Hawaii Jones Act Reform Movement Gets International Attention
From Grassroot Institute
The bipartisan push for a Jones Act exemption for Hawaii and other non-contiguous states is starting to receive more attention, both in Hawaii and around the world. Local media outlets like Pacific Business News have carried the story of the growing movement, and an Associated Press account of the effort has been picked up by news outlets as far flung as the Washington Post and the New Zealand Herald....
The list of participants at the press conference today included:
Hawaii: Senator Sam Slom (R); Representative Gene Ward (R); Representative Evans (D).
Territory of Guam: Senator V. Anthony "Tony" Ada (R) – Minority Leader; Senator Rory J. Respicio (D) – Majority Leader
Guam Sen Respicio News Release
Guam Sen Respicio Letter to Rep Boradillo
Alaska: Senator Fred Dyson (R) - talking; Senator John Coghill (R) – Majority Leader – participated for a short time but needed to leave prior to speaking.
Commonwealth of Puerto Rico: Senator Rossana Lopez Leon – Majority Whip
Other speakers: Michael N. Hansen, President, Hawaii Shippers Council; Cliff Slater, Independent Transportation/Trucking/Railroad Professional
Coverage from March 13, 2014 1PM News Conference at Hawaii Capitol:
Hawaii Legislature Jones Act Resolutions: HR 113, HCR 153, SR 45, SCR 93
Full Text Statements from News Conference participants:
IN REFERENCE TO COMPANION RESOLUTIONS HR 113 HCR 153 SR 45 SCR 93 REQUESTING CONGRESS TO EXEMPT HAWAII (JOINED BY PUERTO RICO AND ALASKA) FROM THE U.S. BUILD REQUIREMENT OF THE JONES ACT FOR LARGE OCEANGOING SHIPS
Concurrently Introduced, Friday, March 7, 2014, in the 27th Legislature, State of Hawaii
PRESENTATION OF MICHAEL N HANSEN, PRESIDENT, HAWAII SHIPPERS’ COUNCIL MARCH 13, 2014
I am pleased to join with and thank the Hawaii State legislators gathered here today and who introduced the four companion resolutions calling for Jones Act reform. I would also like to thank the legislators from Alaska, Guam and Puerto Rico who participated today.
The Hawaii Shippers Council is an industry trade association representing those interests of cargo owners who ship their merchandise in the Hawaii trade. Shippers are the customers of the shipping companies, and pay the freight.
We fully support the intent of the resolutions to exempt the noncontiguous trades of Alaska, Guam, Hawaii and Puerto Rico from the domestic build requirement of the Jones Act.
The cost of building major commercial ships in the United States is now well documented to be five times that of constructing comparable ships in Japan and South Korea. Together with China, Japan and South Korea build more than 90% of the worlds new ships over 1,000 gross tons.
Although there are approximately 38,000 self-propelled ships over 1,000 gross tons in the world, the U.S. domestic shipping trades face a scarcity of large self-propelled ships. This is especially critical to interstate surface transportation in the noncontiguous trades where nearly 50% of the 90 ships over 1,000 gross in the Jones Act fleet are employed.
The eight major domestic shipbuilding yards in the U.S. have constructed on average approximately 2 ships per year since the early 1990’s. In comparison, Japan alone builds over 300 ships per year for export.
There is no shortage of major ships in the world, just in the Jones Act trades due to a highly protectionist law known as the Jones Act.
In comparison, other modes of transportation are allowed to use foreign manufactured equipment including air transportation and trucking industries.
The extraordinarily high cost of shipbuilding and the artificial shortage of commercial ships in the U.S. creates a narrow and highly concentrated domestic shipping market.
The shortage of ships and high cost of construction create significant barriers to entry in to the Jones Act trades.
Virtually any potential new entrant ship operators are unable to afford or unwilling to acquire the necessary capital assets – namely U.S. built ships – at unrealistically inflated prices to challenge the incumbent players.
The very high barriers to entry create a market that is all but uncontestable by a new entrant and insulates the incumbent operators from virtually any new competition.
Although it seems counterintuitive, the Jones Act shipping industry supports the U.S. build requirement of the Jones Act even though it makes acquiring ships for domestic service much more expensive.
The Jones Act industry supports the build requirement because it protects their monopoly like positions and wards away any meaningful completion.
Because of their control of the domestic shipping market the existing Jones Act shipping interests can pass the high cost of U.S. built ships to their customers – the shippers who own the cargo – and ultimately the American consumers – especially those residents in the noncontiguous jurisdictions.
