Shipping fees: Union-backed federal law increases transport costs tenfold
ALOHA: Jones Act supporters say the law protects U.S. carriers. Hawaii residents say they pay the price in higher shipping costs.
by Malia Zimmerman, November 26, 2013, Watchdog.org
HONOLULU — So much for free shipping.
Moving a container here from Los Angeles costs nearly 10 times more than moving that same container from Los Angeles to Shanghai, some three times farther.
The Freight of All Kinds rate to ship a 40-foot container from Los Angeles to Shanghai is $790. Matson, Hawaii’s largest carrier, charges $8,700 to ship that same container from Los Angeles to Honolulu, according to the company’s website.
Shipping that container from Hong Kong to Los Angeles is $1,986; from Shanghai, to Los Angeles, $1,885.
Hawaii Pacific University economist Ken Schoolland
The Jones Act, or the “Merchant Marine Act of 1920,” requires goods shipped on cargo containers be transported between American ports on American manned and owned ships by American crew.” It decreases competition in the shipping industry and allows American companies to increase prices dramatically, economists say.
Ken Schoolland, a professor of economics at Hawaii Pacific University, called it a “mercantilist favor to special interest shipping lobbies that strangle the economic life of the people of Hawaii.”
“These restrictions, while benefiting a few powerful insiders, multiply by many times the cost of ships and labor that are allowed to service the islands. These restrictions eliminate many products that we could buy and many customers to which we could sell our products around the world. These restrictions prevent us from accessing the newest, most efficient and most sustainable technologies,” Schoolland said.
Hawaii attorney John Carroll is challenging in the constitutionality of the Jones Act.
“Why should Matson get away with predatory pricing on shipping? The law should be set aside altogether, or at the very least Hawaii should be given an exemption,” said Carroll, who filed an appeal Nov. 14 on his initial case — it was dismissed earlier this year — challenging the Jones Act.
Hawaii Attorney John Carroll filed a federal lawsuit, now on appeal, to kill the Jones Act.
“The people of Hawaii must be made aware of the damage the Jones Act shipping restrictions are inflicting on Hawaii’s economy and the harm brought into the lives of everyone in Hawaii,” Carroll said, noting an estimated 80 percent of what is consumed in Hawaii is imported, and 98 percent of that comes by sea.
The Drewry Maritime Research, a national research and advisory organization for the maritime sector, last week issued a controversial report calling for a repeal of the Jones Act.
Powerful and well-funded supporters of the law dismiss the Drewry report as self-serving. They maintain a U.S.-flagged fleet is vital for the nation’s national and economic security.
The Drewry report, however, says the Jones Act is “getting increasingly expensive for consumers and no longer has the same level of political support.”
That’s not necessarily the case in Hawaii.
Gov. Linda Lingle, a Republican who served from 2002-2010, and Gov. Neil Abercrombie, a Democrat in office since then, are vocal supporters of the Jones Act. As is President Obama.
Key members of Hawaii’s current congressional delegation — including Sens. Mazie Hirono and Brian Schatz and Rep. Colleen Hanabusa — back the Jones Act.
Former Hawaii Gov. Linda Lingle supports the Jones Act and said there are other ways to reduce shipping costs.
Matson’s purchase of two new container ships, at $209 million each, from a shipyard in Pennsylvania made Drewry curious.
The Journal of Commerce reports vessels of a comparable size could be built in Asia for less than one-fifth of that price.
“The last time Matson ordered four 2,890-TEU (20-foot-equivalent-unit) ships at a U.S. shipyard, which were delivered between 2003 and 2006, they cost around $125 million each, which was around four times higher than the market price in Asia at the time. So the cost differential is getting larger,” the Journal of Commerce said.
Besides the cost of building new ships, wages have increased, soaring 31 percent in 10 years, the Drewry report said.
Lingle and many other supporters, including the past four U.S. presidents, have said the Jones Act plays an important role in keeping an America fleet ready in war-time and in maintaining a strong economy.
ABERCROMBIE: Jones Act supporter
Lingle maintains an objective analysis of the Jones Act, which is backed by American shippers unions, cannot be reduced to an argument about lower shipping costs. It also must focus on national security interests, which include protecting the American shipping industry from collapse based on economic pressure from foreign competition.
But Schoolland, who wrote the award-winning “Jonathan Gullible” series used to teach economics around the world, says that “security” should not be for companies afraid of open competition in the marketplace, or for politicians and their lobbyists afraid of allowing our citizens freedom to choose how to spend their money.