A lively conversation about the Jones Act, pro and con
from Grassroot Institute of Hawaii, January 12, 2023
The Jones Act was the topic of a lively discussion earlier this month on KKCR radio’s “Kauai Soapbox,” moderated by radio host and Kauai County Council member Felicia Cowden.
Cowden’s guests were Colin Grabow, Grassroot Scholar and Cato Institute trade policy analyst; Jonathan Helton, Grassroot Institute policy researcher; Mark Coleman, Grassroot Institute managing editor and communications director, and Ed Enos, a Honolulu harbor pilot.
Enos spoke in support of the 1920 federal law, which restricts shipping competition between points in the U.S. to only ships that are U.S. flagged and built, and mostly owned and crewed by Americans. His main argument was that the Jones Act is integral to Hawaii’s economic security.
Grabow, Helton and Coleman contended the law has failed to meet any of its alleged objectives, such as supporting the U.S. maritime industry and ensuring national security, while also it has distorted U.S. commerce patterns, complicated disaster-relief efforts and caused higher prices in America’s noncontiguous states and territories such as Hawaii, Alaska, Puerto Rico and Guam.
Despite the disagreements, there were a few points the guests all agreed on, while leaving many others open for discussion on another day.
1-3-23 Jones Act conversation on KKCR-FM, hosted by Felicia Cowden, with guests Colin Grabow, Ed Enos, Jonathan Helton and Mark Coleman
Felicia Cowden: So we have our really great guests here today on the Jones Act. And I’m going to actually let them all introduce themselves … because we’ve got a really extraordinary group of people here.
So, who am I going to start with? I think I will start with Colin Grabow. And where are you coming to us from, and are you in Washington right now? Where are you?
Colin Grabow: I am in Washington [D.C]. That’s right. So it’s 9 o’clock at night over here.
Cowden: All right. Thank you so much. And it’s been a pretty busy year there — I mean, day there. I’ve been sitting there watching them looking for the Speaker of the House, and paying all kinds of attention with that.
Can you explain to the listener — many people driving down the road — [who] might not be as familiar with the Jones Act as one would think, being as how important it is with shipping in Hawaii? Yeah, can you tell us a little bit about your background, and then tell us a little bit about the Jones Act?
And then we’ll hear next from Ed Enos, who’s our own harbor pilot that helps the ships come in well, and has been on the show a few times about this topic. And then Jonathan from the [Grassroot] Institute.
Grabow: Sounds good. Thanks for having me on the show. So my name’s Colin Grabow. I am a research fellow at the Cato Institute here in Washington, D.C. I focus on trade policy, and one area that I pay a lot of attention to is the Jones Act.
The Jones Act is Section 27 of the Merchant Marine Act of 1920, which basically says that to transport goods between two points in the United States by water, you have to use a vessel that is U.S.-flagged, it is mostly U.S.-crewed, mostly U.S.-owned and the vessel has to be built in the United States.
Cowden: OK. And then that causes a lot of extra charges on our shipping, and it slows down sometimes the pathways.
I want to bring in Ed Enos. We have done other shows before, and we’ve looked at what are good reasons for having the Jones Act. In my role, as County Councilperson, I’m inclined towards wanting to amend it rather than to repeal it.
But Ed, can you tell us a little bit about yourself? Thank you so much for coming on here with us, and your perspective on the Jones Act.
Ed, I’m not quite hearing you. Could you be possibly muted?
Ed Enos: How’s that?
Enos: OK. [chuckles] Yeah, so I’ve jumped in here at the last minute with your last-minute invitation, trying to get caught up on things.
First of all, I speak for myself. I’m not speaking for any companies that I don’t work for. I’m not speaking for the pilots in general. I’m expressing my own opinion, although a lot of people that I work with obviously support the Jones Act.
So the reason I think that Jones Act is so vitally important to the people of Hawaii, as an island state, thousands of miles from the United States or the nearest point of land, is simply for economic security.
You can look around right now, if you’re in my industry, and you can see that foreign cargo carriers all over the Pacific are skipping ports, as they determine, on their own schedule, to not pick up cargo or not deliver cargo that the cargo owners have arranged for on any given voyage.
And that’s something that most Americans are either unaware of and would never find out. But in this past year, we’ve seen freight rates for shipping anything in the world, you know, skyrocket, and now they’re collapsing.
So shipowners go where they make the most money. They alter their schedules and the capacity that they have on any given voyage or route anywhere in the Pacific, as it benefits them.
So my concern, as a local resident in the only island state, is that if we simply took away the Jones Act tomorrow, that foreign cargo carriers will serve these islands in a way and in a schedule and in a capacity that benefits them financially, not so much what we need or want. That’s my concern.
Cowden: OK. Thank you. And then I’m going to bring in Jonathan. Do you want to introduce yourself from the Cato Institute? We actually have two people: Jonathan Helton and then Mark Coleman, from the [Grassroot] Institute.
Jonathan, can you introduce yourself and tell us your perspective? Because the [Grassroot] Institute is working to either repeal or amend the Jones Act, and so I’d like to hear that argument.
Jonathan Helton: Yes, of course, Felicia. Thank you for having us on the show.
I’m a policy researcher here at Grassroot. I’ve been working on the Jones Act issue for a couple of years now. And I think that you said it correctly: We’re working to either amend or repeal the Jones Act, and, you know, there’s a lot of support in Congress for the Jones Act.
So a lot of people want to keep it around there. you know; [but also] there’s people who are looking at reform, and I think the real value of having this conversation — you know, we’ve got a lot of different perspectives here — I think the real value is maybe there’s a way forward that would amend the Jones Act to help the U.S. maritime industry, because overall, the U.S. maritime industry, when it comes to the oceangoing segment, isn’t doing too well.
There were over 200 ships that were, you know, operating in the oceangoing part of the industry back in 1980. Today, there’s less than a hundred. So those are Jones Act ships, and their numbers have dwindled.
The number of big U.S. shipyards that build those kind[s] of ships, they’ve dwindled as well.
So, just having the Jones Act around as it is, it might provide some benefits, but the U.S. maritime industry is in decline.
