Jones Act Third Rail

Internally at gCaptain we call the Jones Act the third rail of maritime politics. No other topic we post about gets gets people (on both sides) sending us angry emails quicker.

To preface this: I have supported the jones act since college and gCaptain publishes the work of the guy who, bar none, is doing more to protect the jones act than anyone today: Sal Mercogliano. Further, both I and gCaptain, support a strong us merchant marine.

That said, I’ve had an inside look at certain elements of washington and banking, that lead me to believe the jones act is still alive because the big banks and politicians know it weakens the us merchant fleet.

Here is what I wrote in another thread:

This is not a call to kill the jones act, it is a call for new ideas and thinking.

Here’s the way I see it:

  1. the jones act supports us shipping companies BUT it hampering the ability of us shipping companies to get large amounts of financing. And without financing more us ships, the us merchant fleet will continue to wither.

  2. Erasing the jones act would facilitate the financing of new us flagged ships BUT us mariners and us shipyards will loose jobs.

IMHO it’s a Catch 22. Either way we are screwed.

What I believe we need is to

  1. stop fighting amongst ourselves over The existing scraps (This is an absolute prerequisite).
  2. look for new and creative ways to solve the most pressing problem facing us shipping: access to financing.

I have finished the first draft of a new US Maritime Strategy which addresses this issue but, before I publish it, I would like you guys to submit an new ideas you have to this thread.

P.S. Again, this is not a debate thread. It’s a solution thread. Please be supportive of other’s ideas because Infighting is our #1 threat! Let me and the people I’m working with determine the merits of each idea. You can write supporting replies but post the complaints elsewhere.

John

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Is the wheel really broken? Seems to me the Jones act is still the solution because organizations such as AMP, AMO, MMP, SIU etc. lobby congress on a regular basis, and because it still makes a lot of sense protecting our waterways, maritime/war interests, infrastructure, etc.

New ideas can be great but they are harder to sell than ideas that are already proven.

It doesn’t have to be all or nothing. Get rid of the domestic build requirement which at this stage is a lost cause and keep the manpower requirement. The war interests are not protected by the build origin but by vetted US seafarers manning the ships.

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As much as I tongue in cheek believe that we as a whole truly do view infighting as a treat, I feel you may have meant threat. :face_with_monocle:

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I didn’t say the entire wheel was broken, I said that finance options are severely limited for jones act ships. That is one small, but critical, aspect of operating jones act vessels. There are a few US shipping companies that are unlikely to survive the next six months.

BTW: as stated above… your reply is exactly THE problem! Whenever anyone tries to fix it people come out of the woodwork angry.

Did I sound angry?

I’ve been a part of a relatively healthy Jones Act protected MM for about 30 years. It’s seen it’s ups and downs, but despite these Covid crazy times, It’s been a lot worse in years past. True maybe survival is in question next year or two but probably the same for many sectors of the economy. My opinion is we are more essential than most.

Ten fifteen years ago everyone wondered about a very old fleet, then we built a whole new fleet. The numbers worked and it happened. I’m not keeping up on banks and finance but I see a strong, well funded fleet and the interests against the JA have always been noise and not a lot more. Just sayin.

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John, I believe Admiral Buzby at Marad is a strong advocate for Jones Act Trade and supports building new commercial vessels and updating our MSC Fleet… You two guys need to have lunch one day. If you feel any different about the process, please let him know. He is very open and knowledgable regarding comments and improvements that would benefit the platform. He is in a jungle and handling it quite well compared to his prior compatriots who , in one mans opinion, did not serve us as well as they could have.

No, not at all. And I didn’t intend to sound angry either.

I think we both were just matter of fact.

Been there done that and we have talked many times since.

I happen to believe that Buzby is doing a fine job. More important than banks, more important than anything else I can think of, is getting pentagon buy in… and Buzby is working miracles in that department. Prior to his tenure very few in the dod understood or cared about the us merchant marine… today it has everyone’s attention. That is due to Buzby.

That said, the problem I mentioned is not a dod problem… it’s a banking issue. US shipping firms are having difficulty getting financing. Meanwhile US banks have returned to the number one slot in terms of maritime finance. US interests are financing more ships than ever… just not jones act ones.

Finance isn’t Buzby’s strong suit and we wouldn’t want him refocusing his mission from dod right now.

Many of his conferences have included the the fact that for his ideas to be successful that we “Have to find the money” And hard to get. To not so quote him verbatim, he is looking at every avenue possible to get our vessels up to date and a reliable fleet… At least we are on the same page on that agenda. I’m not sure what his finesse is regarding financing, But confident he for darn sure has more than a clue. The guy is in it ass deep as long as they will let him during his tenure. You already know that perhaps, he is one of the few that does’nt talk out of both sides of his mouth.

What would be the effect of removing the domestic build requirement? Would Crowley, Tote or Matson be able to survive with the financing on their new Jones Act vessels if they faced competition from foreign-built vessels? The UK would very much like their shipbuilding industry back to the point they are considering requiring that their naval vessels be built domestically.

And what would be the next domino to fall? Would it be the US-owned requirement or the US-manned?

Part of the problem is that we (the maritime industry) is constantly fighting over our piece of an ever-smaller pie. A little cooperation might go a long way. We might also look at what the future holds technology-wise. Whether it be construction techniques (think LNG or DP drill ships), vessel control (DP or various levels of autonomy - now THAT is the 3rd rail of discussions within the industry) or training, we are no longer the innovators and leaders.

