Jones Act - Time for a Change?

Professional Mariner Forum
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The following was posted on LinkedIn today by Matthew Holman, Recruitment Consultant at Spinnaker Global, feel free to comment below:

[B]Last month Senator John McCain had his bid to amend the Jones Act quashed, after his proposal was tagged on the end of a separate bill concerning the Keystone pipeline. Apparently his bill was not even discussed in the house, but it did lead to much debate outside of it, with those for and against filling internet forums and column pages with their views.[/B]

As an Englishman, the Jones Act was initially something I struggled to understand. For my compatriots, the Jones Act is an American law meaning that the trade of goods within the US must be on American built ships, sailed by American crew, sailing under the American flag. As such, foreign built/crewed/flagged vessels are not permitted to domestically trade within the states. This is the polar opposite to Europe, where the EU is free and open in trade, and very much open to foreign competition. Why the big difference?

As I learnt more, the benefits of the Jones Act became clearer. Firstly, it guarantees work to a large number of Americans within the shipping industry, but also those in related fields. As long as ships have to be built in US shipyards, those shipyards need people to build those ships. Secondly, it is argued that the Jones Act stimulates the US economy, by keeping investment within the states, keeping skilled workers in the states, and keeping those people employed. Thirdly, it ensures a healthy maritime industry ready to support the defense of the US when it is necessary.

What brilliant benefits, I thought! Guaranteed jobs, strong economy and a strong naval defense system. What could be the downside?

The major impact is lack of foreign competition leads to inflated prices. US shipyards are some of the most expensive in the world, which leads to higher operating costs for these ships. They cannot compete with the cheaper yards elsewhere, particularly those in Asia. These higher building and operating costs are passed on in the form of freight rates, which can lead to the seemingly bizarre situation of it being cheaper to import goods from somewhere further away, with a foreign vessel. This would seem against the very ethos of the Jones Act. Fundamentally it is argued that with no Jones Act, the cost of energy transportation becomes cheaper, and these cost savings are passed on to the American consumer.

Is it time for change then? With the US now more reliant on domestic shale gas rather than imports, does it matter? With this being a matter very dear to many in the American maritime community, I am very interested to hear your thoughts.

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very simple…it is supported with a basic cost/benefit analysis:

Benefits:

a healthy maritime industry is necessary for the defense of the United States. Protecting coastwise trade to US companies, mariners and vessels provides an industry available to come to the defense of the US. Turning all the coastwise trade over the foreign vessels will cause that US industry to retract in very drastic fashion and it is fact that the US cannot depend of foreign ships and mariners to support our defense. This is proven through history. It cannot be assailed or otherwise negated.

Costs:

Even though there is added cost imposed on the economy by having protected trade, there is no definite incontrovertible evidence to say those added costs cause harm to the US economy and in fact, revenues accrue to the US Treasury paid by US workers and corporations which it would not receive if foreign corporations and mariners were carrying US coastwise cargoes.

The only change which might be made to the US Merchant Marine Act of 1920 (Jones Act) would be to allow a small number of foreign built vessels into coastwise trade for new maritime services to allow entrepreneurs to start those services with existing vessels available on the world market. Since there are few if any surplus second hand US vessels of modern design, it is virtually impossible for these new services to get started because it is virtually impossible to get financing to build a ship for a new untested service. The Maritime Administration used to guarantee the mortgages on these new vessels for new services (case in point Hawaii Interisland Ferry) only to pay off the costs of building these vessels at huge cost to taxpayers when these services fail (which is an all too common sad reality of starting a new untested business model). To allow foreign built ships into new services would foster these services getting started with a better chance of success without risk to the taxpayer. Once a service is proven successful, then the full Jones Act should come into force and a US built ship be required to replace the foreign built one. This is where I believe the Jones Act might be changed in a way to benefit the overall US maritime industry. In the end we would have many more new coastwise services and still have ships built in the US.

.

1 Like
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I think the debate over the Jones Act is largely one of free markets vs. nationalized markets.

