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Sunday, October 22, 2017

Never Let a Good Crisis Go to Waste

Posted to Global Maritime Analysis with Joseph Keefe (by on September 29, 2017

And other well-worn clichés.

Some things never change. For example, my good friend and OMSA President & CEO Aaron Smith told MarineNews magazine readers in September 2016 that, “I’m running out of ways of telling the Board of Directors and membership of the latest unprecedented attack against the Jones Act.” That reality is as true today as it was 12 months ago. This week’s assault, of course, comes in the choppy wake of Hurricane Maria, a powerful storm that walloped the island commonwealth a little over one week ago. The latest line from Jones Act opponents is that the Jones Act is solely responsible for the slow and painful recovery now underway there. Taking a page from Winston Churchill, these folks ‘never let a good crisis go to waste.’

Without discounting the horrible tragedy that the storm represents, it is also true that the Jones Act has absolutely nothing to do with whether the needed aid and supplies are getting inland to those who need this help the most. Nevertheless, President Trump this week waived Jones Act shipping restrictions for Puerto Rico at the request of the island's governor, Ricardo Rosselló and after an outcry from Congress about the scarcity of fuel, food and emergency supplies following Hurricane Maria. The move, for the time being, placates local residents and responders who feel that the U.S. flag operators are the cause of not only this crisis, but indeed, all of their problems. Ultimately, when recovery does come, it won’t have anything to do with who delivered the goods in the first place.

  • If you repeat a lie often enough, it becomes the truth

The residents of Puerto Rico and their leadership have long believed that the Jones Act – that American law that requires that goods and passengers shipped between two U.S. ports be carried on an American flag vessel, crewed by Americans, and built in America – is at the root of all their financial and social woes. Hurricane Maria merely provided the latest pretext for this week’s renewed calls for the end of the Jones Act and/or the island’s permanent exemption from its requirements. What’s really happening in Puerto Rico at the moment, however, tells another story.

The two biggest Jones Act operators in the Puerto Rico markets have permanent operations in PR, employing hundreds. They’ve built dedicated terminals in the island, they burn (or are planning ) LNG in their state-of-the-art fleet (so that the good people of the commonwealth can breathe easier), and both firms built fit-for-purpose tonnage to meet the island’s unique needs (vessels that accommodate the U.S. over-the-road 53’ trucking model). I guess your tramp, voyage-charter low price operator would do better. Not so much, actually.

By all accounts, the collective U.S. flag response was remarkable, it was pre-staged and instantaneous – and it is ongoing. My understanding is that they are delivering mountains of cargo daily – some of it going directly onto the multi-million dollar docks built by these turnkey operators. In fact, they’ve got cargo stacked up that can’t be loaded or discharged because their own vessels are already at the docks doing just that in the commonwealth.

The Government Accountability Office (GAO) reports that two-thirds of the ships serving Puerto Rico are foreign flag vessels. As many as 55 different foreign carriers provide imported cargo to Puerto Rico and these registered carriers compete directly with U.S. flag operators. No one is stopping the locals from using more. Nevertheless, the New York Times published an OP/ED this week entitled, “The Jones Act: the law strangling Puerto Rico.” Another piece claims, “President Trump is denying more aid to Puerto Rico.

What’s the real story? Thousands of cargo containers are backing up at the port of San Juan, filled with essential goods, relief supplies and other items that the Puerto Rican people desperately need. Sadly, the island lacks the necessary trucks, functioning highways and logistics plan to distribute the goods inland. That logistics nightmare, by the way, existed long before the storm and will continue long after the clean-up is complete; with or without a Jones Act. Who says so? I do. After spending the better part of three blissful years commuting back and forth from this island paradise, I know a little bit about how things do (and don’t) get done there.

There is no lack of U.S. flag tonnage or capacity in this trade corridor. In the end, however, the only ‘fact’ that matters to the general public is that if you tell a lie often enough, the masses will believe that it is true. Because, hey, why let the facts get in the way of snappy NYT OP/ED?

  • Be Careful What You Wish For

Jones Act naysayers would have you believe that the elimination of this almost 100-year old statute would bring instantaneous and substantial relief to American consumers all across the fruited plain. While that assertion is very much a bone of contention from both sides of the equation, it is the long term impact of such an event which doesn’t get nearly enough attention. That’s because, while most stakeholders focus on the less than 300 deep draft, blue water ships left in the fleet, the U.S. merchant fleet consists of approximately 40,000 hulls of every shape, size and type. Supporting that fleet are 124 active shipyards in 26 states, creating 110,000 jobs, $9.2 billion in labor income, and $10.7 billion in gross domestic product, or GDP, to the national economy.

According to the U.S. Maritime Administration, economic activity associated with the industry reached 399,420 jobs, $25.1 billion of labor income, and $37.3 billion in GDP in 2013 alone. Make no mistake, all of that will go away with the Jones Act, if it is repealed, including the skill set that exists today to make it possible. Along with that will disappear our ability as an island nation to produce other vessels such as municipal fireboats, tugs, barges, police patrol boats, research vessels and everything else. And if you think it is expensive to build naval vessels today, wait until there are only two yards left who can manage that unique capability.

Jones Act shipping does come at a premium, and that premium pays for itself in the ability of the country to defend itself using a robust sealift capability – the same one that is amply supplying Puerto Rico with goods today – during good times, times of conflict and in dire emergencies. As the cleanup in Puerto Rico continues, hot spots such as the South China Sea, the Middle East, and North Korea all threaten to explode with little or no notice. Can we count on our good friends across the globe to support our armed forces in such circumstances? I’m not so sure about that.

