Jones Act Third Rail

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 - #7 by shipengr. 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.

Yes, but those are Jones Act US built barges.

The ships were built in Korea.

Correct sir, as you stated before. They found the money.

I’m jumping into this discussion late in the game. But as a person born and raised in Hawaii, and with the JA trade to these islands being at the very crux of this issue, while working in this industry all my adult life, the debate is near and dear to me personally. I do what I can ‘publicly’ in providing support for the JA in my submissions to local media here. But the general consensus with most Hawaiians is, they want to dump the JA tomorrow.

I recently met and had a long discussion with a fellow islander who owns/operates a large freight forwarding business here in Honolulu. He had many questions for me and I learned a ton from him as well. Inside freight/shipping business that I never knew. This guy agrees with me, that repeal is NOT the answer.

Bottom line? Repeal of the Jones Act will NEVER lower the cost of retail prices for the consumer.

I choose those words carefully.

Freight rates or prices to move containers (or any other cargo) is one issue. Retail prices are VASTLY different. Cato Institute writers, Heritage Foundation Academics, and ALL the other anti-Jones Act crowd out there ASSURE ALL WHO WILL LISTEN … that the cost of living in Hawaii, Puerto Rico, and Alaska will be far cheaper if we just got rid of that damn JA. But they cannot prove that RETAIL PRICES will go down. Instead, they point to published freight rates of US shipping in comparison to international shipping rates. BTW, the Transpacific freight index is currently the highest it’s ever been and will continue.

But these anti-JA can’t prove the connection to lower retail prices and therein lies the rub. It’s why all the “studies” and reports are inconclusive.

To Jon Konrad, I have a comment to you personally about ship finance that I would like to provide, that I won’t state publicly here on this board. If there is a way we can communicate off this board, that’d be great (maybe DM on IG account??)

Meanwhile, the ship finance issue is something I had not heard about before. Out here, standing on the bridge of multiple Jones Act ships talking to various Captains… I did not ever get the impression that GETTING the money was hard. It’s just the terms of the deal that seemed the issue. So not sure about what the banks are saying (or owners).

More to say about the whole thing later. But for now, we must understand and accept these realities;

  1. We will never be cheaper at building ships than China. Never. Neither are the Europeans. Give up trying to BUILD cheaper ships.
  2. We will NEVER be cheaper at operating ships than Eastern European labor. $400/month for an AB, they are cheaper than the Chinese as far as I’ve been told.
  3. Other countries subsidize their maritime industries in a big way. We do not. Never will.

Solutions??
Americans have to find a way through tax credits or ANY other financial incentives to give owners and operators a REASON TO BUILD AN AMERICAN HULL. And for shipyards to ALSO FIND WAYS TO DECREASE THEIR COSTS. It isn’t easy. It needs to be a joint effort by the entire industry, the military, congress, and private sector.

The Jones Act is a national policy. It’s not bad or wrong. Where we’ve screwed ourselves is the punitive regulations and tax/fees we have created the last 100 years that incentivized Americans (or others) to go offshore and build/operate foreign fleets. We have to reverse those specific things to bring more hulls back under our flag and use American labor.

The MONEY savings effort must be there to be successful. Otherwise, without any incentive, no corporation or individual will WANT to even bother with the effort.

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Of course, lowering prices for the consumer was never the point.

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That depends upon your perspective.

For residents of Hawaii (and Puerto Rico) the entire ‘pitch’ of the anti-Jones Act crowd is to get local residents to support and to pressure their congressional representatives…based entirely upon the mythical premise that doing so will lower retail prices for the consumer.

That allegation is not true, nor can that be proved. Dozens of studies, reports, theses, and all documented ‘efforts’ to ATTEMPT to make this direct correlation have failed. It cannot be done.

Whatever the REAL intent of repealing the Jones Act in your opinion is, I’d be happy to hear it. But don’t discount the point I make as it is exactly the effort that the CATO Institute and HERITAGE FOUNDATION continuously make in order to garner public (non-maritime citizens) support in repealing the Act.

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I agree and that was my point. The abolition of the Jones Act for Puerto Rico or Hawaii will increase profits but not lower consumer prices. These guys don’t fight to save consumers money, everyone knows that. Geez… are the Heritage and Cato guys like some consumer protection outfits?

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They are covering their ass, not yours.