Jones Act

For More Short Sea Shipping, Get the Federal Government Out of the Way

containership

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 energy-efficient method of freight transport it accounts for a mere 6 percent of domestic tonnage moved. The corresponding figure in Europe is 40 percent. 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.

This is unlikely to change if a recent House Coast Guard and Maritime Transportation Subcommittee hearing on short sea shipping is any indication. 

At the hearing, Ranking Member Rep. Bob Gibbs (R-OH) noted various explanations 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, laid primary blame for short sea shipping’s relatively minimal usage on insufficient awareness of this transport option. 

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. 

New Study Sees Major Gains from Jones Act Reform

Last year, the Cato Institute released a policy analysis 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 new study 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:

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.

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 to be $42.7 billion. 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.

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.  

Rep. John Garamendi’s Questionable Defense of the Jones Act

To paraphrase Ronald Reagan, the problem with Rep. John Garamendi (D-CA) isn’t so much that he is uninformed, it’s just that he knows so many things that aren’t so. That, at least, is the impression one is left with after reading the California congressman’s latest op-ed in defense of the Jones Act which is replete with errors, half-truths, and contradictions. 

Disturbingly, the Chairman of the House Armed Services Committee’s Readiness Subcommittee fudges even basic facts. In the op-ed’s fourth paragraph, for example, Rep. Garamendi claims there are only 81 U.S.-flag oceangoing vessels. The latest data from the U.S. Maritime Administration, however, shows 180 such ships.

Rep. Garamendi later warns about the dangers of employing foreign-flag ships to transport supplies and equipment for the U.S. military, claiming that during the 1991 Gulf War “The foreign crews on thirteen vessels mutinied, forcing those ships to abandon their military mission.” But that’s not true. The United States Transportation Command’s official history of its performance in Operations Desert Shield and Desert Storm makes no mention of mutinies or mutineers and says that only two ships, the Trident Dusk and the Banglar Mamata, failed to deliver their cargo. Eleven other ships expressed some hesitation but did, in fact, fulfill their missions, and the Transportation Command says crews on foreign flag ships “on the whole proved dependable” and were “overall, reliable.”

Furthermore, Rep. Garamendi’s invocation of these foreign flag bulkers is curious, as the Jones Act is commonly presented as avoiding this very kind of foreign dependence. Plainly it is not accomplishing this goal. Indeed, another item mentioned by the Transportation Command’s report is that the United States was desperately short of ships that it twice asked the Soviet Union to borrow one of theirs.

The op-ed also suffers from other curious leaps of logic and seeming contradictions. 

Rep. Garamendi, for example, hits back at criticisms the Jones Act is outdated and harmful by noting that “Ninety-one U.N. member states comprising 80 percent of the world’s coastlines have cabotage laws protecting domestic maritime trade.” But this observation does nothing to refute the law’s critics or prove that the Jones Act is somehow useful. Notably, countries that have moved to loosen their cabotage laws such as the Philippines and New Zealand (see page 6) have experienced positive results. 

Doubling Down on Failed Maritime Protectionism

What to do when confronted with the failures of U.S. maritime protectionism? Call for more protectionism, of course. That, at least, is the apparent attitude of some members of Congress.

A notable aspect of the Jones Act debate is that the law’s supporters often admit, albeit tacitly, that it isn’t working very well. Rep. John Garamendi (D-CA) is a case in point. Participating in a recent panel discussion at the Brookings Institution, Rep. Garamendi readily conceded the enervated state of U.S. shipbuilding. “What remain of the American shipyards”—approximately 300 shipyards have closed since 1983—consist of “mostly small shipyards,” according to the California Congressman, as well as a few large ones which are “producing ships for the Jones Act but not for the international trade.”

Rep. Garamendi also freely acknowledged that, beyond the decline in shipyards, the United States also suffers from a lack of merchant mariners. Should the federal government call upon U.S. merchant mariners to crew the ships needed to deploy and sustain U.S. forces in time of war, Rep. Garamendi said that current projections show it falling 2,800 short (A 2017 government report found the deficit to be 1,839. This, however, was a best-case scenario assuming every mariner would be available and willing to sail).

This lack of mariners is no surprise given the steep decline in Jones Act-eligible ships, which have fallen from 326 in 1982 to just 99 today. In sum, fewer shipyards are building fewer ships which in turn employ fewer merchant mariners. Everything is trending in the wrong direction.

But if you were expecting Rep. Garamendi to reconsider his support for maritime protectionism in the wake of such failings, think again. Not only does he remain an ardent defender of the Jones Act, Rep. Garamendi believes that the maritime industry’s salvation is to be found in extending similar provisions to other areas of maritime commerce.

Citing the example of similar laws in Russia, India, and China—those noted paragons of wise economic policy—Rep. Garamendi used his Brookings appearance to highlight a bill called the Energizing American Shipbuilding Act. This legislation, which he vowed to re-introduce in a recent letter both he and Sen. Roger Wicker (R-MS) sent to senior Trump administration officials, would mandate that 15 percent of liquefied natural gas (LNG) exports and 10 percent of oil exports be carried aboard ships that are U.S.-flagged, U.S.-crewed, and U.S.-built.

This bill, if passed, would be a disaster.

New Jones Act Ship No Cause for Celebration

Earlier this month a new Jones Act-eligible ship, Kaimana Hila, was officially christened when Rep. Tulsi Gabbard broke a ceremonial champagne bottle against the ship’s super-structure. On the surface, the new vessel is a triumph. At 850 feet in length and featuring a cargo capacity of 3,600 TEUs Kaimana Hila is—along with sister ship Daniel K. Inouye—the largest containership in the Jones Act fleet. But this is no shining example of U.S.

The Jones Act Fleet: High Costs and Limited Capabilities

Jones Act shipping is expensive. So much so that, as a new Cato Institute video points out, it actually competes with aircraft on the island of Hawaii for transporting cattle to the mainland. 

But the costly nature of Jones Act shipping is only one of the video’s key lessons. Another is the lack of appropriate ships to support such trade and the inefficiencies this creates. In a more economically rational world, Hawaiian cows would be sent to the West Coast aboard specially designed livestock carriers. 

But none exist in the Jones Act fleet, so ranchers in Hawaii make do with makeshift solutions such as using 747s or specialized containers placed aboard ships known as “cowtainers”—economic kludges not found anywhere else in the world. 

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