from just raising transportation costs, the policy analysis argued that there are a whole host of indirect costs that are ultimately born by U.S. consumers and businesses.  A <a href="https://read.oecd-ilibrary.org/science-and-technology/local-content-requirements-and-their-economic-effect-on-shipbuilding_90316781-en#page1">new study</a> from the Organization for Economic Cooperation and Development (OECD) provides further evidence for such claims. It estimates that repeal or even partial liberalization of the law could produce economic gains of up to $64 billion. As the report states:</p> <blockquote><p>The total U.S. economy may benefit from an increase in final demand in the range of USD 22 billion (scenario 1 [in which the Jones Act’s domestic build requirement is eliminated]) and USD 74 billion (scenario 2 [assuming full repeal]) which represent a rise between 0.12% and 0.39 percent in the long-term. U.S. total output is likely to increase between USD 40 billion (0.1%) and USD 135 billion (0.4%). In terms of domestic value added the results amount to around USD 19 billion and USD 64 billion, making up an increase of around 0.1% to 0.36% for the total U.S. economy.</p> </blockquote> <p>These figures are significant. To place them in perspective, the U.S. International Trade Commission estimated the 15-year increase in U.S. GDP from joining the Trans-Pacific Partnership agreement <span><a href="https://www.usitc.gov/publications/332/pub4607.pdf">to be $42.7 billion</a></span>. In other words, simply by removing the Jones Act, the United States could realize potential gains in excess of ratifying a major trade deal with eleven other countries including the world’s third-largest economy. And it wouldn’t require negotiations with other countries to do so.</p> <p>Furthermore, the economic benefits estimated by the OECD do not include secondary effects such as reduced highway congestion, less pollution, or the removal of an irritant from U.S. trade relations. The OECD’s numbers, in other words, are perhaps best viewed as a conservative estimate of the gains that could be unlocked by Jones Act reform.  </p> <p>So how are such numbers realized? In large part because of the benefits to industries that would see their transportation costs reduced, thus boosting their demand for transport services and increasing the amount of value added. This means more domestic economic activity. As the OECD report points out:</p> <blockquote><p>From an economic perspective, the Act evidently creates large cost inefficiencies by protecting the U.S. shipbuilding industry—a tiny economic sector in the U.S.—at the expenses of other U.S. industries with enormous economic potential…With the abolishment of the Act the associated gains will in the long-term more than compensate the initial losses incurred by the U.S. shipbuilding industry.</p> </blockquote> <p>Finally, while Jones Act reform would lead to adjustment costs for U.S. shipbuilders facing competition, one of the OECD report’s key findings is that this sector would ultimately be among the <em>chief beneficiaries</em> of changes to this law:</p> <blockquote><p>In both simulation scenarios, the U.S. commercial shipbuilding industry has the potential to increase its final demand by around 70% from approximately USD 841 million to USD 1.43 billion and its total output by about 71% from USD 859 million to USD 1.47 billion. Despite the repeal of the local content requirement the domestic U.S. shipbuilding industry can largely benefit as reflected in the increase in value added of around USD 44 million. This is the result of the increased number of new ship orders following the reduction in sales prices.</p> </blockquote> <p>This should come as no surprise. Rather than bolstering the U.S. shipbuilding sector, the findings provide additional evidence that the Jones Act is <span><a href="https://www.cato.org/publications/commentary/jones-act-protecting-us-shipyards-death">protecting it to death</a></span>. Denied the benefits of foreign competition, this sector has failed to innovate and reduce costs, in turn depressing demand for its offerings. It is therefore unsurprising that the Jones Act fleet continues to decline. And if the Jones Act is harming U.S. shipbuilding—as it no doubt is—then why should the law be regarded as an asset to national security? The entire rationale for this law continues to fall apart. </p> <p>If Congress is concerned about the state of the U.S. shipbuilding industry, repealing the Jones Act needs to be on the table.