Worley Blog


Posted on: July 31st, 2017 by Clifford F. Lynch

With the introduction of the megaships into international trade, it is often possible for a fully loaded container vessel to call at more than one U.S. port. When they do so (for example, offloading containers at Long Beach and sailing on to Oakland to offload others), ships create excess capacity between the two ports that can be utilized for reduced price carriage. In today’s global economy, we in this country can take advantage of foreign capacity………….. Wrong!
As logical as this may seem, and as economical as it would be, firms are precluded from doing that because of a cabotage* provision in the Merchant Marine Act of 1920. This section provides that goods transported by water between U.S. ports must be carried in U.S. registered ships, built in this country, and crewed by U.S. citizens. (This law is commonly referred to as the Jones Act, as it was originally introduced by Senator Wesley Jones.)  A case in point concerns outlying sections of the U.S. A foreign flagged ship cannot transport cargo between the U.S. mainland and Alaska, Hawaii, Puerto Rico, Guam, etc. The ship must proceed directly to the mainland where the cargo is trans loaded to a U.S. flagged vessel for final delivery, adding a significant increase to the cost of the goods.
The law was passed to protect the U.S. shipbuilding industry, and the country’s seamen. Critics question the need for that now and believe the law is protectionist (which it is) and drives up energy and shipping costs (which it does).  Proponents argue that the industry should be protected and that the Jones Act is in the best interests of national security.
Just before he became ill, Senator John McCain introduced legislation to repeal the Jones Act. (Open America’s Waters Act of 2017). He has been attempting to do for some time, introducing similar legislation in 2010 and 2015. Senator McCain referred to the law as archaic and burdensome, hindering free trade, stifling the economy, and ultimately harming consumers.
To me, this bill makes infinitely good sense, although if I were in the shipbuilding industry, I might feel differently. Considering however, the overall economy, any method by which we can reduce the cost of getting goods to market, particularly to those territories off the mainland, would be a desirable result.
With Senator McCain’s illness, the future of this bill is unclear. And of course, president Trump has made clear his protectionist bias. The repeal of the Jones Act has failed in the past, and it has strong opposition from organized labor. The AFL-CIO claims it would eliminate 400,000 shipbuilding, seafaring, and supply jobs. Notwithstanding this, supporters of the new legislation view the disadvantages as being more than offset by the economic benefits.
*Cabotage: This term is used primarily in international shipping and may not be familiar to all. It is the transportation of goods or passengers between two places in the same country by a transport operator from another country. Originally, it applied only to water transport but now may apply to air, rail, or motor.