And I think it’s very important to have conversations like this so that we can, you know, try to figure out a way that would maybe work for both sides, help everyone.
Cowden: Thank you, sir.
Enos: So, can I comment about Jonathan’s statement?
Enos: You know, I’m not trying to be argumentative, but what he said is factually correct. However, here we go again. You know, it’s not the fault of the general public or even the politicians who formulate national policy.
One of the contributing reasons that you have less ships — and your comparison is, you know, 100 to 200 over the span of maybe, what, 30 years — is because the size of the ships and the amount of cargo that today’s ships can carry, relative to ships that were built and operating 30 years ago, is considerably different.
So, you can make the statement correctly that, you know, our U.S.-flagged fleet isn’t as big as it was by the numbers, X number of years ago. That’s factually true. But, you know, you can look at Hawaii’s market in and of itself. We’re being served every day by the correct, needed capacity from the West Coast to our islands. We don’t need or want for any more ships than we have currently that are bringing in a relatively stable amount of cargo that is demanded in these islands.
So, I’m not arguing with Jonathan’s point. It’s correct. But, again, the big picture is, when you look at oil tankers years ago, cargo ships years ago, cruise ships years ago, the scale and size of these ships that are moving all these things is much different today than it was 30, 40 years ago.
Cowden: OK, thank you for that. And then if I’m remembering correctly from an earlier show you and I did, Ed, I had learned that the type of fuel that’s used in foreign ships, particularly some have a, you know, they fly under, say, Mongolia or someplace that is even a landlocked place, sometimes they use dirty fuel that adds more carbon and dirt to the atmosphere.
We were learning about how it’s actually hard because it puts all this black soot in the Arctic. You know, it accelerates global warming, was the argument from somebody that we had on there.
We also had an argument that people are almost enslaved on some of these ships. Even on American sailing vessels, sometimes people have a very difficult time in these fishing boats, and people end up missing, they die, they jump off the side. That in these larger ships, from foreign vessels, especially under a flag that isn’t really monitored, that there can be employment-sector problems.
I see Mark. Do you have your hand up?
Mark Coleman: Oh, no. No, I’m just listening.
Coleman: Thank you.
Cowden: OK. Alright. So, I actually would like to give Colin a chance to respond to what both Ed and I have brought up that we have heard as, or in Ed’s case, this is his job. He’s out there every day bringing in cargo ships.
Coleman: Yes, I’d like to add. Well, I would like to say something though. I’m the communications director for the Grassroot Institute. It’s Grassroot, by the way, no “s” after “root.”
Coleman: My understanding is that Ed is, in general, a good friend of the Grassroot Institute. We’ve talked with him a lot through the years — not me really, but Joe Kent, our executive vice president, is good friends with him — and on most things, we agree, which is great news.
But he does, if I’m not mistaken — I see he raised his thumb there, that’s good — we just differ on this one issue. And so that’s nice that we’re having this conversation in the open where we can get his views out and, like, talk about it, you know, before an audience. It’s really cool.
And thanks, Ed, for being here.
Enos: Sure. I wish I had known earlier; I would’ve maybe thought more about what we’re going to talk about today, but …
Coleman: Oh, no. Well, you know, a lot of it’s off the cuff here.
Coleman: We’re all familiar with this material, and I’m sure we can make some good progress for Felicia’s listeners.
Enos: And you’re right, you know, 99.9% of everything they’re doing, Keliʻi’s [Akina, president and CEO of the Grassroot Institute] doing, you know, I’m on board with you guys all the way.
I just took Keliʻi out, and Joe and Ted [Kefalas, Institute diretor of strategic campaigns] have been out on our boat through the harbor, showed them around, toured them around, and I just kind of gave them a little peek of things that otherwise I think they would never have an opportunity to do. And, you know, I try to do things like that, and actually, Jonathan was with us on the last trip.
So, I think it’s helpful, and, again, my effort really is more about trying to just present the idea to local people, you know, be careful what you wish for, because there may be unintended consequences from dramatically changing a policy as opposed to other things you could be doing to benefit Hawaii residents that don’t necessarily change the policy in and of itself.
You know, I’m not a big fan of the concept of amending the Jones Act in and of itself, but I’m all for doing things for American ships, American shipping and the industry in general, that improves things for them where we as residents out here in Hawaii benefit from.
Coleman: Yeah. And I think Joe’s probably expressed to you that, and as Jonathan hinted, our approach is really trying to be constructive to help the industry. See, I think one misconception is that the Jones Act is the maritime industry. It’s not. The maritime industry, it would exist whether there was a Jones Act or not.
The Jones Act is our regulations on the industry. And if they were to go away, there still would be an industry. How it would look is, you know, the question. And we think it would look better. And even for Americans, we think there’d be more shipping, more ships, more mariners, Americans, depending on the reform that you implement.
But I would like to let Colin address your couple of concerns there that you mentioned …
Coleman: … concerning the size of the ships supposedly making a difference, and, you know, the alleged slave labor allegations, or the alleged slave labor, things like that.
Cowden: Yes, and even the fuels that are used. So, Colin, would you?
Coleman: And the fuels.
Grabow: Yeah, well, thank you very much. A bunch of things thrown out there I’d like to respond to.
Let’s see. Mark, you brought up the size of the fleet. Ed, you brought up the size of the fleet as well. Yes, you can measure the fleet by the number of ships. You can also measure the fleet by its deadweight tonnage, which is to say its cargo capacity, how much stuff it can transport.
Well, since 1980, we’ve seen the number of ships go down from 257 to about, I think, 92 today. But guess what? It’s also gone down by half as measured by deadweight tonnage, the amount of stuff the fleet can carry.
So measured either way, the fleet is in decline, and it’s even more, I think, of an indictment given that the economy is so much bigger over the last 40 years. Our population has grown, yet the Jones Act fleet is shrinking. This isn’t a huge surprise when you consider the fact that Jones Act ships are so expensive and so uncompetitive.
