Jones Act: Keep afloat or let it sink?

Hurricanes Harvey, Irma and Maria prompted the Trump administration to last month issue waivers to a restrictive maritime shipping law in Texas, Florida and Puerto Rico. The temporary lifting of the Jones Act aimed to help speed delivery of relief supplies to areas reeling from storm damages.

In Hawaii, the move has renewed a longstanding debate over whether to update or repeal the law, also known as the Merchant Marine Act of 1920, which requires vessels transporting cargo between two United States ports to be U.S.-flagged and built. Also, American citizens or permanent residents must account for three-quarters of crew and ownership.

Tailored to provide the nation with a merchant marine that can transport goods between U.S. ports as well as to help ensure a robust fleet in the event of military confrontation, supporters maintain the law is continuing to serve us well. Its opponents counter that unless sufficiently tweaked or scrapped, the Jones Act is a relic that hampers the pace of ship-building in the U.S. and drives up consumer costs.

Keli‘i Akina, president and CEO of the public policy think tank Grassroot Institute of Hawaii, said his group would like to see the law’s requirement that ships be U.S.-built lifted because it’s the most costly of the provisions.

“The Jones Act is throttling our options when it comes to shipping goods within the U.S., and that’s always costly,” Akina said. “Allowing U.S. shipping companies to purchase ships from our allies, just as the U.S. military does, would increase the supply of ships, allow greater market competition … and ultimately reduce the cost of goods shipped.”

Mike Hansen, a local shipping industry observer who heads a group called the Hawaii Shippers Council, which includes shipping customers, points out that between the 1960s and ’80s international shipbuilding shifted to Asia from Europe. And these days, Japan, South Korea and China construct more than 95 percent of the self-propelled seagoing merchant ships over 1,000 gross tons, with most sold on an export basis into the international market.

Collectively, those three countries are producing hundreds ships yearly while comparable turnout in our shipyards is typically less than double digits.

“The Jones Act’s self-propelled seagoing fleet is the most expensive in the world to operate due primarily to shipbuilding costs — about five times that for comparable ships built in Japan and South Korea; and operating costs — about 2.7 times that for foreign-flag largely due labor costs (including manning scale) and operating older ships,” Hansen said.

Unions warn against repeal

But Randy Swindell, Hawaii Ports Maritime Council’s president, said regardless of the higher costs, pulling any provision of the Jones Act would be a mistake. The maritime vessel requirements — U.S.-built, and predominately U.S.-owned and crewed — make it possible to maintain a “baseline ship-building capability and expertise that is critical to our national defense,” Swindell said.

What’s more, he said, as the industry pushes forward, it’s innovating. For example, Crowley Maritime is building two cutting-edge, dual-fueled container ships for Puerto Rico trade. (Matson Navigation is in the process of building four new diesel-powered vessels for the Hawaii trade route.)

Hansen’s Shippers Council, which has been pushing for Jones Act reform since the mid-1990s, has long backed the idea of eliminating the domestic ship-building requirement for Hawaii. It also lauds the efforts of U.S. Sen. John McCain (R, Ariz.), who has introduced a series of repeal-focused bills over the past several years.

Most recently, McCain envisions his proposed Open Waters Act of 2017 as a catalyst for reducing shipping costs, making American businesses more competitive in the global marketplace and bringing down the cost of goods and services for consumers.

In response, this month the nation’s largest federation of labor unions (AFL-CIO) warned against repealing the law, saying that doing so would open up the maritime industry to low-wage foreign workers, costing jobs and shattering the domestic shipping industry.

Hawaii’s current congressional delegation has consistently supported the Jones Act.

U.S. Sen. Mazie Hirono (D, Hawaii) contends that other than in emergency situations, such as hurricanes, when temporary waivers are needed to provide essential services, the law should remain intact as it “supports the American shipping industry, as opposed to the shipping industries of other countries.”

In the islands, she said, the Jones Act “supports thousands of high-paying jobs, generating hundreds of millions of dollars in income for Hawaii workers and billions of dollars in economic activity for our state every year.”

As a state reliant on imports for more than 85 percent of our food and 90 percent of our fuel, Hirono said, it ensures our families receive these goods reliably and on ships subjected to rigorous American labor and environmental standards.

U.S. Rep. Tulsi Gabbard, a Democrat who represents rural Oahu and the neighbor islands, echoed that sentiment, asserting that a working maritime industry is key for ensuring the stability of domestic commerce, environmental and labor standards as well as protecting national security. The Jones Act, she said, “helps to maintain the U.S. industrial shipyard base and infrastructure to build, repair, and overhaul U.S. vessels, creating jobs in places like Hawaii.”

She added, “The economic impact extends far beyond the building of ships, or the crews who serve on those ships. Everything from the steel purchased from domestic producers to build ships, to the shore staff dealing with offloading and ground transportation, many sectors of our domestic economy benefit from the Jones Act. … Repealing it would have far-reaching effects.”

Cost impacts questioned

The law has evolved over time as to what it is and where it serves, said U.S. Rep. Colleen Hanabusa, a Democrat who represents the 1st Congressional District that includes urban Honolulu. “I feel that it is essential for Hawaii and that it should be preserved with the proper exemptions,” such as a waiver during a natural disaster.

Dropping it altogether, Hana- busa said, could leave far-flung Hawaii in a dicey spot, in which the reliability of Jones Act ships would no longer be subject to federal law. Instead, Hawaii could be subject to the cargo-delivery whims of foreign-flagged ships.

Under the current law, a ship traveling from Tokyo to Los Angeles, for example, is unable to drop off cargo in Hawaii on its return trip because that would be tagged as interstate travel, which is reserved for Jones Act vessels.

While some see that practice as stifling free trade, economist Paul Brewbaker, principal of TZ Economics, questioned whether lifting or eliminating the law’s provisions would have much effect here.

For starters, “trade lanes between Asia and North America are well north of Hawaii,” he said. For big cargo ships, Honolulu is hardly a “crossroads of the Pacific.” Further, Brewbaker said: “Tell me how competition — large numbers of producers of … ocean surface cargo services — is relevant in a market where 15 to 20 vessels provides everything for 1.4 million residents and another quarter of a million tourists every day of the year?”

Moreover, Brewbaker said, nothing prevents a foreign carrier from serving Hawaii from a foreign port, and some do. But foreign vessels stopping in Hawaii along the way to or from the U.S. mainland would be “unprofitable because of Hawaii’s small loads and how far out of the way it is.” (Only Matson does this, and only with one vessel, so that it can stop at Guam on the way to China.)

Regarding the law’s effect on consumers, the U.S. International Trade Commission has estimated that reform or repeal of the Jones Act could yield an annual economic gain of up to $15 billion. And some say such action is needed for relief from the high cost of living in shipping-dependent Hawaii, Alaska and Puerto Rico.

But Brewbaker said in Hawaii’s case, anyone who wants to reduce Hawaii’s cost of living would fare better by advocating for “production of way, way more housing units than the state and counties currently will allow.” He continued, “When you aggregate living costs, the goods component in Hawaii overall is not that much different from the mainland; housing is the culprit. Repealing the Jones Act will do nothing to reduce the cost of housing in Hawaii, which is rooted in supply restrictions (and geography).”