Opponents to the Jones Act might say the U.S. is being hypocritical by restricting free trade along its shores while trying to push free trade and open markets internationally. I would say there’s a bit more to that story considering the fact that the United States does not have a national oil company like many other countries do. ExxonMobil, Chevron and ConocoPhillips may have American roots, however they are by no means American companies. They report only to their shareholders, not the U.S. public - except on regulatory matters of course.

I bring that up because it is those companies, along with the API, which are pushing for the unrestricted opening of U.S. crude exports, a situation which would threaten Jones Act shippers and the U.S. merchant marine as it could open up the possibility where crude oil is shipped to an international refinery then refined products shipped back to the U.S., all on foreign flagged ships.

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[QUOTE=rob;154353]I think the debate over the Jones Act is largely one of free markets vs. nationalized markets.

Opponents to the Jones Act might say the U.S. is being hypocritical by restricting free trade along its shores while trying to push free trade and open markets internationally. I would say there’s a bit more to that story considering the fact that the United States does not have a national oil company like many other countries do. ExxonMobil, Chevron and ConocoPhillips may have American roots, however they are by no means American companies. They report only to their shareholders, not the U.S. public - except on regulatory matters of course.

I bring that up because it is those companies, along with the API, which are pushing for the unrestricted opening of U.S. crude exports, a situation which would threaten Jones Act shippers and the U.S. merchant marine as it could open up the possibility where crude oil is shipped to an international refinery then refined products shipped back to the U.S., all on foreign flagged ships.[/QUOTE]

don’t bring up companies and shareholders here

Coastwise trade protection is not about what is good bad for corporations but what is good or bad for the Nation. I say much more good than bad especially where the defense ot the US is concerned. You are an ex naval officer Rob, you of all people know that without a merchant marine to support the DoD, they cease overnight to be a global power…PERIOD! The only commercial deepsea merchant marine the US has is because of either protectionism (Jones Act) or subsidy (Maritime Security Program)

Of course, being an ex naval officer yourself, you would think John McCain would also realize all of this too?

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Don’t be fooled into thinking Capitol Hill isn’t largely controlled by money…

You can’t separate U.S. defense from the corporations and lobbyist groups that support it. Unfortunately.

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[QUOTE=rob;154357]Don’t be fooled into thinking Capitol Hill isn’t largely controlled by money…

You can’t separate U.S. defense from the corporations and lobbyist groups that support it. Unfortunately.[/QUOTE]

well don’t use systemic corruption in leadership as a good reason to kabosh trade protection…

you asked for us to give you our opinions on this subject and I gave you mine with my reasoning why I have them. Now you can agree or disagree with me but if you disagree use rational logic to support your position. Saying that making shareholders happy is not going to win you the forum membership’s vote I believe.

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[QUOTE=rob;154353]
I bring that up because it is those companies, along with the API, which are pushing for the unrestricted opening of U.S. crude exports, a situation which would threaten Jones Act shippers and the U.S. merchant marine as it could open up the possibility where crude oil is shipped to an international refinery then refined products shipped back to the U.S., all on foreign flagged ships.[/QUOTE]

That already happens, Rob. It’s not technically an export, either, because the refined product is brought back to the US to be sold. I used to visit those tankers at Cove Point, VA back when I was a tech rep for a certain company.

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The Jones Act is multifaceted and should be looked at as separate parts. There are building requirements and manning requirements.

Sen. McCain’s latest comments on the act entailed the cost of building ships in the US. The Linkedin post cited on this thread stated: “US shipyards are some of the most expensive in the world, which leads to higher operating costs for these ships.”

Why is that? Modern cruise ships are among the most advanced vessels being built. They entail incredible amounts of engineering. Just think of getting plumbing to the cabins. They’re built in European yards. The EU, with a population about 1/3 more than the US, has many shipyards who do the great majority of their work on commercial ships. US yards are almost totally dependent on the DOD. European countries are certainly not low cost places to operate. Why can’t US shipbuilding compete with other high cost countries?

To my knowledge, nobody has ever done a study on this. If you don’t know why something is, you cannot take any steps to correct it.