A U.S.-built ship costs about four to five times more than one built in another country. Matson, just a month or two ago, placed a new order for three ships for a billion dollars. Those same ships overseas —I think the cargo capacity is around 3,600 TEUs [20-foot equivalent units] on those ships — those are more like $70 million ships, I think, maximum overseas each. So, you know, who pays that?
Ed brought up the fact that, you know, foreign shipping companies, they’re profit- maximizing. They don’t, I think, say, “What’s best for the consumer?” They always want to do what’s best for them. But guess what? That’s also true of Jones Act shipping companies. They’re no different. Matson, it’s a publicly listed company. They’re out there to profit-maximize, and God bless them, I have nothing against that.
But when you think about the fact that they have ships that are very expensive to build, and they’re about three times more expensive to operate than foreign shipping companies, the inevitable result is high shipping rates.
And then there’s less competition on top of all of it. I mean, basically, when it comes to deep-draft oceangoing ships that go from the West Coast to Hawaii, you have Pasha and Matson to choose from. That’s it. Internationally, you have many more shipping lines to choose from.
So, you have expensive ships, they’re expensive to build, expensive to operate, less competition. The inevitable result is going to be expensive shipping. And I’ve never heard of a situation where you get better service, lower costs through reduced competition, which is what the Jones Act does.
Lastly, as far as you know, reliance on foreign shipping, let’s keep in mind Hawaii is already reliant on foreign shipping.
Ed’s a harbor pilot, he knows that the ships that come in, the tankers carrying a lot of fuel, the bulk commodities that go to Hawaii, a lot of that is foreign. I think the majority of that is foreign. So, Hawaii’s already reliant on foreign shipping. This is nothing new.
And I think ultimately, what we — those of us in the pro-reform or repeal camp — want to see is just more competition. We want to see Americans be able to choose the ships that they think are best for them. I think only good things happen when you have more competition out there.
Enos: So, Colin, I agree with generally a lot of the things that you just said. You’re spot on. OK.
Cowden: And this is Ed Enos speaking. Yes.
Enos: OK, so, but here you go again. It’s in, for the non-maritime public or people who don’t do what we do every day — and I mean you guys too — this is a complicated issue, and I’m going to try to walk through some of your things.
Really simply, really simply, why is it so cheap for China or South Korea to build a ship in their shipyard for a fraction of what we do here? Obviously, because their governments totally subsidize those industries. They completely subsidize their operating costs, their shipowners and their ship businesses.
If we want to match ships built in America or ships operating dollar for dollar in China, all we have to do is completely subsidize those industries.
Am I correct? It’s, it’s…
Grabow: No, actually, I would take issue with that, Ed.
Enos: Let me finish. Let me talk. Let me have my turn. OK?
Grabow: Sure. Sure. OK.
Enos: It is a fact that nobody can argue that their shipbuilding industry is entirely subsidized to the tunes of hundreds of millions of dollars a year, and their ship operators. That’s why the cost to build there is so cheap.
During COVID, in the last couple of years, a lot of their shipyards were shutting down because they could not sustain themselves. They were going out of business just like everybody else around the world. And so the Chinese Communist Party had to go in and handpick which yards they wanted to survive and just bulldoze money at them to stay active.
Similarly, in South Korea — a completely different kind of country and government — they suffered the same fate. And so, their government too recognizes that the shipbuilding and the ship-operating industries in their country are the kinds of industries that they want to maintain.
So, their governments also go in there, and they just shovel money at these guys to sustain them. That’s the problem that we face, and not only we here in America, but Europe does too. You know?
So we do in fact give some American ship operators some amount of money, like in the maritime security program. It’s pennies on the dollar compared to what everybody else is doing.
But that’s not just uniquely an American problem, OK? Europeans can’t compete against the Chinese as well.
Some ship operators are trying to figure out a way for a company like Carnival to go build these huge luxury cruise ships over in China, because they can do that at a fraction of the cost that they’re building them in Europe.
But hey, guess what? They tried that. Failed. Can’t do it. It’s a quality issue. They can’t do it.
So the Europeans continue to build their cruise ships in Europe, but that’s one of the problems with why you keep complaining about and comparing our ships’ costs to their ships’ costs. If you want to solve that problem, you can leave the Jones Act as is, but do it through some other subsidy issue or tax or some other way of doing it.
As far as competition is concerned, here in the state of Hawaii, there’s only so many boxes you’re going to carry from the West Coast to Hawaii. I don’t care if you’ve got 10 ships on that route, or 20 ships on that route or 100 ships on that route. There’s only so much cargo that can be moved from L.A. to Honolulu.
Now, if you think competition, which in general works in concept, but the reality is, if you’re bringing in, let’s just say, 5,000 boxes a week from L.A. to Honolulu, and there’s two carriers doing that, they’re going to charge X number of dollars per box to do that. You bring in a third or a fourth or even a fifth carrier, there’s still 5,000 boxes, and maybe initially, like Hawaiian and Aloha did, you’re going to start lowering the freight rates. But at some point in time, some carrier is going to go, “I can’t carry fewer boxes at a lower rate and stay in business. I’m out.” So he leaves.
Just like we saw in the aviation industry here.
And ultimately, every carrier keeps operating at a point, at a loss, like we’ve seen, until the smaller guy goes out, because there’s only still so much cargo to carry, week to week on average, and now you’re back with only one or two carriers.
Coleman: We do have more than just one air carrier now, you know. It’s not just Hawaiian. Southwest is in the market, Alaska Air was in there for a while. There are other airlines that carry passengers interisland.
Aloha Air was, you know, a lot of people said it was poorly managed. I wish people would stop bringing that example up as a, you know, I wish they’d stop bringing Aloha up as an example.
In terms of competition, you’re looking at the market in a very static way, is my opinion. Maybe there’ll be more boxes, maybe there’ll be less, maybe there’ll be fewer, I mean. Nothing is static in the market. Depending on the freight rates, maybe we’ll have more competition and more shipping.
Cowden: And you’re hearing from Mark Coleman of the Grassroot Institute.
Coleman: Yeah. But anyway, there was a lot to chew on there, what you said, Ed. The American shipping industry … in fact, Matson I think, if I’m not mistaken, you know, they get about $10 million a year or more for subsidies for their … under one of those government programs to improve their vessels. So there is some subsidization of the U.S. shipping industry going on, even by Americans.
