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Wednesday, December 11, 2019

Maritime Logistics Professional

Jones Act comes in for some serious economic questioning

Posted to Martin Rushmere (by on November 27, 2013

The cost seems to outweigh the benefits

Emotion and national pride are clashing with economic reality as federal politicians seek to relax the tight restrictions of the Jones Act. In the latest such move a bill (S. 1197) has been proposed to allow non-Jones Act vessels to work for or supply the Navy. The wording confines these activities to transport goods “under a shipbuilding or ship repair contract” with the Navy.

Predictably, there have been strong cries of anguish from mariners. Comments have suggested that terrorists will find it easier to plant bombs, while most people say it’s just another step in the disappearance of the US Merchant Marine. One practical suggestion is that the crews should all be Americans with TWIC cards.

Missing from the arguments is an assessment of the financial costs of a strict cabotage system. Drewry has come up with a sobering review of the costs, noting that Matson is buying two 3,600 TEU vessels from Aker Philadelphia for $209 million each. This “underlines the possibility that US flag protectionism is an increasingly expensive luxury,” says Drewry, as similar vessels could be built in Asia for less than $40 million.

Matson’s last order was for 2,890 TEU ships costing about $125 million each – four times the going price in Asia. “The differential appears to be getting bigger”, according to the maritime consultancy. On top of this, the wage bill will be pretty hefty, with wages over the last 10 years for ships between 2,000 and 3,000 TEU having risen 31 percent.

Drewry says even China is baulking at   the cost of cabotage and is rethinking the whole system, while Europe is taking a very easygoing view and coastal trade in the region costs about $75 per TEU.

Ironically, the US cabotage laws are even making the situation worse, as “only the largest carriers have enough business to call at small ports such as Boston (Massachusetts) directly, leading to polarization of the industry.”

Short-sea shipping has been hampered by cabotage laws, says Drewry, and the result is that pollution increases because so much traffic is carried by road and rail.

But, a lucrative by-product of investing in the Jones Act is the military traffic to places such as Guam.

“As the political need for the US’ Jones Act is much diminished, and most of its foreign trade is already carried in non-US flag vessels, there are strong commercial and environmental arguments in favor of its repeal,” says Drewry.