</p> <p>The Jones Act is no minor irritant or niche issue. As this latest OECD study and other reports have noted, it is in fact a profound burden, and one that the United States can <span><a href="https://www.cato.org/publications/policy-analysis/jones-act-burden-america-can-no-longer-bear">no longer bear</a></span>. It’s time for policymakers to take notice.</p> <p></p> Mon, 13 May 2019 09:29:29 -0400 Colin Grabow, Inu Manak https://www.cato.org/blog/oecd-report-calculates-major-gains-jones-act-reform Jones Act Waiver Gets Swamped https://www.cato.org/blog/jones-act-waiver-gets-swamped Colin Grabow <p>Well, no one said <a href="https://www.cato.org/project-on-jones-act-reform">reforming the Jones Act</a> was going to be easy.&nbsp;<br><br> A&nbsp;week after <a href="https://www.bloomberg.com/news/articles/2019-04-23/trump-jones-act-natural-gas">reports emerged</a> that President Trump was leaning toward granting a&nbsp;ten year Jones Act waiver for the transport of liquefied natural gas (LNG) by non‑U.S.-flag ships, he seems <a href="https://www.washingtonexaminer.com/policy/energy/trump-tells-louisiana-senators-he-wont-waive-jones-act-to-ship-natural-gas">to have</a> <a href="https://www.bloomberg.com/news/articles/2019-05-01/trump-jones-act-congress">reversed</a> <a href="https://www.theadvocate.com/baton_rouge/news/politics/article_655087b2-6c40-11e9-b404-f348067d3940.html">course</a> following a&nbsp;meeting with congressional Jones Act advocates. The president apparently folded — bigly. The members of Congress who spoke with President Trump emerged from the White House projecting supreme confidence that a&nbsp;Jones Act waiver is now effectively off the table.&nbsp;<br><br> While it is impossible to know what swayed President Trump, it beggars belief he was convinced by arguments made on economic grounds. Quite simply, there aren’t any.<br><br> If granted, the Jones Act waiver would have allowed Americans in New England and Puerto Rico to obtain bulk amounts of cheap LNG shipped in from other parts of the United States. Such a&nbsp;move would bolster the number of <a href="https://www.wsj.com/articles/typical-workers-pay-nears-200-000-at-oil-refiner-11556103600">well‐​paid jobs</a> in the energy sector as well as save Americans money. Furthermore, and perhaps most notably, the waiver would <em>not have cost one single job</em> in the U.S. maritime sector. No U.S.-flag LNG carriers would have been put out by the waiver as none exist, nor are any being built by the few remaining major U.S. shipyards.&nbsp;<br><br> A&nbsp;<a href="https://www.cassidy.senate.gov/newsroom/press-releases/cassidy-delegation-secure-commitment-from-trump-benefitting-louisiana-shipbuilders-and-maritime-workers">press release</a> from one of the meeting’s participants, meanwhile, offers a&nbsp;window into the tortured logic employed by Jones Act supporters. “We cannot let the United States become dependent on foreign countries to transport energy and critical products within the United States,” said Sen. Bill Cassidy. But under the Jones Act status quo the United States is dependent on both foreign energy — including <a href="https://www.washingtonpost.com/business/economy/tanker-carrying-liquefied-natural-gas-from-russias-arctic-arrives-in-boston/2018/01/28/08d3894c-0497-11e8-8777-2a059f168dd2_story.html?utm_term=.b458819182bd">from Russia</a>—as well as the foreign‐​flag vessels that transport it. In the Louisiana senator’s muddled thinking it is apparently preferable to have those same ships transport LNG sourced from other countries rather than make a&nbsp;slight, temporary change to the Jones Act.<br><br> This is less a&nbsp;passioned defense than unthinking devotion to a&nbsp;powerful lobby.&nbsp;<br><br> The power of the Jones Act lobby was also displayed by the attendance of Alaskan Senators Dan Sullivan and Lisa Murkowski at yesterday’s gathering. Their advocacy for the Jones Act is particularly galling given that their state is one of the law’s <a href="https://thehill.com/blogs/congress-blog/politics/410659-alaska-lawmakers-must-get-serious-about-jones-act-repeal">biggest victims</a>. Highly dependent on maritime transport, Alaska bears a&nbsp;disproportionate burden of the Jones Act’s high costs. Indeed, the law is so detested in Alaska that it is <a href="http://www.legis.state.ak.us/basis/statutes.asp#44.19.035">written into state law</a>—the result of a&nbsp;1984 referendum — that the governor must lobby Congress for its repeal. But the interests of the state’s maritime unions and related interests apparently prevail of the popular will of the people. So it goes, both in Alaska and the country as a&nbsp;whole.