But you’re right, actually, that — you know, as Colin has said many times — maybe the Jones Act is not the best way to achieve what you’re trying to achieve. Right now the costs are being borne most heavily by people, like people in Hawaii and Alaska and Puerto Rico, when maybe it should be more fairly distributed through some general funding program.
And that’s something maybe Jonathan or Colin would like to talk about, in addition to the China thing that you brought up.
Helton: I’ll jump in here just real quickly. I want to mention one thing about …
Cowden: OK, Jonathan, thank you.
Cowden: Jonathan of the Grassroot Institute.
Helton: Just one thing. When it comes to the price of building a ship, I think, you know, I think Ed is correct, that subsidies from foreign governments do play a part in why those ships are cheaper.
But one other big thing, though, is economy of scale. If a shipyard in Japan, South Korea, China can build 60 ships of the same model, they’re going to get good at building that kind of ship.
In the United States, there’s three, maybe four large shipyards that build privately owned ships, and if they only build two ships of the same model, you know, it takes a learning curve to be able to build that ship, and then build it at a cost-effective manner.
So I think that, I think in addition to subsidies, you do have an economy-of-scale problem that allows Japan, China, South Korea — even if they didn’t have the subsidies — if they had that economy at scale, they’d be better positioned than the United States.
Enos: Yeah, you’re absolutely right, and, you know, that’s exactly true. But here we go again, it’s a very complicated issue.
When you talk about building ships, like we see for Matson or Pasha or Horizon Lines, when you talk about building ships, specifically in the Jones Act trade, right now, both Matson and Pasha have just launched several hulls that, for the next 30 to 40 years, even if just say the next 10 or 20 years, they’re going to be running. They won’t need a bunch more ships.
So when you talk about how do we make the American shipbuilding industry more competitive, you have to look beyond just the Jones Act trade because that’s a defined, restricted market of hulls that only so many are needed in so many routes that feed the Jones Act trade.
You’re kind of conflating building ships for global trade and global voyaging and all that, and I’m all for that. And I don’t know anybody in this industry who’s not for that. I agree with you. You’re right.
The only way we’re ever going to have shipyards that build large vessels that can compete against, you know, China, South Korea, Japan, Europe, whatever, is to incentivize private investors and owners to go out there and build ships that run and operate and are owned by U.S. interests.
And, you know, here you go again, you’re not trying to change the Jones Act as a national policy. You’re trying to incentivize private business people and investors through tax policy or some other means that brings them in to want to have an American hull, to want to carry cargo overseas to foreign countries on an American ship.
You know, again, that’s where it gets confusing when you talk about international trade over international routes, and then you focus on the Jones Act, which is a very restrictive trade.
So that’s why, you know, it’s easy to say, “Well, we want more competition.” Well, OK, in concept that’s good, but you have to look at the unintended consequences of that.
Coleman: Well, Ed, Mark Coleman again here. What would …
Cowden: I would like to jump in for a moment and say you are listening to KKCR Hanalei, KAQA Kilauea with Felicia and Alanna [Le Sueur], “Kauai Soapbox,” and we are listening to a discussion on the Jones Act with Mark Coleman and Jonathan Helton of the Grassroot Institute, Ed Enos, who is a harbor pilot for the state of Hawaii — that is somebody who helps move all these ships around safely as they come into port, so he has direct experience with that — and then also Colin Grabow from the Cato Institute, and we are going to hear really briefly how you can support KKCR, because that’s how we have excellent discussions like this for an hour on the radio with Oahu, Niihau and Kauai.
And by the way, we are streaming worldwide on KKCR.org, as well as this show is being recorded and will be on YouTube. So thank you for supporting KKCR.
Alright, and mahalo for supporting Kauai Community Radio.
I want to address a couple of issues that you guys might be able to answer well. One is that since sugar isn’t operating effectively any longer, and even our seed corn has really reduced in size, I want to talk about product leaving Hawaii. It seems like ships leave relatively empty.
Perhaps, Ed, you can correct me on that, but I just wonder about that market when there’s not the money going in both directions.
And then I’m wanting to guide your guys’ discussion, where we can see a solution. You know, it might not be as we’re starting to talk about directly in the Jones Act, or if there were amendments, how that would be done.
But, you know, so like in the second half hour, we can talk about what’s wrong, but I’d also like to make sure, at least in the last 15 minutes, which is 15 minutes from now, that we talk about, you know, just a little bit more of what we can do. And basically how it impacts all of our people who live here or even who visit here, is high shipping rates, and even the interisland amounts went up substantially this year.
So thank you on that. And I guess, Mark, you had the floor for the moment, so …
Coleman: Well, I’d really like to hear more from Colin about some earlier points, but let me just throw it out that, one thing that U.S. shipyards … Well, two things U.S. shipyards do not build right now are cruise ships. There hasn’t been a U.S. cruise ship built in America since, like 50, 60 years ago, and they’re just not capable of doing it. So that’s off the table. And they also don’t build LNG carriers, and that’s one reason why Jones Act waivers are being begged for.
Cowden: Liquid natural gas.
Coleman: Liquid natural gas. That’s why Puerto Rico was getting it from Russia. New England was getting it from Russia and wants to get more of it from foreign sources because it’s too expensive to ship. And you can’t ship LNG from the Gulf, you know, of Mexico — Texas, Louisiana — up to New England. It costs too much on a Jones Act ship, if I’m not mistaken. Anyway …
Enos: Well, OK. So …
Coleman: … would you favor waivers for that? Would you favor waivers for that, Ed?
Enos: That’s propped a lot by a lot of anti-Jones Act guys, but John [McCown] — and I would encourage all your listeners or viewers to go look at this guy up online: John McCown — he’s written a long paper on this and he’s detailed the facts of this.