Manning is the second part of the equation. I recall a MARAD study a few years ago that cited US manning costs to be 80% higher than non US flag. Again, why? While hiring a bunch of Philipinos will save money, that cannot explain any divergence in cost with European and other advanced countries. That MARAD study did not attempt to explain the “why”. It simply stated the result of the study.

It’s a shame that the US seems completely uninterested in the reason why the US has become so uncompetitive, in many areas, over a relatively short period of time. The one thing I have noticed is that the US seems very concerned with piling regulations and mandates on employers, from about a zillion different agencies. Then those same regs are often duplicated at state and local levels. All of that makes it very hard for companies to operate profitably compared to foreign competitors. That results in fewer good jobs while crumby jobs, like in discount store and burger joints, proliferate.

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[QUOTE=rob;154348]The following was posted on LinkedIn today by Matthew Holman, Recruitment Consultant at Spinnaker Global, feel free to comment below:

[B]Last month Senator John McCain had his bid to amend the Jones Act quashed, after his proposal was tagged on the end of a separate bill concerning the Keystone pipeline. Apparently his bill was not even discussed in the house, but it did lead to much debate outside of it, with those for and against filling internet forums and column pages with their views.[/B]

As an Englishman, the Jones Act was initially something I struggled to understand. For my compatriots, the Jones Act is an American law meaning that the trade of goods within the US must be on American built ships, sailed by American crew, sailing under the American flag. As such, foreign built/crewed/flagged vessels are not permitted to domestically trade within the states. This is the polar opposite to Europe, where the EU is free and open in trade, and very much open to foreign competition. Why the big difference?

As I learnt more, the benefits of the Jones Act became clearer. Firstly, it guarantees work to a large number of Americans within the shipping industry, but also those in related fields. As long as ships have to be built in US shipyards, those shipyards need people to build those ships. Secondly, it is argued that the Jones Act stimulates the US economy, by keeping investment within the states, keeping skilled workers in the states, and keeping those people employed. Thirdly, it ensures a healthy maritime industry ready to support the defense of the US when it is necessary.

What brilliant benefits, I thought! Guaranteed jobs, strong economy and a strong naval defense system. What could be the downside?

The major impact is lack of foreign competition leads to inflated prices. US shipyards are some of the most expensive in the world, which leads to higher operating costs for these ships. They cannot compete with the cheaper yards elsewhere, particularly those in Asia. These higher building and operating costs are passed on in the form of freight rates, which can lead to the seemingly bizarre situation of it being cheaper to import goods from somewhere further away, with a foreign vessel. This would seem against the very ethos of the Jones Act. Fundamentally it is argued that with no Jones Act, the cost of energy transportation becomes cheaper, and these cost savings are passed on to the American consumer.

Is it time for change then? With the US now more reliant on domestic shale gas rather than imports, does it matter? With this being a matter very dear to many in the American maritime community, I am very interested to hear your thoughts.[/QUOTE]

…raelly? It may be an American Law…but it was an English Idea (and law) first.

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[QUOTE=JohnG;154370]The Jones Act is multifaceted and should be looked at as separate parts. There are building requirements and manning requirements.

Sen. McCain’s latest comments on the act entailed the cost of building ships in the US. The Linkedin post cited on this thread stated: “US shipyards are some of the most expensive in the world, which leads to higher operating costs for these ships.”

Why is that? Modern cruise ships are among the most advanced vessels being built. The entail incredible amounts of engineering. Just think of getting plumbing to the cabins. They’re built in European yards. The EU, with a population about 1/3 more than the US, has many shipyards who do the great majority of their work on commercial ships. US yards are almost totally dependent on the DOD. European countries are certainly not low cost places to operate. Why can’t US shipbuilding compete with other high cost countries?

To my knowledge, nobody has ever done a study on this. If you don’t know why something is, you cannot take any steps to correct it.

Manning is the second part of the equation. I recall a MARAD study a few years ago that cited US manning costs to be 80% higher than non US flag. Again, why? While hiring a bunch of Philipinos will save money, that cannot explain any divergence in cost with European and other advanced countries. That MARAD study did not attempt to explain the “why”. It simply stated the result of the study.

