Lloyds’ List covers the Jones Act debate in Alaska, Guam, Hawaii and Puerto Rico
by Michael Hansen, President Hawaii Shippers Council
The influential maritime publication, Lloyds’ List, has again weighed in on the application of the Jones Act to the noncontiguous domestic trades of the United States – namely those domestic trade lanes involving Alaska, Guam, Hawaii and Puerto Rico.
The Lloyds’ List article, “The pros and cons of the Jones Act”, was published on Monday, July 8, 2013, and written by Mr. Tom Leander, Editor-in-Chief for Asia, who is based in Hong Kong.
Earlier this year Mr. Leander penned an editorial, “Made in America,” that was published on January 4, 2013 and addressed the U.S. build requirement of the Jones Act in the context of the noncontiguous trades. Mr. Leander concluded his January editorial saying, “Any action that weakens the protectionism of the Jones Act will ultimately be to the long-term benefit of U.S. shipping,” which we agree with.
In his current article, Mr. Leander covers the various reports that have been released this year regarding the noncontiguous trades and assesses the current state of the Jones Act debate, focusing on Guam and Puerto Rico.
Mr. Leander presents a good roundup of the news for the first half of this year 2013, and gives the reader an excellent sense of the continuing Jones Act controversy.
We certainly hope to provide Mr. Leander with more Jones Act developments during the second half of 2013 for him to cover.
See Mr. Leander’s January 2013 editorial: Lloyds List endorses U.S. build exemption for Hawaii, Alaska and Puerto Rico
The pros and cons of the Jones Act
Unit costs are higher for Jones Act shipping lines that sail to Puerto Rico laden, but return almost empty.
Debate continues over whether Hawaii and Puerto Rico should be part-exempt
by Tom Leander, Lloyds List, Monday 08 July 2013
ALTHOUGH that perennial US protectionist chestnut, the Jones Act, is rarely far from controversy, this year has witnessed an especially lively domestic Jones Act debate.
The Jones Act is Section 27 of the Merchant Marine Act of 1920. It requires, for the purpose of US coastal shipping, vessels to be built in US shipyards, US-flagged, owned in the majority by US owners and crewed in the majority by US crews.
However, non-contiguous US states — Alaska, Hawaii, Guam and Puerto Rico — have been pushing for partial exemption from the Jones Act, arguing that the Act penalises their citizens because the cabotage requirement raises the prices of goods.
In return, the benefits of the law to shipbuilders and Jones Act shipping companies are minimal in the non-contiguous states.
The Hawaii Shippers Council, a business league representing cargo interests, put forward proposed legislation in 2010 for a partial exemption for these states, calling for shipowners in the US to be allowed to buy foreign-made vessels for coastal shipping.
There is strong support in Guam for a non-contiguous exemption from the US shipbuilding requirement.
Guam’s main newspaper, the Pacific Daily News, has published five opinion pieces supporting an exemption, including one by the majority leader in the Guam legislature. The newspaper itself supported the exemption in an editorial.
Two important studies involving Puerto Rico have focused on the Jones Act and its effect in the first half of 2012. The first was a long-awaited study by the General Accounting Office of the US Congress, released in March, which was requested by Puerto Rico’s resident commissioner Pedro Pierluisi.
Although Jones Act detractors hoped that the independent study would support efforts to change the law or even repeal it, the results were inconclusive.
Shippers in the study said they believed that vessel service was satisfactory from Jones Act operators, but also thought that the Act led to higher pricing and that opening trade between Puerto Rico and the mainland US to non-US operators would increase competition and lower prices.
Some Puerto Rico business operators said they avoided buying from US suppliers because the Act led to higher prices, particularly of commodities such as animal feed, fertiliser and oil.
However, the GAO said that it lacked enough information to establish whether open competition would necessarily allow for lower pricing, as self-evident as this assumption might seem.
The problem was access to information from non-US carriers.
Although the four major Jones Act carriers to Puerto Rico — Crowley Liner Services, Horizon Lines, Sea Star Line and Trailer Bridge — were forthcoming on pricing and service data, the GAO said nine of the 10 foreign-flag carriers it approached did not respond to their queries.
The report admits that the results are inconclusive. “Because so many other factors besides the Jones Act affect rates, it is difficult to isolate the exact extent to which freight rates between the US and Puerto Rico are affected.”
Another study followed in May, commissioned by Jones Act supporters in Puerto Rico and carried out by Estudios Tecnicos, a local prominent economics consulting group.