And the reason they don’t choose to bring in LNG from the U.S. Gulf Coast is that they’re bringing it in from somewhere else that’s closer and cheaper. So, you know, again, it’s like all over the world. You know, I take ships in the anchor off …
Coleman: But it’s cheaper because of the shipping rates …
Enos: –[unintelligible 00:34:25] bringing oil from the Middle East, you know. So you’re talking about the energy trade. None of it makes any sense to anybody who’s looking at it. Stuff moves all around the world, depending on whatever the price is, the buyer and the seller agree to, wherever it’s coming from and how it’s getting shipped.
Coleman: We can’t do that in Hawaii.
Enos: Well, we do it in Hawaii. We do it all the time in Hawaii.
Coleman: Except for the Jones Act because we can’t go to anybody but Matson or …
Enos: OK. So, here we go again. The Jones Act has nothing to do … OK, repeat after me. The Jones Act has nothing to do with importing oil from foreign countries. The Jones Act has nothing to do with bringing in embargo from foreign countries.
Coleman: No, but that’s why we get it mostly from foreign countries.
Cowden: Mark, Mark, let him finish, so, and then we’re going to go to Colin. I just want to let him finish, so it’s easier on the listener.
Coleman: Yes, OK. Well, go ahead, Colin. I think you need to jump in.
Grabow: OK, well, so, a lot of things, a lot of disagreement here, but I did identify one area of agreement. And, you know, it’s accurately said, the Jones Act, it’s a small market. It’s a small market. You know, it’s a fraction of what the international market is.
What this means is that when shipyards build for the Jones Act market, they’ll build two ships at a time. Maybe, maybe they’ll get four ships. But like, you know, Pasha, their most recent order was for two container ships. Internationally, people order a dozen ships. The economies of scale are just completely out of whack.
So high costs … you know, take subsidies off the table. If the subsidies were eliminated tomorrow, U.S. ships would still cost much more than foreign ships, because we have these small economies of scale.
This helps explain why, actually, back in the 1990s, the Clinton administration, they negotiated an international deal to rein in shipbuilding subsidies. They had Korea sign on, they had Japan sign on, they had Europeans sign on. U.S. shipyards vetoed that deal. They know that in a subsidy-free world, they still lose. They’re technologically inferior.
U.S. shipbuilding, a lack of competitiveness … this dates back to the 1800s. You can go back to the 1880s and find U.S. ships were 20%, 40% more expensive to build. This is nothing new. This isn’t something that just happened when China came along.
Furthermore, I think we also need to ask the question: If our allies in South Korea and Japan want to subsidize their shipyards and make their ships really, really cheap for Americans to buy, then why not let our shipping companies buy from them?
Cowden: Can I jump in on that one?
Cowden: Can I jump in on that one?
Grabow: Go. By all means.
Cowden: That one makes me a little uncomfortable. When I look at what has happened since the 1970s when we became the world reserve currency, we’ve basically lost our whole manufacturing. A lot of it’s gone to China, but it went to Mexico, it went to all these other countries because, at a currency level, we were able to really call the shots. We have like an endless credit card relative to these other countries, so, then, we no longer are even manufacturing our own things.
So, when I hear that, that makes me a little nervous because if America doesn’t know how to make any of our own ships, maybe we won’t be able to make any of our own ships. Maybe our regular ships will become like those cruise ships. And so, we will be vulnerable to not having a major infrastructure or important infrastructure for ourselves to have. So, that’s the thought that comes to me.
Grabow: Well, I appreciate that. Let me address that. That’s a good question. It’s a good point.
Two things: No. 1, in terms of just manufacturing overall, the U.S. is actually one of the world’s top manufacturers. It’s just that we use fewer people to do it. Fewer people go work in factories because we’ve automated so much.
And a lot of stuff you buy that we manufacture is not stuff you get down at the local store. It’s Boeing airplanes, things like that. We don’t make consumer goods, but we do make a lot of stuff.
But then in terms of shipbuilding, you know, this is a legitimate concern. What if we don’t know how to build ships? What if we’re reliant on foreigners for our shipbuilding needs?
Guess what? That’s the status quo.
These Jones Act ships …. Let’s take the last Jones Act ship that was delivered for Pasha. It was built by a shipyard in Texas. The shipyard is owned by a Singaporean firm. It was foreign-designed. The components that go into it, they’re, you know, largely foreign, including from China.
In fact, the Philly shipyard, which has built something like half of all Jones Act ships the last 20 years, remember, they had one tanker they were building. For each tanker, they had 500 containers of stuff brought over from South Korea and another 25 shipments of bulk items like the propeller.
Basically, these U.S. shipyards, it’s like buying something from Ikea. Yes, I buy the kit and I assemble it. Did I really make it?
I mean, you know, U.S. shipyards are buying designs from foreigners, they’re buying all the components from foreigners, and they just are assembling them together.
So, we’re hugely reliant on foreigners. In fact, the last thing I’ll bring up since we talked about LNG earlier, you know, you may ask a question, well, why don’t we just build an LNG tanker in the United States? In fact, there was a government report a few years ago that looked into this: What would it take to build those kinds of ships in the U.S.?
They identified two shipyards in the U.S. they thought could do it, and one of the shipyards said, “Look, to do something like that, we’d probably have to bring over like 300 South Koreans to oversee the work and make sure it was done properly and teach us how to do it.”
So, reliance on foreigners, that’s where we’re at with the Jones Act in place. The Jones Act doesn’t mean we’re not relying on foreigners, it just means we pay outrageous prices for new ships.
Cowden: OK. Ed.
Enos: So I’m trying to figure out, what you just described is true for a lot of manufacturing throughout the United States and a lot of different sectors of our economy. No one’s going to deny that.
But, you know, my question, too, is why would, with the little we have, why do you think throwing all the rest of it at China is going to be a positive outcome for America? I just can’t figure that out at all.
I would like to come up with policies, like I said, you know, some kind of incentivization program that brings stuff to America to reduce those costs, to bring that innovation, to bring those designs and manufacturing to this country so that Americans are rewarded.
Why do we want to take what little we have left and not just throw it away, but just bulldoze it away over to a foreign country?
Didn’t you learn anything at all the last three years about China? Why would you want to help them out any more? I mean, haven’t we learned at all from that experience?