<br><br> Fortunately, President Trump still has time to redeem himself, and there is perhaps solace to be found in the fact that he has demonstrated himself capable of unpredictable policy turns and zig‐​zags. That he has not yet publicly committed to leaving the Jones Act untouched offers at least a&nbsp;sliver of hope that sanity will prevail and a&nbsp;waiver eventually issued. Drain this swamp, Mr. President.</p> Thu, 02 May 2019 11:35:00 -0400 Colin Grabow https://www.cato.org/blog/jones-act-waiver-gets-swamped The Jones Act Is Protecting U.S. Shipyards to Death https://www.cato.org/publications/commentary/jones-act-protecting-us-shipyards-death Colin Grabow <div class="lead text-default"> <p><a href="https://www.wsj.com/articles/philadelphia-shipyard-fights-again-for-its-life-11555520301">Fresh reports</a> have emerged that the Philly Shipyard, the recipient of multiple government <a href="https://www.philly.com/philly/business/aker-philly-shipyard-layoffs-new-orders-disappear-20180510.html">bailouts and largesse</a>, is once again on the brink of shutting down. The shipyard’s looming failure isn’t just an indictment of the corporate welfare that has been shoveled in its direction by politicians, but also a&nbsp;little‐​known, nearly 100‐​year‐​old law called the Jones Act.</p> </div> , <div class="text-default"> <p>Passed in 1920, the Jones Act mandates that vessels transporting goods between two points in the United States meet four conditions: they must be U.S.-registered, at least 75 percent U.S.-owned, at least 75 percent U.S.-crewed, and U.S.-built. The logic behind the law was that restrictions on foreign competition would, among other things, encourage the development of a&nbsp;strong U.S. shipbuilding sector.</p> <p>It hasn’t worked out that way.</p> <p>Rather than prospering, U.S. shipyards have been in a&nbsp;decline for decades, and there are only a&nbsp;mere handful that build oceangoing commercial ships. That may seem a&nbsp;headscratcher to some given the Jones Act’s U.S.-build requirement, but it makes more sense when one considers that these ships cost up to <a href="https://www.economist.com/finance-and-economics/2017/10/05/how-protectionism-sank-americas-entire-merchant-fleet">five times more</a> than equivalent vessels built in foreign shipyards.</p> <p>The most recent vessel christened at the Philly Shipyard, the Kaimana Hila, is a&nbsp;case in point. Built for transporting goods from the West Coast to Hawaii, the ship offers a&nbsp;cargo capacity of 3,600 TEUs (20‐​foot equivalent units) for the whopping price tag&nbsp;<a href="https://worldmaritimenews.com/archives/272913/matson-christens-2nd-aloha-class-unit-at-philly-shipyard/">of $209 million</a>. For comparison, the world’s largest container ship, the 21,413 TEU capacity OOCL Hong Kong, was built in South Korea <a href="https://gcaptain.com/oocl-hong-kong-breaks-21000-teu-mark/">for $158 million.</a> That’s over six times the cargo capacity at a $51 million discount.</p> <p></p> </div> , <aside class="aside--right aside pb-lg-0 pt-lg-2"> <div class="pullquote pullquote--default"> <div class="pullquote__content h2"> <p>Faced with such high prices shipping companies have delayed replacing their vessels and instead keep them years — and sometimes even decades — past their typical useful life.</p> </div> </div> </aside> , <div class="text-default"> <p>Amazingly, despite the Kaimana Hila’s sky‐​high price the Philly Shipyard is actually said to have <a href="https://www.wsj.com/articles/philadelphia-shipyard-fights-again-for-its-life-11555520301">lost money</a> on the deal to build the ship. </p><p>Faced with such high prices shipping companies have delayed replacing their vessels and instead keep them years — and sometimes even decades — past their typical useful life. Expensive ships make for expensive shipping, contributing to a&nbsp;<a href="https://fas.org/sgp/crs/misc/R44831.pdf">domestic decline</a> in this form of transport in recent decades despite a&nbsp;growing economy. Indeed, Jones Act shipping can be so expensive that ranchers in Hawaii sometimes opt to place their <a href="https://www.youtube.com/watch?v=Oq4YQgxMquQ">cattle on airplanes</a> for transport to the West Coast instead of ships.