Reuters columnist disparages the Jones Act, but can’t see any way to repeal it
by Michael Hansen, President, Hawaii Shippers Council
Reuters published on this second day of May 2013 an opinion column written by one of their market analysts in London, John Kemp. On the one hand, Kemp finds the Jones Act restrictions have an onerous effect on the U.S. economy, but on the other hand, can’t see any way the law might be repealed due to its highly concentrated political support.
Kemp mentions the problems facing oil refiners and other petroleum interests on the U.S. East Coast as the Jones Act limits the availability of suitable tankers. He also touches on the higher costs associated with noncontiguous jurisdictions of the United States – Alaska, Guam, Hawaii and Puerto Rico – due to the Jones Act.
At the Hawaii Shippers Council, we agree with Kemp that a full nationwide repeal of the Jones Act appears to be a virtual political impossibility for many reasons. However, we believe that the Jones Act can be modified to greatly lessen its currently negative impacts on the nation’s economy.
In respect of the noncontiguous domestic trades, we have put forward our proposal to exempt those trades from the U.S. build requirement. This is a critical issue because the cost of constructing large oceangoing ships – of the kind that service the noncontiguous trades – in the U.S. is now four to five times that in the major shipbuilding countries of Japan and South Korea.
Significantly reducing the capital costs of the shipping companies by allowing them to buy much lower cost ships will provide many benefits to the consumers in the noncontiguous jurisdictions. However, the Jones Act shipping companies continue to vigorously oppose our reform proposal because the domestic build requirement for their ships provides them with among other things greater protection from competition. And, its protectionism that the shipping companies do not have to pay for – the consumer pays the freight.
The Hawaii Shippers Council (HSC) is a business league organization incorporated in 1997 to represent cargo interests – known as “shippers” – who tender goods for shipment with the ocean carriers operating the Hawaii trade.
Please contact the HSC at email email@example.com if you wish to be placed on our email list.
Reuters COLUMN-Jones Act is set to stay: Kemp (excerpts)
...East Coast oil refiners have started to complain that U.S. crude is being shipped from the Gulf Coast to refineries in Canada, while they have to pay four times as much in shipping costs because of the Jones Act, according to a Reuters report.
"I hear there is talk in Washington about modifying the Jones Act," Joe Petrowski, chief executive of oil retail and wholesale group Gulf Oil, said on CNBC last week. "If that happens, it would be very good news for the industry."....
Critics blame the act for raising the cost of coastal shipping, pushing up the cost of living on islands such as Puerto Rio and Hawaii, creating periodic shortages of specialist vessels, distorting trade flows and even hampering cleanup and fuel movements after the Deepwater Horizon oil spill and Hurricane Sandy.
Jones Act restrictions have been assailed by both liberal and conservative sources. "Like other protectionist laws, it increases the price of goods and services to American consumers," the Washington Post warned in a 2010 editorial, though the paper admitted "how much is a matter of debate".
"If FedEx can move cargo across the country in European-made Airbuses, why can't a boat built in, say, Canada, ship wheat from Los Angeles to Honolulu? The Jones Act lobby crushed the last attempt at reform back in the 1990s. May the next one meet with more success," the newspaper hoped, forlornly.
Shippers in Puerto Rico and Hawaii have complained that freight rates on routes covered by the Jones Act are higher than for longer journeys between the United States and foreign ports.
Costs may cause trade diversion. Companies in Puerto Rico told congressional investigators they sometimes purchase products from foreign countries rather than the United States because transportation charges are cheaper.
"An oil and gas importer in Puerto Rico told us that the company makes purchasing decisions based on the total price of oil and gas ...(It) generally does not purchase from U.S. suppliers because the total cost is higher as a result of the differential in transportation costs," the Government Accountability Office (GAO) wrote in a report to Congress ("Puerto Rico: characteristics of the island's maritime trade and potential effects of modifying the Jones Act" March 2013).
Like most protectionist measures, the Jones Act is bad public policy. Its objectives could be achieved more efficiently through subsidies. But that would make the costs more apparent - one reason seafarers, domestic shipping companies, legislators and many officials in the federal government are united in preferring flagging restrictions....
It is a classic case where the benefits of the law are concentrated on a few, while costs are borne widely. Beneficiaries have strong incentives to lobby intensively, while the much larger number of individuals who bear the costs have less incentive to do anything about it....
President Bush waived the act for 19 days following Hurricane Katrina in 2005. The Obama administration issued waivers in 2011 to facilitate the release of emergency oil from the Strategic Petroleum Reserve (SPR); then again in 2012 to aid fuel transfers to the Northeast after Hurricane Sandy.
Shipowners and maritime unions have generally not opposed temporary, narrowly defined waivers, provided they are clearly a last resort.
The 2011 oil release provides the best case study. The initial invitation issued by the Department of Energy promised SPR buyers a blanket exemption from the Jones Act to allow them to carry crude away in foreign-flagged tankers. However, it was amended within 24 hours to remove references to the blanket waiver. Officials had forgotten to check with the White House, where the president's advisers were reportedly furious.
A few days later, the administration published a special procedure allowing SPR purchasers to apply individually for waivers on an expedited basis and receive a decision within 48 hours, after checks that no U.S.-flagged vessels were available.
There is a revealing coda to this story. Most of the 30 million barrels of oil eventually sold was carried away by tanker, and in every case the buyer applied for and obtained an individual waiver....