The high Jones Act ship acquisition costs also provide greater absolute profits. This is especially true for the containerships operating common carrier in the noncontiguous trades. Their rates are nominally regulated by the U.S. Surface Transportation Board. The greater their rate base, the greater the absolute profit allowed under the regulatory standard known as the “zone of reasonableness”
It is time to align the domestic shipping operators in the noncontiguous trades with the rest of the world. It’s time to remove the protectionist U.S. build requirement, and compel the shipping operators to acquire their ships from far more efficient foreign sources. This is a realistic approach to bring real competition to the trades and relief to the shippers and consumers.
* * * * *
Statement of SENATOR FRED DYSON (of Alaska)
As a non-contiguous U.S. state, Alaska has functioned under unnecessary fiscal burdens and federal overreach.Included is the Merchant Marine Act of 1920, commonly and collectively referred to as the “Jones Act.”
The “U.S. build only” reservation in the Jones Act was made at the expense of many merchants and ship operators that had long participated in trade with Alaska even before being purchased from Russia in 1867. The restriction of cabotage of U.S. cargo between U.S. ports only to U.S. ships has made it all but impossible for competition in Alaska markets. The cost of doing business is unnecessarily inflated by the U.S. build requirement clause of the Jones Act. This market barrier has caused most ships built in the United States to be double the cost of what they can be purchased and produced for outside of the U.S.
While supporting exemption from the ship building clause of the Jones Act, it is still necessary to maintain the shipbuilding industry as a matter of national defense. It is also necessary that ships approaching American shores be captained and manned by very competent and professional crews and pilots. It is difficult to ensure that foreign crews will have that professional level of demeanor so we must retain the requirement for USCG licenses.
I believe that exclusion of Alaska from the U.S.-build requirement of the Jones Act for large self- propelled oceangoing ships would result in a benefit to Alaska’s economy and a reduction in the cost of shipping goods and services to Alaska markets.
* * * * *
PUERTO RICO AND OTHER JURISDICTIONS REQUEST THE U.S. CONGRESS, EXEMPTION FROM THE U.S. SHIP-BUILD REQUIREMENT OF THE JONES ACT
SENATOR ROSSANA LÓPEZ LEÓN
Majority Whip, Puerto Rico Senate, President of the Civil Rights, Citizenship Participation and Social Economy Committee
AUTHORIZED STATEMENT: March 13, 2014
“In Puerto Rico for the past four months, I have been presiding hearings regarding the Senate of Puerto Rico Resolution Number 237, which orders an investigation about the economic impact of the maritime fleet costs between Puerto Rico and the United States, having the United States Government Accountability Office Report 'Puerto Rico: Characteristics of the Island's Maritime Trade and Potential Effects of Modifying the Jones Act.' as a start up for the investigation. If we truly want to create jobs and boost our economic development we need to eliminate the implementation of the Jones Act in Puerto Rico. We will support President Obama's public policy to create jobs increasing exports, but we need total exemption of the Jones Act to transform our island into a powerful transshipment destination.
"Studies made by prestigious organizations, such as the World Economic Forum and the Federal Reserve Bank in New York, among others, revealed that the Jones Act represent an obstacle for Puerto Rico's economic development. Also, local economists said in public hearings that we can grow at least 10% without the application of Cabotage Laws. All Puerto Rico commercial sector, as well as the industrials and small businesses agreed that we have to move from the Jones Act, otherwise we're losing great business opportunities hidden behind this obsolete law.” Said Senator López León
# # #
Hawaii, Alaska, and Puerto Rico lawmakers say the U.S. ship build requirement of the Jones Act is a major contributor to the high cost of living in their locations and they want the U.S. Congress to remove this burden.
The public is urged to get involved.
News Release from Office of Hawaii State Sen. Sam Slom, March 14, 2014
HONOLULU— Today, lawmakers from Alaska, Puerto Rico and Hawaii came together by video to voice their views to the public and the United States government on the Jones Act. (Technicians were unable to establish a connection with Guam.)
Each jurisdiction participating today has tried singularly, on numerous occasions, to persuade the United States government to provide exemptions, waivers and relief from the Jones Act.[i] Today, lawmakers from these jurisdictions are joining forces to try to get the word to the U.S. Administration and the U.S. Congress that the Jones Act is punishing the people of Alaska, Puerto Rico, Guam and Hawaii with high costs of living. For example, according to the USDA thrifty plan data (2011) the average cost of groceries in Hawaii is 49% higher when compared to the mainland costs. http://www.cnpp.usda.gov/USDAFoodCost-Home.htm
|| USDA food costs
|Average Monthly Food Cost (2011)
|Difference - $
|Difference - %
Domestic ocean transportation in the Alaska, Guam, Hawaii and Puerto Rico is known as the noncontiguous trades. The noncontiguous jurisdictions are unique in the nation as they are completely reliant on ocean shipping for interstate surface transportation. The forty-eight states comprising the contiguous United States (CONUS) – also known as the “mainland” and the “lower 48” – have many interstate surface transportation alternatives, including truck and rail.