</p> <p>Declining demand, meanwhile, has made it a&nbsp;struggle for U.S. shipbuilders such as the Philly Shipyard to <a href="https://transportation.house.gov/imo/media/doc/March%206th%20Testimony_Buzby_MARAD.pdf">achieve scale</a> or invest in the technology needed to bring their costs down. They’re caught in a&nbsp;vicious cycle that has left them collectively producing for the commercial ship market in a&nbsp;year what Asian yards might churn out in a&nbsp;week.</p> <p>But it doesn’t have to be like this.</p> <p>Instead of coddling the Philly Shipyard it should be forced to compete. And that needs to begin by reforming or repealing the Jones Act to allow Americans to buy foreign‐​built ships for use in domestic transport. After all, the auto and aerospace industries are not subject to U.S.-build requirements and yet U.S. firms — spurred to innovate by international competition — are world leaders in both.</p> <p>The experience of European shipyards may provide a&nbsp;useful lesson. As in the United States, European shipbuilders have found themselves increasingly unable to compete on price with Asian yards for the construction of large cargo ships by competitors. But rather than abandoning shipbuilding they have responded by seeking to move up the value chain and focus on higher‐​end specialized vessels. Tiny Finland, for example, is renowned for its prowess in building icebreakers, while German yards are some of the world’s best at producing cruise ships.</p> <p>Why should anyone think that Americans, capable of engineering feats ranging from the iPhone to the Dreamliner to rockets that land themselves, can’t find their own segment in this international market? Protectionism has been tried and protectionism has failed. American shipbuilding can survive and even prosper — so long as the Jones Act isn’t in the way.</p> </div> Thu, 25 Apr 2019 11:22:00 -0400 Colin Grabow https://www.cato.org/publications/commentary/jones-act-protecting-us-shipyards-death President Trump Considering a Jones Act Waiver https://www.cato.org/blog/president-trump-considers-jones-act-waiver Colin Grabow <p>New reports suggest that President Trump is considering <a href="https://www.bloomberg.com/news/articles/2019-04-23/trump-jones-act-natural-gas">granting a&nbsp;Jones Act waiver</a> to allow non‑U.S.-flagged ships to transport natural gas from energy‐​rich parts of the United States to the Northeast and Puerto Rico. He should do so without delay. Granting this waiver would mark not just a&nbsp;triumph of common sense, but also help fulfill President Trump’s campaign promise to take on the Washington <a href="https://www.cato.org/blog/puerto-rico-lng-jones-act">special</a> <a href="https://www.cato.org/blog/jones-act-lobby-hits-panic-button">interests</a>&nbsp;who profit from laws such as the Jones Act at the expense of American consumers and businesses.</p> <p>To learn more about this issue both the public and media alike are invited to attend an <a href="https://www.cato.org/events/unnatural-disaster-assessing-jones-acts-impact-puerto-rico">April 30 event</a> at the Cato Institute that will examine the Jones Act’s impact on Puerto Rico. Featuring Puerto Rico’s Secretary of State, the president of the Puerto Rico Economic Development Bank, and other experts, the event will include a&nbsp;discussion of the island’s attempt to obtain a&nbsp;Jones Act waiver for the purpose of transporting U.S. natural gas. For further information about both the Jones Act and the Cato Institute’s effort to raise awareness about this burdensome and outdated law please visit <a href="http://www.cato.org/jonesact">cato​.org/​j​o​n​esact</a>.</p> Wed, 24 Apr 2019 11:45:00 -0400 Colin Grabow https://www.cato.org/blog/president-trump-considers-jones-act-waiver Colin Grabow discusses the Jones Act on The Lars Larson Show https://www.cato.org/multimedia/media-highlights-radio/colin-grabow-discusses-jones-act-lars-larson-show Wed, 24 Apr 2019 11:19:00 -0400 Colin Grabow https://www.cato.org/multimedia/media-highlights-radio/colin-grabow-discusses-jones-act-lars-larson-show