Jones Act contested

LIHUE — A matter of security and jobs preservation? Or is it an archaic protection of special interests on the backs of taxpayers and consumers?

The Jones Act is back in the limelight and this time, the 114th Congress will consider repealing it.

“I have long advocated for a full repeal of The Jones Act, an antiquated law that has for too long hindered free trade, made U.S. industry less competitive and raised prices for American consumers,” said U.S. Sen. John McCain in a news release. The release announced that the amendment was attached to the Keystone XL Pipeline Approval Act to authorize a pipeline from Canada to the Gulf of Mexico.

The Republican from Arizona introduced an amendment to repeal the Jones Act, which requires all goods shipped between U.S. ports be carried by vessels built in the U.S., and owned, operated and flagged by Americans. Officially, Section 27 of the Merchant Marine Act of 1920, the act also includes cargo to noncontiguous jurisdictions of Alaska, Guam, Hawaii and Puerto Rico.

McCain called the act “archaic legislation,” that if repealed would spur job creation and promote free trade by eliminating domestic ship build provisions to allow competition.

Hawaii Shippers’ Council President Michael Hansen, representing cargo shippers in the Hawaii trade, said the amendment is one of 55 other unrelated riders to the Keystone bill in the hopes of a slim chance of passing and getting by a presidential veto. The Jones Act industry lobbies heavily against a repeal and a standalone bill would most certainly fail, he added.

“What McCain is attempting to do is to try and find a piece of legislation that would have a chance of passage and attach it to see if it will go through,” Hansen said.

U.S. Sen. Mazie Hirono, D-Hawaii, opposes the McCain amendment. She said the Jones Act helps ensure Hawaii has reliable access to fresh food, energy and everyday goods. Rather than repealing the act, Hirono asked Congress to promote and grow American manufacturing.

The amendment would no longer require U.S. flagged ships to be built in the U.S., which could create an instability to the nation’s shipbuilding industry as contracts go to international shipbuilding companies, Hirono stated in a news release. A U.S. flagged fleet is also a matter of national security by ensuring domestic construction capability for commercial and military vessels.

“The Jones Act ensures our ongoing viability as an ocean power by protecting American shipbuilders and provides solid, well-paying jobs for nearly half a million Americans across the country,” Hirono said.

HSC supports the McCain amendment and disagrees with Hirono’s figures. Jones Act employment relates only to shipboard and shipbuilding jobs, Hansen said. Foreign-built aircrafts, such as Airbus, are being flown by domestic carriers and there is no reason to be protecting special interests with shipping.

Foreign-built U.S.-flag ships would relieve the high cost of ship construction and promote competition, greater lift capacity and service, Hansen said. An artificial shortage of ships is resulting in higher shipping costs for consumers, he said.

“We would have more competitive trade in Hawaii, without barriers to entry and without the extraordinarily high shipping costs to compensate for the shipbuilding,” Hansen said.

Hirono is correct when she states Hawaii is not part of the trans-Pacific trade pattern, and this is a discrete market with limited cargo volume and smaller docking facilities for a limited number of ships, Hansen said.

Hawaii is outside of the great circle routes and higher freight rates come in part from compensating operators for return trips with mostly empty vessels.

A more competitive environment would encourage participation, he added. Newer and more efficient ships offer shorter transit times and lower freight costs to attract more shipping customers.

“It costs money to keep goods at sea,” Hansen said.

There are seven major U.S. shipbuilding yards and two are foreign owned. None of them are competitive, he added.

It costs around $200 million to build a Jones Act cargo ship, while Japanese and Korean build the vessel from the same design for $50 million.

Hansen said the labor standards are comparable. South Korea overtook Japan for lower labor costs and China has jumped ahead of both in several categories.

The Jones Act industry does not support an appeal or exemption because it provides few owners the protectionist barrier they need to dominate, Hansen said. Existing owners recoup building costs from customers as potential owners are discouraged from attempting to enter noncontiguous trade as a competitor.

“This recreates what we call a barrier to entry,” Hansen said. “The cost is so extreme that no one else would consider entering the market.”

Horizon Lines ended 56 years as a Jones Act container shipping service in December. Pasha took over its Hawaii line and vessels and Matson took its Alaska operation and 13 vessels.

Horizon had just resolved federal fines and civil settlements resulting from violations on its Puerto Rico line. It was not in financial shape to upgrade its aging vessels on the Hawaii and Alaska lines.

The average age of the Jones Act cargo carrier is around 30 years as compared to the international fleet at 12 years. The high cost of replacing Jones Act ships keeps them in service longer with costly maintenance.

Matson or Pasha could go to a South Korean shipbuilder with a design they bought from a German firm and build a ship at one-fifth the cost, he said. HSC said the ships built in the U.S., Japan and South Korea are using designs purchased from German and Korean shipbuilders.

“When you do something a lot, you tend to get good at it,” he said.

Pasha declined to comment on the McCain amendment to the Jones Act.

Matson did not respond to a request for comment. However, in a 2009 announcement, the company supported it as important to maintaining a strong Merchant Marine and to ensure that the island economy of Hawaii has frequent, reliable and efficient ocean transportation services at stable rates.