Asking our government officials to abide by the laws and regulations in place is a starting point. Ensuring US vessels are used when required and waivers aren’t used for foreign-flag vessels within US waters would help keep us afloat - literally and figuratively.

Disclaimer : All opinions expressed are my own and not of any employer or institution with which I am associated.

Tax dodging, money laundering, Forex arbitrage all figure into the banksters business decisions. Too much sunlight falls on Jones Act ships which makes them uncomfortable. No one stops them from giving preference to their own and foreign interests because they are “systemically important” too big to fail etc. They rule. Just Goldman Sachs has over 20 of their people in the government now. Mnuchin, Donovan, Dudley just to name a few.

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As to point #1: Could you expand upon what you are considering “The existing scraps” just so it’s clear what you are referring to?

As to point #2, I’m an engineer not a financier, however my understanding/assumption is that obtaining corporate financing for a large capital asset like a vessel is contingent on the likelihood and ability to cover the note. Granted, 15 years of failing drillship companies would prove thats not always the case. US shipping companies that build JA ships are currently solvent are they not? (disregarding any Covid impact). Do you have any real input from JA majors as to what the actual barriers to financing are? Banks have a vested interest in making money, and there is plenty of history to suggest they are not of such high morals as to not lend to one company at the detriment to another if they though it could be profitable. If you want viable creative solutions then you need a more detailed/defined problem than simply no one will give us money. Why? (And I don’t think “politics” is a detailed enough answer).

I’ve made the point elsewhere that, while not new or particularly creative, simply replacing the build with a repair requirement has the potential to drastically change the JA shipping climate. Reference my Post # 7, 15, 17, 19, 22 in End the Jones Act? Ask Alexander Hamilton. So I won’t rehash them here, but would be happy to expand or clarify my view if requested.

A agree there must be a change, a fix. And I sincerely hope you are driving at something behind the scenes.

So many reasons, here are just a few:

  1. Today international law selectively “codes” certain assets, endowing them with the ability to protect and produce private wealth. With the right legal coding, any object, claim, or idea can be turned into capital—and lawyers are the keepers of the code. They pick and choose among different legal systems and legal devices for the ones that best serve their clients’ needs… to do this for ships you need to be able to incorporate, finance, flag, insure, class… in a multitude of countries. Coding capital is difficult to do for jones act vessels.

  2. Anytime you accept subsidies or protections you submit to government regulation and bureaucracy. Banks have been mostly avoiding these types of deals for a decade or two but especially want to avoid them today because of today’s uncertain political environment.

  3. The Digitalization of assets allows them to be traded electronically and allows banks to leverage them in new ways but ship finance has yet to be digitized.

  4. The koch brothers via cato Institute are spending millions to defeat the jones act. If they win the chance of bankruptcy for jones act companies goes up significantly.

  5. Banks always want beneficial parties to directly have skin in the game. The primary benefactor of us flag ships is the dod so the dod needs to co-sign the loans.

  6. The hull of the ship serves as collateral for the loan but constructing a ship in the united states is 5 times the cost of building overseas so they get 1/5th the collateral. Sure, because of the jones act, jones act ships hold their value better but only because of the jones act (which is under attack).

  7. there are simply too many better alternatives for money out their.

  8. lack of confidence in the leadership behind most is flagged shipping companies.

  9. Big international banks support big international interests like the un, imo, world bank… these organizations are all against cabotage.

  10. The majority of new money is going into hedge funds, derivative schemes, and intricate arbitrage deals. The managers of these funds have little knowledge of or interest in the tiny world of jones act shipping.

I could keep going but…

It’s all outlined in this book:
The Abandoned Ocean: A History of United States Maritime Policy https://smile.amazon.com/dp/1570034273/ref=cm_sw_r_cp_api_i_zB8qFbQA8N8H9

Or look at any jones act post on this forum. Everyone has strong and different opinions on who should and should not get subsidies and protection.

I’ve been told in the past that one of the stipulations of MSP is that a ship cannot be built foreign and directly flagged into the United States. It needs to be flagged to another country for at least 6 months before being reflagged US. If a restriction like this exists for something like MSP, what chance do we see for them to relax the much stricter Jones Act rules?

I don’t see much chance they will relax jones act rules. And I don’t see much chance that banks and hedge fund mangers will fund rebuilding the us fleet under existing rules.

That is the problem.

Further, I’m increasingly convinced that the banks are supporting the jones act and, at the same time, not financing jones act ships. Why? A weak American fleet, a weak marad, and weak unions equal a weak political position on the international maritime stage. Conversely a strong marad, uscg, us unions, and such would strengthen our ability to regulate FOC’s.

A strong us fleet Would create significant problems for bankers and internationalist who support a unified global government and free trade.

If an oil or wind farm boom ever happens, the pro mariner organizations such as CAMM need to attract donations and memberships. Seems like a lot of people got in on the last boom, stuffed their pockets, and thanked god it wasn’t them graduating a few years later.

OSG built 2 new tankers (in Korea) last year for the MSP fleet, and they are planning on sailing them for a year in the foreign fleet.

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They also built a very nice barge to fit their existing tug that just went into service in JA trade. Another is on order and/or under construction.