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The new normal for the Jones Act -- big profits?

Posted to Martin Rushmere (by on December 30, 2013

The restricted market is letting some people make a killing, but little else has changed

There’s been a new twist to the Jones Act, sending another signal that it’s time for change.  Money crunchers are making a huge profit from the artificial market in the domestic oil trade. ExxonMobil has chartered the Overseas Cascade at $110,000 a day, almost 50 percent higher for the same ship a few months ago. Meanwhile one of the Koch brothers has scored big off the same oil company by reletting the American Phoenix for $100,000 a day, more than double the rate Koch Industries is paying for the ship.

The cause is of course the booming oil shale industry (fracking) and the 50 or so US-flagged tankers that can carry the oil between US ports. The boom in tanker rates bears out the predictions of some analysts, who have been saying for years that protecting the industry has led to the opposite of what was originally intended – less competition instead of more.

Alarms and warnings are spreading about the need to change all legislation relating to US-flag shipping. Richard Bank, who was at one time a senior official in the State Department’s Office of Maritime Affairs and now runs a consulting firm, reckons that the principle of protecting the US Merchant Marine is not being maintained. In a recent interview with Forbes, he said that operators such as APL have been swallowed up by foreign corporations, while others have withered and died. He gave three reasons – high operating costs, bureaucracy and regulations, and unhelpful trade unions.

Meanwhile merchant shipping subsidies and the like, particularly the food aid program, are going to foreign-owned ships [Maersk is the best-known of these in the industry] conveniently flagged in the US. In theory, these ships have to be made available to the government or navy in emergencies, but Bank says a government of the owning company (e.g. Denmark with Maersk) could prohibit the vessel being used in a war zone.

Jones Act supporters say, with some justification, that it’s needed for military operations and also supports thousands of jobs. Opponents say that those jobs are becoming an expensive luxury and that even more jobs would be created if the law is loosened.

Opposing the Act can be a political death blow. A Hawaiian representative in Congress lost his reelection largely on the basis of campaigning for reform.

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