I say, I say some of the things that you’re saying, Colin, is generally true in concept, but you know, I stand over here in Hawaii where, you know, the unintended consequences of what you say on the mainland, that’s not going to have any problem with you, but the people here in Hawaii, we’re going to see the direct impact of any changes in national policy, is going to impact us.
So I’m all for changing rules, amending things, whatever, such that it benefits America and local Hawaii residents.
And like Felicia was saying a moment ago, let’s think of one thing, what’s the most single biggest cost to a shipowner and a ship operator today anywhere in the world, any flag, any owner? Fuel, right?
So if that’s the single biggest cost — because the crew cost, all those other issues, shipowner to shipowner, country to country, flag to flag, in general, the annual budget to run a ship, those costs are pretty minuscule. The single biggest expense any shipowner anywhere has to deal with is fuel.
Well, lo and behold, Joe Biden is over there throwing all our strategic oil preserves off to China into foreign countries. That’s our oil. That’s supposed to be serving the American interest. What is he doing that for?
Why don’t we develop a plan where American Jones Act ship operators and shipowners are either having their fuel subsidized or we’re pulling that from some other program, such as, as you guys say, the people in Puerto Rico and Alaska and Hawaii aren’t having to pay for that, as a national policy?
To me, that’s the single biggest thing you can do tomorrow. But nobody’s thought of stuff like that. I can’t figure that out.
Grabow: If I may, if we want to reduce the cost of energy …
Cowden: This is Colin from the Cato Institute.
Grabow: If we want to encourage Americans to buy more American energy, let’s say do get rid of the Jones Act.
Enos: I wasn’t talking about Americans buying more energy.
Grabow: Let me finish. Let me finish. Let me finish.
Enos: I didn’t say that.
Grabow: When we imposed sanctions on Russia, we discovered that we had refineries in the Mid-Atlantic that were importing Russian oil, the same grades that are produced here in the United States.
We had the president of OSG, the Overseas Shipping Group, which is a Jones Act carrier, he admitted in a 2017 Financial Times article, he said, “Yes, we would buy, there would be more shipping of American oil within the United States if we didn’t have the Jones Act,” because Jones Act shipping is more expensive.
So we have this ridiculous situation in the United States where we export a lot of our oil and then we import a lot of our oil, because once you factor in the cost of shipping, it doesn’t make sense to buy American energy. And this is what the Jones Act does. It’s a disincentive to buying American parts since we make it too expensive to buy.
We dis-incentivize it financially, or in the case of LNG, we make it impossible because there are no Jones Act ships, and then bring it to Hawaii, as you know, Ed, liquefied petroleum gas, LPG. We are the world’s largest exporter. We have no Jones Act ships to transport it, so Hawaii has no choice but to buy that from abroad.
The most pro-American thing we could do is to get rid of this law, which has failed by every metric in terms of size of the fleet, number of mariners, ships produced. By any reasonable metric, the law is not working. It’s absolutely failed. We need to scrap it and start new with our, revisit our maritime policy.
Helton: Can I jump in real quick? I was going to actually follow back around. This is Jonathan.
Cowden: Jonathan, yes.
Helton: Yes. Just follow back around something you said at the break, Felicia, we want to talk … going back to seed corn, sugar, right?
Ships that come to Hawaii, the container ships, and then go back to the mainland, usually, when they’re going back from Hawaii, those containers are a lot more empty than when they were when they came to Hawaii from the West Coast.
So anything that a business in Hawaii is sending back to California, sending back to Washington, the rates for going back to the mainland are a lot lower than the rates for when you’re bringing something from the mainland to Hawaii.
So, that backhaul rate is a little bit lower, but when it comes to agriculture, anytime you’re going to ship an input, maybe fertilizer from the U.S. mainland to Hawaii, the fertilizer is going to be more expensive if it’s carried on a Jones Act ship.
I think everyone here, regardless of whether pro-Jones Act, pro-reform, pro-repeal, whatever, the Jones Act does impose an additional shipping rate as compared to a foreign vessel. So, your fertilizer that you’re bringing in from the mainland is going to be somewhat more expensive, and so anytime you’re talking about an agriculture industry, the input cost is going to be higher because of the Jones Act.
But last thing. One more thing, Ed, if I can. When we’re talking about, you know, OK, what’s a reform that we could make that might make, maybe, not everyone happy, but that would be an improvement on the status quo?
I think a really good example is agriculture in Hawaii. You know, there’s a story that one time a rancher in Hawaii put some cows on a Boeing 737, flew them to the U.S. mainland. That maybe happened once; I’m not saying it’s a common occurrence. But there are no U.S. cattle carriers in the fleet.
So maybe one reform could be, if there aren’t any Jones Act vessels of a certain kind in the fleet, we make a policy that says, that kind of ship can have a waiver. So maybe Hawaii’s ranchers, they’re going to send cows to the U.S. mainland. Maybe they can get an automatic waiver from the Jones Act since there’s simply no ships that are … there are no cattle-carrying ships in the Jones Act fleet.
Coleman: Same for the LNG. Same for the PVSA, the Passenger Vessel Services Act, cruise ships. Yeah, that’s what I was going to say earlier. That’s a great …
Enos: Let me chime in here with some factual realities, OK?
Cowden: This is Ed Enos. He’s the harbor pilot.
Enos: I worked here in Hawaii as a pilot on board some of the cattle carriers that call at Kawaihae for years. I have seen that trade, I know what it’s like, I know what those ships are like.
And if any of the ranchers on the Big Island want to go grab a real cheap supply boat that’s laid up in the Gulf Coast right now, there’s hundreds of them.
If they wanted to, they could get one for a song, bring it out here, they can convert that thing over, which is pretty much what I was driving in and out of Kawaihae Harbor. They’re not real big elaborate complicated ships.
Why don’t they do that? Because they don’t want to do that. It’s a choice they made, OK? They could do this on their own if they wanted to, but they don’t want to invest their own money to control their own livestock going — and believe me, in the trade between the West Coast and Hawaii, there are horses, pigs, cattle, sheep. There’s a ton of livestock going back and forth. Nobody ever even knows that, OK?