It’s a shame that the US seems completely uninterested in the reason why the US has become so uncompetitive, in many areas, over a relatively short period of time. The one thing I have noticed is that the US seems very concerned with piling regulations and mandates on employers, from about a zillion different agencies. Then those same regs, and are often duplicated at state and local levels. All of that makes it very hard for companies to operate profitably compared to foreign competitors. That results in fewer good jobs while crumby jobs, like in discount store and burger joints, proliferate.[/QUOTE]

You may find this study interesting. http://ec.europa.eu/enterprise/sectors/maritime/files/fn97616_ecorys_final_report_on_shipbuilding_competitiveness_en.pdf

Europe dominates only in a few specialized markets, such as yachts and cruise ships- likely because they require highly specialized workers. They are losing market share to Asian builders for almost everything else and a huge part of this is labor cost.

Edit: Oh and will you look at this; Carnival is starting to build in China…I’ll bet the Italians are unhappy over this: http://www.travelweekly.com/Cruise-Travel/Carnival-will-build-a-cruise-ship-with-state-owned-Chinese-yard/

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Thank you, c.captain for that response. It continues to amaze me that people do not recognize the potential outsourcing of jobs involved with the repeal of a law such as the Jones Act. In a time when terms such as “near-sourcing” are heard and there is much lamenting about outsourcing in other U.S. industries, there seems to be a rush among a few to continue to send American jobs overseas. And, yes, this would directly effect me - it might mean my job, if I were unwilling to earn significantly less than I currently do.

Free trade is a term that is thrown about by politicians and those in think tanks. In reality, cabotage laws (i.e. the Jones Act) are prevalent around the world. China has them. India has them. The African Union desperately wants them. The U.K. wishes they’d had them before all the domestic jobs had gone away.

So, why do we have the Jones Act? We can say defense or jobs, but in reality, [I]because it’s good for the United States.[/I] Might there be concessions made, such as those mentioned by c.captain? Sure, but overall, the United States needs the Jones Act. It’s detractors need to stop pulling the wool over the media’s and general public’s eyes by talking about “inflated shipping costs.” The costs are no more “inflated” than the cost of medical care, education or feeding your family in the United States, as compared with the rest of the world.

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[QUOTE=c.captain;154365]well don’t use systemic corruption in leadership as a good reason to kabosh trade protection…

you asked for us to give you our opinions on this subject and I gave you mine with my reasoning why I have them. Now you can agree or disagree with me but if you disagree use rational logic to support your position. Saying that making shareholders happy is not going to win you the forum membership’s vote I believe.[/QUOTE]

You’ve missed my point. I’m saying that trade protection via the Jones Act is incredibly important for that very reason.

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I’d be curious to know what payroll #'s for all US flag shipping companies (tug, barge, osv, ship) add up to, as well as direct spending, like shipyards etc. That # of $'s would be erased from the country; what other industries could absorb that many workers, and even if so, what %of what we make now would we make elsewhere? Maybe %50? How is that good for the economy? Just think of income taxes lost…

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[QUOTE=z-drive;154380]I’d be curious to know what payroll #'s for all US flag shipping companies (tug, barge, osv, ship) add up to, as well as direct spending, like shipyards etc. That # of $'s would be erased from the country; what other industries could absorb that many workers, and even if so, what %of what we make now would we make elsewhere? Maybe %50? How is that good for the economy? Just think of income taxes lost…[/QUOTE]

I think the studies have been done and the results would be catastrophic for the nation because of the ripple effect.

You’d see a loss of good paying jobs and only a percentage of the people who lose them will be able to replace that income with comparable work.

Look at the impact from the oil and gas downturn…it’s got to be affecting the Gulf states, Oklahoma, etc.

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[QUOTE=rob;154378]You’ve missed my point. I’m saying that trade protection via the Jones Act is incredibly important for that very reason.[/QUOTE]

Thanks for that clarification Rob

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Please see the following from Florida Senator Rubio and the American Maritime Partnership : http://www.rubio.senate.gov/public/index.cfm/files/serve/?File_id=20f2a4c0-8cf4-4c3f-a41f-6b8018feab95

“Nationally, the domestic maritime industry supports 478,440 jobs and a gross economic output of $92.54 billion annually. Labor income nationally is $28.95 billion annually with a $9.98 billion tax impact. There are approximately 40,000 vessels in the American domestic fleet.”