Senator John McCain – the U.S. lawmaker who is arguably best known in maritime circles for regularly pushing legislation to repeal the Jones Act – is, without a doubt, a war hero, a veteran and someone who has for years passionately advocated for people and causes that he supports. We can and should celebrate a life of service. As he tries to sell his latest bid to roll back the Jones Act, and just because he’s got some oceanfront property in Arizona, that doesn’t also mean that we have to buy any. A 23-year U.S. Navy veteran who doesn’t understand the inherent value of a robust sealift capacity is the last person who should be leading a discussion of cabotage rules. Yes, we should all be careful of what we wish for.

  • That won’t play in Peoria

Finally, we circle back to the +/- 220,000 professionals who make up the domestic credentialed mariner pool. We shouldn’t expect John McCain or the army of anti-Jones Act lobbyists in Washington to give them a second thought. And, they won’t. But, when the next ten-barge tow of North Dakota crude oil passes that 30-barge parcel of grain headed for export in the U.S. Gulf, you had better hope that we can trust the folks who are driving both pushboats. In the absence of an enforceable Jones Act, however, we can’t know for sure who is on board either one. And, that’s not going to play In Peoria. For that matter, it won’t play in Pittsburgh, St. Louis, Baton Rouge, Cleveland or a hundred places in between.

If you simply aren’t worried about national security in the context of the necessity of a robust domestic sealift capacity, then what should give you pause is the prospect of a couple hundred thousand, casually vetted foreign nationals threading their way across the heartland on board as many as 39,000 brown water workboats. That won’t happen right away, of course; they’ll need time to train and acclimate before all of those jobs evaporate from the American landscape. Nevertheless, that’s exactly what will happen.

All that said, here’s the real deal: eliminating one part of the Jones Act is very much like being a little bit pregnant. You either are, or you are not. And, there is either a Jones Act, or there isn’t.     

  • The Inconvenient Truth

Already receiving as much as 75% of what they consume via foreign registered tonnage and free to increase that market share at any time, island residents and their leadership already know – but can’t say it right out loud – that the departure of the dedicated U.S. flag shipping model to and from the island would, long term, create as much of a financial crisis as the considerable, insolvent mess they’ve already created for themselves. Like the celebrations that followed the commonwealth’s ‘success’ in chasing the U.S. Navy from the island almost two decades ago, this ‘victory’ – should it happen – will also be shallow and short-lived.

Drilling down past all the arguments and carefully crafted campaigns, the real problem here has nothing to do with the Jones Act. Arguably, the best friends that the good people of Puerto Rico have ever had are the professionals at U.S. flag fleets that service the island. Collectively, they’ve invested hundreds of millions of dollars in the island, its economy and waterfront logistics. The fact that anything at all is getting ashore in the wake of Maria, is ample testimony to the commitment of the U.S. firms that regularly ply these waters. You won’t read that in the New York Times, or hear about it on Capitol Hill.

It is simpler than all of that, actually. The collective domestic waterfront does a poor job in telling its story, primarily because there are too many voices in the choir. Giving credit where credit is due, the previous U.S. Maritime Administrator, Paul Jaenichen, recognized that reality immediately upon settling into his chair at Marad. After organizing a series of meetings designed to get everyone into a single room to unify the message, he sadly had limited success in making that happen. After all, you can lead a horse to water, but you can’t make it drink. Nevertheless, and unlike Senator McCain, here was a career Navy man who knew the value of robust sealift capacity when he saw it. But, the chronic ‘perception’ problem still persists today.

Look at this way: A recent temporary Jones Act waiver in the U.S. Gulf during the post-storm crisis in the Houston area made a lot of sense. There were legitimate energy concerns, here and across the U.S. East Coast in the wake of that disaster. But, like Puerto Rico, the vast majority of consumer goods and foodstuffs arrive to this region via foreign flag tonnage anyways. And, across the big pond, as soon as the magnitude of the crisis in Texas became apparent, European traders queued up a long line of tankers with refined products to fill the gaps, no doubt with visions of diesel and gasoline price ‘spikes’ dancing in their heads.

You can equate this week’s Jones Act waiver for Puerto Rico with the recent release of a few thousand barrels of crude oil from the nation’s Strategic Petroleum Reserve (SPR). Both moves were designed to address similar issues, neither provides palpable relief for anyone, but each makes for a nice sound bite on the evening news. I guess that makes people feel better. Anti-Jones Act activists know this only too well.

Let's Review: This week, we learned that we should never let a good crisis go to waste, primarily because if you repeat a lie often enough, it then becomes the truth. At the same time, stakeholders should be careful what they wish for, because it just might come true. And when that happens, it most certainly will not play in Peoria. Sadly, that’s the inconvenient truth. But, is anyone who matters even listening? – MLPro

* * *

Joseph Keefe is a 1980 (Deck) graduate of the Massachusetts Maritime Academy and lead commentator of MaritimeProfessional.com. Additionally, he is Editor of both Maritime Logistics Professional and MarineNews magazines. He can be reached at jkeefe@maritimeprofessional.com or at Keefe@marinelink.com. MaritimeProfessional.com is the largest business networking site devoted to the marine industry. Each day thousands of industry professionals around the world log on to network, connect, and communicate.

Tags: John McCain Marad Puerto Rico Jaenichen Jones Act

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