If the livestock guys on the Big Island and Maui and Oahu wanted to do that on their own, under a U.S.-flagged ship, they could. But they don’t want to do that. Why? Because it’s so much easier to throw their livestock in a trailer, put her on the back of a Matson ship, and set her up there, and that happens every week, all the time, year-round. It has been for years, OK?
No. 2: We try to get LNG. I attended a lot of meetings with the heck on all those guys in harbors or not. We tried to get LNG brought into Hawaii. Even if you had a ship tomorrow, there’s no interest in that.
There’s a lot of challenges and problems associated with bringing LNG to Hawaii and doing the whole distribution thing. It’s complicated and it’s very … but it’s not for the lack of trying or desire even, you know?
And with regard to the cruise ships, that’s another out-of-context statement you guys always make. The cruise ship industry in Hawaii is a thriving, profitable business. I know because I go on those ships all the time, year-round.
Man, I just worked two weeks off-duty because we had so darn many cruise ships going in our island, you know, that I had to go on my off times to go work on these ships going between the islands.
You can say the Passenger [Vessel] Services Act, which is the cruise ship version of the Jones Act, you can say that that’s a problem. The reality is, it is not. It never has been, it isn’t today, and it’s not going to be in the future.
You can look out your window, if you live downtown Honolulu, you can go down on Nawiliwili Harbor if you live there in Kauai, and you can see foreign cruise ships in there all the time. Changing the Jones Act or the Passenger [Vessel Service] Act, but that’s not going to change what they do at all.
Oh, sure. Maybe they’ll skip going to Ensenada for a couple of hours, but other than that, the people in Hawaii are not going to see any material substantive change by changing the Passenger [Vessel Service] Act.
And for the cargo ships to the Kauai residents, let me paint this picture for you, so to better understand what we’re talking about.
Imagine getting on a plane in Kauai and flying to L.A. to go visit family and friends. Everybody gets off that plane, the plane closes its doors, and it flies back to Kauai empty. That’s what Matson and Pasha are doing every day.
Now, you tell me, how is Hawaiian Airlines ever going to make money doing a deadhead run several times a day back to Kauai, not carrying any passengers, not having any revenue? How do they make that up?
They make that up by having to charge more on their revenue-carrying leg, which is bringing everything down here. The aviation industry has the luxury of being full every time a plane goes back and forth to the West Coast. That’s not the case in the Jones Act trade.
You know, you go down to Honolulu Harbor, you see a ship full of containers, it’s leaving, going out of the harbor, and it turns left, it goes to the West Coast. Every single container on that ship is empty. You still got to pay for fuel, you still got to pay for maintenance, repair, insurance, crew. All those costs are still there. But there’s no money made on half the time that ship’s running back and forth.
How does any company, whether it’s foreign or American, how does any company want to come back in this trade? I mean, if you can find a guy who wants to come in this trade, let me know. But all the foreign carriers, all the, quote, “competitors” you see out there that are running across the Pacific Ocean from China to LA, their ships are 10 times the size of a Matson ship. Even if they wanted to, they couldn’t even come here, but nobody wants to.
There’s no reason for a ship to divert from their transPacific route from, say, China or Japan over to L.A., Oakland, or Seattle or San Francisco. That’s way out of their way. It might look pretty cool and groovy and easy on paper, but from a navigational standpoint, for these cargo carriers to run from Asia to the West Coast, they are so far away from Hawaii, it’s not even funny.
There is no incentive whatsoever to come here for a foreign carrier.
Cowden: So I have a question, Ed. If I am hearing you correctly, you’re saying if we didn’t have the Jones Act, there probably still would not be enough motivation for, say, a Chinese ship to just go a little south, stop by Hawaii, and then carry on to the West Coast of the United States?
Enos: I’ll make it even easier for you. If you got rid of the Jones Act tomorrow and anything associated with that law or rule, what would it materially change in terms of — because this is the bottom line for everybody’s discussion, right? — how is that materially going to change the price of a loaf of bread, a jar of mayonnaise, a six-pack of beer? I don’t know.
I mean, honestly, you know, there’s been, quote, “studies” done. Yes, studies on both sides. Everybody’s arguing this issue, OK. But if you put China Ocean Shipping Co. carrying all the cargo that’s needed by Hawaii residents between LA and Honolulu Harbor, what do you think their freight rates are going to be, if they had no competition?
They’re going to charge whatever the market will bear, just like they do everywhere else all over the world. You know, you can have 20 companies trying to break into this market. Ultimately, a subsidized shipowner like COSCO, China Ocean Shipping Co., will lowball everybody until they kill off all their competition because they can. And as soon as the last guy leaves, what are they going to do? Jack their rates up.
And how do I know that that’s true? Because that’s what’s been happening here in the Pacific trade the last two years.
Go look at a bottom line. Shipowners have been making … they made more money last year than they ever have. Why? Because they could.
Guess what? The market is turning around; a 180 upside down on its head, their freight rates are collapsing in every trade, and so now they’re begging for cargo from different companies like Home Depot, Costco, Lowe’s and all that.
You know, four or five months ago, it was like, “Hey, we don’t care what you like, we’re going to charge whatever we want.” It’s completely different now.
That is the foreign cargo market that you guys keep talking about, in comparison to the Jones Act’s trade, which is apples and orange[s]. It’s got nothing to do with the other, and it’s an unfair contrast to compare those two things in the maritime shipping industry, to the general public, who doesn’t know any better.
Cowden: So, thank you for that strong final word, Ed Enos, harbor pilot in Hawaii. I want to let, before we finish the show, each of the others have a final word.
I think you’ve made very strong arguments, Ed, and you know, so I’m going to move to Colin, for some final thoughts, and then we’ll go to Jonathan, and then Mark, and if there’s some major thing, then you can make another comment, but I want to let everybody have a statement. I know it’s one person in one position and three others, but Colin?
Grabow: Well, Felicia, I’d just like to once again thank you for having me on the program. I think it’s been a great discussion, a great opportunity to hear from different perspectives.
You know, I would just conclude by saying I think that the Jones Act is A) It’s a failure. It’s not working. It’s not working for Hawaii; it’s not working for the United States. It’s not even working for the U.S. maritime industry, given its performance.