So, anyone have space for half a million workers at an average wage of $60,509? And where is that money spent?

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[QUOTE=catherder;154375]You may find this study interesting. http://ec.europa.eu/enterprise/sectors/maritime/files/fn97616_ecorys_final_report_on_shipbuilding_competitiveness_en.pdf

Europe dominates only in a few specialized markets, such as yachts and cruise ships- likely because they require highly specialized workers. They are losing market share to Asian builders for almost everything else and a huge part of this is labor cost.

Edit: Oh and will you look at this; Carnival is starting to build in China…I’ll bet the Italians are unhappy over this: http://www.travelweekly.com/Cruise-Travel/Carnival-will-build-a-cruise-ship-with-state-owned-Chinese-yard/[/QUOTE]

In the the report you will see that European shipyards are not building low-value ships any longer and are beginning to focus on construction of high value ships.

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[QUOTE=RichMadden;154383]Please see the following from Florida Senator Rubio and the American Maritime Partnership : http://www.rubio.senate.gov/public/index.cfm/files/serve/?File_id=20f2a4c0-8cf4-4c3f-a41f-6b8018feab95

“Nationally, the domestic maritime industry supports 478,440 jobs and a gross economic output of $92.54 billion annually. Labor income nationally is $28.95 billion annually with a $9.98 billion tax impact. There are approximately 40,000 vessels in the American domestic fleet.”

So, anyone have space for half a million workers at an average wage of $60,509? And where is that money spent?[/QUOTE]

They spend that money locally, for the most part- local businesses will suffer and there will be more job loss (ripple effect)

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[QUOTE=RichMadden;154383]Please see the following from Florida Senator Rubio and the American Maritime Partnership : http://www.rubio.senate.gov/public/index.cfm/files/serve/?File_id=20f2a4c0-8cf4-4c3f-a41f-6b8018feab95

“Nationally, the domestic maritime industry supports 478,440 jobs and a gross economic output of $92.54 billion annually. Labor income nationally is $28.95 billion annually with a $9.98 billion tax impact. There are approximately 40,000 vessels in the American domestic fleet.”

So, anyone have space for half a million workers at an average wage of $60,509? And where is that money spent?[/QUOTE]

this post alone proves beyond all doubt the economic value of having coastwise trade protection…FUCK the GODDAMNED corporations demanding more and more profits at the expense of the people. Maybe our cause is not the biggest but it is still big enough and we are further a valuable and necessary defense asset to the nation as well.

I just thank God everytime a Jones Act detractor like McCain gets no traction at all with Congress in their crusades to gut the law and further thank God so many in the Congress remain staunch supporters of the Act.

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[QUOTE=catherder;154375]You may find this study interesting. http://ec.europa.eu/enterprise/sectors/maritime/files/fn97616_ecorys_final_report_on_shipbuilding_competitiveness_en.pdf

Europe dominates only in a few specialized markets, such as yachts and cruise ships- likely because they require highly specialized workers. They are losing market share to Asian builders for almost everything else and a huge part of this is labor cost.

Edit: Oh and will you look at this; Carnival is starting to build in China…I’ll bet the Italians are unhappy over this: http://www.travelweekly.com/Cruise-Travel/Carnival-will-build-a-cruise-ship-with-state-owned-Chinese-yard/[/QUOTE]

Thank you for that. At least the EU did an in depth study, unlike the US. The report was certainly disheartening, because it shows far to much manufacturing (shipbuilding is manufacturing) going to Asia.

In reference to my earlier post, I still cannot fathom why the US has not been able to compete with European ship builders for about the last 40 to 50 years. I have no particular interest in ship building per se. I look at it as another of our manufacturing sectors that the US has managed to become uncompetitive in. That means the loss of untold good blue collar jobs as well as the management jobs associated with the factories.