The four jurisdictions video conferencing for the press conference today have greater political effectiveness working together in seeking reform to federal cabotage laws.[ii] International critics call the Jones Act “super cabotage” and “the mother of all cabotage laws.” The U.S. maritime cabotage laws are unique in the world by strictly requiring vessels be domestically built. In contrast, United States aviation cabotage laws do not require domestically manufactured aircraft to carry commercial freight and passengers between points in the United States. For example, witness the widespread use of foreign-manufactured Airbus aircraft in domestic U.S. service.
A common reform solution, by exempting the non-contiguous states from the U.S. ship build requirement, would create a larger market and foster greater competition in ocean shipping for the noncontiguous trades. For comparison, recent figures show that a 40' container rate from Los Angeles to Shanghai is $790 while a 40' container from Los Angeles to Honolulu is $8,700 (Matson lines – see article at watchdog.org Nov 26, 2013). Many lawmakers would like to know why the U.S. is contributing to a lower cost of living in China, while continuing to encourage high costs of living in the non-contiguous U.S. states. The non-contiguous states' lawmakers propose a Jones Act reform that would exempt the noncontiguous trades from the U.S. ship build requirement.
The costs of building large oceangoing self-propelled ships in the United States, as required by the federal cabotage laws, are now four to five times the cost of building a comparable ship in Japan and South Korea. This extraordinary U.S. shipbuilding cost has many ramifications. It restricts domestic ship construction, creates an artificial scarcity of ships, erects very high barriers to entry for the domestic coastal and noncontiguous trades effectively restricting competition, and has resulted in an ageing and inefficient Jones Act fleet including in the noncontiguous trades.
Two ocean common carriers operating in the Puerto Rico trade – Sea Star Line and Crowley Maritime – announced earlier this year they plan to build in U.S. Shipyards two new containerships each to replace their ageing vessels. The new ships will have a capacity of approximately 3,000 Twenty-foot Equivalent Units (TEU)s and cost approximately U.S. $200 million apiece. These ships will be built under license to foreign shipyards which created their design. Had these ships been purchased directly from the companies who designed them and built at one of those companies’ foreign shipyards, the cost would have been in the range of U.S. $40 to 50 million. The people and businesses of the non-contiguous states are paying for the difference between the domestic and foreign build cost for these ships.
The Territory of Guam is currently exempt from the U.S. ship build requirement of the Jones Act (46 USC 12111), which is commonly known as the “Guam Exemption.” However, the exemption is of limited usefulness as the natural westbound trade lane from the U.S. West Coast passes through Honolulu effectively shackling Guam to the U.S. ship build requirement for its interstate trade.
# # # # #
[i] Examples include but are not limited to: Senate of Puerto Rico, S.R. 237 (2013); Hawaii Senate SR45 and SCR 93(2014), SR97 and SCR117 (2013); Hawaii House of Representatives HCR153, HR113 (2014) HR119 and HCR150 (2013; Alaska Statutes-Sec. 44.19.035. Jones Act repeal. Article 02. The governor shall use best efforts and all appropriate means to persuade the United States Congress to repeal those provisions of the Jones Act formerly codified at 46 U.S.C. 861, et seq.; Territory of Guam Resolution No. 179 (LS) refers to the high cargo costs to due cabotage laws.
[ii] There are several federal cabotage laws that regulate a variety of domestic marine activities. Section 27 of the Merchant Marine Act of 1920 (46 USC 50101) commonly known as the Jones Act regulates the carriage of cargo. The Passenger Vessel Act of 1886 (48 USC 55103) regulates passenger carriage. Additionally, the Dredging Act (46 USC 55109), Towage Act (46 USC 55111), and Salvage Act (46 USC 80304) cover specific activities as their names indicate. The Nicholson Act of 1950 (46 USC App. 251(a)) regulates the use of fishing vessels. The Second Proviso of the Jones Act (P.L. 84-714 of 1956) (46 USC 12101(a) and 12132(b)) restricts foreign rebuilding of coastwise eligible vessels. Section 446 of the Tariff Act of 1930 (also known as the Smoot Hawley Tariff) (19 USC 1466) imposes a 50% ad valorem duty on repairs to U.S. flag ships performed in a foreign place.
Note: Some information above was gleaned from Michael Hansen's, President, Hawaii Shipper's Council testimony to the Puerto Rico legislature dated 11-04-2013.