It’s not providing in terms of ships, in terms of mariners, in terms of shipbuilding. Again, by, I think, any reasonable metric, it’s not working.
But what it is doing is raising costs. Jones Act ships are very expensive to build, expensive to operate. That means higher shipping rates, and you know, transportation factors into everything. It’s just so fundamental to our economy, and especially an island state like Hawaii that’s so dependent on ocean shipping.
So I think that it’s high time for some kind of changes to be made to this law. At the very least, we should allow Americans to buy foreign-built ships, and that’s nothing radical. This is what we do for every other form of transportation. You can use foreign-built trucks, foreign-built airplanes in the United States, foreign-built rolling stock.
So let’s just bring the Jones Act — at a minimum — let’s just bring it in line with all of our other laws and make it like all the other laws. I think it would do a lot of good for the U.S. maritime industry and Hawaii consumers and residents.
Cowden: Thank you so much. And Jonathan, kind of giving you a little bit of a fresh question on this closing moment. Are there any initiatives that are coming before our U.S. Congress? Because this would be a U.S. legislation. Is there any that are being considered that causes the Grassroot Institute to be pushing on this?
Helton: There’s a couple of bills in Congress right now. U.S. Sen. Mike Lee has a couple of bills that would reform the Jones Act and other related laws. And then Hawaii’s own [Rep.] Ed Case also has some proposed bills that would change the Jones Act, yes.
And again, related to the issue of, you know, is there a reform that can make everyone happy? I just want to say a couple of things that I think we all agree on.
We all agree that the U.S. maritime industry, the part of it that sails in the oceans, at least, it’s not doing too well right now. So whether you support the Jones Act, whether you oppose the Jones Act, something probably should be done.
And so I think using that as a starting-out point, I think, you know, Ed is very knowledgeable about the industry, I know Colin’s done a lot of research on this. Having conversations like this is how you fix it, because right now Congress is not fixing it. And you know, if this state continues, the U.S. maritime industry’s not going to get better on its own.
So I think that we have to continue having these conversations so that the U.S. maritime industry, hopefully something gets better. And, you know, along with that, hopefully, Congress in that conversation makes reforms that makes it cheaper to send goods to Hawaii.
Cowden: Thank you so much. And I know one of the things that I have heard is if the burden of the cost was shared across the 50 states, that, you know, that would be something that maybe could be considered. I appreciate that you’re all here.
Mark Coleman is the one who inspired this show, so I’m giving you the final word.
Coleman: Wow. Well, thank you very much. And I’m really glad we could all be here. I’m really happy Ed showed up. Late-minute call there for you, Ed, but thanks for being here.
Colin, Jonathan, you know, I think our main point is that something has to be done. The industry is in freefall. And I think the industry ought to do something constructive at its own initiative before it loses all its bargaining position.
And I think that the building requirement, the U.S.-build requirement, would be one easy fix that, with some tweaks in the tax code, could prove beneficial for the U.S. shipbuilding industry and customers such as Matson and Pasha.
Another one would be to offer waivers when there are no U.S. Jones Act ships available to ship certain products, whether that’s LNG or cowtainers, or, you know, whatever.
And in general, perhaps I could close by just recommending your listeners go to the Grassroot Institute website. Jonathan and Josh — our marketing director, Josh Mason — they put together a booklet that filled with really great cartoons by Dave Swann called “Five myths about the Jones Act” that tackles issues, some of the things that Ed brought up, including, for example, China’s supposedly being such a big enemy, but you know, all our ships in the Jones Act fleet are repaired in China and maintained in China. So there’s something going on about that.
And just generally visit our website, we have a whole section, a slew of articles and studies related to this really important issue, which is gaining steam. Yeah, I’ll close on that. Please visit our website, and the more you learn, the more likely you’re going to be against the Jones Act. That’s kind of what we feel.
Cowden: So Grassroots Institute, Grassroot, singular, institute.org … .org, or .com?
Coleman: .org. Thank you.
Cowden: .org. OK.
Cowden: And, Ed, do you want to direct anybody to a website?
Enos: No, but I would say, again, go look up John [McCown]. He’s on LinkedIn. I believe he’s got a Substack, but he has a lot of well-researched articles. And his background, he’s from the maritime industry on the operations side. He’s very well-versed. You know, probably the single smartest guy in this issue in the country today from, based on, again, on his firsthand ship operating experience. And I mean the dollars and cents of all these issues.
Cowden: So that would be John, J-O-H-N, as opposed to J-O-N? J-O-H-N?
Cowden: And then M-C-C-O-W-A-N?
Enos: Correct. Yeah. [Editor’s note: The correct spelling is McCown.]
Cowden: OK. All right. Well, I really appreciate all four of you for having this robust conversation with Kawai, Niihau and Oahu, and whoever else might want to watch this recording or be looking at it on kkcr.org. And this is also archived on our site. So thank you very much.
And I want to give Ed an extra-special mahalo because I know today is an important day for you, personally. And you came on with just a last-moment little tug on the shoulder from me, so I appreciate it.
Coleman: Did you say what the important day was, that it was his wife’s birthday?
Cowden: I didn’t say that.
Enos: It’s my wife’s birthday and I got to run because we’re going to dinner now. [laughs]
Cowden: OK. What’s her name? What’s her name so I can tell her happy birthday?
Cowden: Happy birthday, Ginny.
KKCR and the Hawaii public appreciate your time in helping us have a robust discussion — because my experience, especially as a policymaker, is nothing is simple. Everything has unintended consequences, including not adapting to needed change. So we need to be flexible, we need to be dynamic, and these type of conversations is how we begin to shift in whatever way is the best way.
But I appreciate all of your knowledge and mana‘o, and even calling in late your time, Colin, from Washington, D.C. So as we say here, mahalo nui, and I will sign off with you guys.
Enos: OK. Mahalo, you guys. Thank you very much.
Male Speaker 1: Mahalo.
Male Speaker 2: Mahalo.
Cowden: All right. Aloha. And you are listening to KKCR.