The group that commissioned the report, La Alianza Maritima de Puerto Rico, is an industry trade association supporting the Jones Act that is closely affiliated with the American Maritime Partnership, the main nationwide Jones Act Industry trade association.
The study admits that Jones Act shipping companies are more expensive than international operators, especially regarding the cost of ships — US-built ships are far more expensive than those available in the major shipbuilding countries — and US labour costs.
Higher ship prices for operators and costs to crew vessels with US workers, of course, translate into higher costs to operate the vessels and in a restricted market like the US-Puerto Rico trade, those operators have the pricing power to pass those costs on to customers.
However, the study concludes that the cost disadvantage is mitigated by direct routes from the US by Jones Act operators: if open competition flourished and pricing dropped, operators might have to minimise direct routes to remain cost-effective, so the thinking goes.
Another offsetting factor comes from the size of the containers used in the US Puerto Rico Jones Act trades of 53 ft, whereas 40 ft boxes are commonly used globally.
The pricetag that the report put on the annual savings to Puerto Rico’s cargo owners and shippers was $120m.
Jones Act supporters say the report fills the gaps left open by the GAO report and puts to rest arguments that the Jones Act is a detriment to Puerto Rico’s economy.
Admittedly, the report appears more sober than the April 2002 study of the Jones Act by University of Puerto Rico economist José Alameda, which estimated annual higher shipping costs to companies at $400m a year.
Detractors of that study pointed out that entire shipping industry in Puerto Rico invoices about $700m a year.
Nevertheless, the Estudios Tecnicos study has its detractors, too. Opponents point out a transparency issue.
The study — which remains private — formed the basis for two newspaper articles based on leaked information published in Caribbean Business, a local newspaper that editorially supports the Jones Act trade.
A riposte to the Caribbean Business assessment of the study was published in a Puerto Rico web-based business publication, News Is My Business, by local consultant Vincent Feliciano, president of Advanced Business Consulting.
Mr Feliciano points out that under open competition, other foreign carriers could just as well adopt direct routes and modify their carrying capacities for 53 ft containers. He also says that the study ignores the costs of operating inefficient ships on the trade route from the mainland.
The cruiseship industry is not subject to the Jones Act, and as cruiseship companies have increased the size of their ships to create economies of scale, ports in Puerto Rico have responded by expanding their capacity to accommodate the vessels.
This has not happened in the Jones Act trade with containerships, although around the world container owners are buying bigger ships to hold down costs. The costs of inefficiency over time are passed on to Puerto Rico’s businesses and consumers.
Mr Feliciano also points out that unit costs are higher for Jones Act shipping lines that sail to Puerto Rico laden but sail the backhaul largely empty.
He also points out that the Jones Act has necessarily killed Puerto Rico’s opportunity to build transhipment businesses, a disadvantage that does not apply to Panama, the Dominican Republic, Jamaica or The Bahamas.
Also in late May, the US Maritime Administration released a study, the Economic Importance of US Shipbuilding and Repairing Industry.
Critics of the Jones Act frequently say that the law has in effect destroyed deep-draught, ocean-going ships.
The study — using data from 2011 — does show that the survivors in the US shipbuilding industry create a direct economic benefit of 107,240 jobs and total benefit, including jobs in business related to shipbuilding, of 402,010 jobs providing $23.9bn in labour income.
The industry, according to the study, adds $9.8bn to the US economy in direct impacts and has a total impact of $36bn.
The top states for shipyard-related jobs are Virginia with 63,650, Texas with 25,750, California with 37,140, Louisiana with 29,250, Mississippi with 23,450 and Florida with 21,890.
Politicians on both sides of the aisle in the US Congress will see those numbers as an indicator of how many votes they stand to lose by modifying the Jones Act to allow purchases of foreign ships for US cabotage.
Expect the debate to rage on — but with little action, for now.
• The private pro-Jones Act report from La Alianza Maritima de Puerto Rico and Estudios Tecnicos was leaked and can be found on a website serving another non-contiguous US state, the Hawai'i Free Press. An editorial by Michael Hansen, president of the Hawaii Shippers Council, and a link to a copy of the report, can be found at: http://www.hawaiifreepress.com/ArticlesMain/tabid/56/ID/10035/UPDATE-Puerto-Rico-Jones-Act-report-needs-public-review.aspx
• A riposte to the Caribbean Business articles based on the Estudios Tecnicos report by Vincent Feliciano, president of Advanced Business Consulting, can be found on the News Is My Business website at: http://newsismybusiness.com/op-ed-against-the-jones-act/