| Print | Close Window | AMO Currents - Posted: October 3, 2012 |
WSJ Jones Act focus too inaccurate, incomplete to ignore
Sustaining vital resources
Enacted as Section 27 of the Merchant Marine Act of 1920, the Jones Act holds all waterborne commerce between and among U.S. ports for merchant vessels owned, built, registered and crewed in the United States. As Mr. Bussey pointed out, these requirements were intended to promote "a guaranteed merchant marine" after World War I. But it would have been helpful to unknowing readers had Mr. Bussey explained even briefly why this was so important.
Signed into law amid a strong, expanding economy, the Jones Act encouraged job-creating private capital investment in cargo vessels the U.S. could count on to accommodate rising domestic trade demand along the deep-sea coasts, on the Great Lakes and along vast inland waterway systems nationwide.
Twenty years later, this investment proved to be as prophetic as it was practical. From the first-generation ocean-going Jones Act freighter suited for military cargo to the Great Lakes and inland vessels that carried industrial raw materials necessary for defense manufacturing, from a thriving commercial shipbuilding industry to a large and growing civilian American seagoing workforce, the Jones Act had sustained the American maritime resources that contributed so significantly to the U.S.-led Allied triumph in World War II.
On their soil, not ours
The notion that the U.S. cannot wage and win war overseas without a maritime industry supported in substantial part by the Jones Act may seem quaint in this day of the drone. But, while war-fighting technology and tactics have evolved quickly, dramatically and continuously over 92 years, the central strategy has not changed: meet enemy forces on their soil, not ours.
Given this imperative, the Department of Defense depends almost exclusively on privately owned and operated U.S. merchant ships and American merchant mariners to carry vehicles, tanks, helicopters and other heavy equipment and supplies safely and efficiently to distant war zones. U.S. merchant ships diverted from commercial service delivered 95 percent of the materiel used by U.S. troops in Afghanistan and Iraq since 2001.
Moreover, contemporary coastal container ships and petroleum product tankers operating under the Jones Act are capable of strategic sealift and other national security missions, and 80 percent of the American merchant mariners available to crew the sealift fleet began their careers in Jones Act trades.
For these reasons and others, the Navy League of the United States reaffirmed its support of the Jones Act in a recent policy statement. The Jones Act and other domestic shipping laws are "important to economic and national security because they protect critical national infrastructure and provide added sealift capacity through the Voluntary Intermodal Sealift Agreement (VISA), an expanded pool of trained and experienced mariners to crew U.S. government-owned sealift assets and help sustain the U.S. shipbuilding and repair industrial base that is vital to the U.S. Navy and Coast Guard."
During a Sept. 11 hearing by the House Armed Services Subcommittee on Oversight and Investigations, Assistant Navy Secretary for Research, Development and Acquisition Sean J. Stackley was asked by Rep. Colleen Hanabusa (D-HI) whether the federal government should "maintain" the Jones Act's U.S. construction requirement.
"Yes ma'am," he replied. "The Navy has been and continues to be a strong supporter for Jones Act shipbuilding."
More relevant than ever
If anything, the Jones Act is more relevant than ever to national security in the lasting aftermath of the terrorist attacks upon the U.S. in September 2001, and in the contexts of relentless turmoil in the Middle East, Iran's nuclear ambition, North Korea's muscular posturing and China's steady rise as an economic and military power.
Of course, Arizona Republican Sen. John McCain - a perennial Jones Act grump - does not see it this way. He wants the law repealed, and he told Mr. Bussey that the defense rationale behind the Jones Act is "laughable."
But there is nothing funny about the prospect of foreign-flagged and crewed vessels occupying domestic waters, and Sen. McCain dismisses this threat all too easily.
"Thousands of foreign ships put into our ports and don't present a problem to our national security," Sen. McCain said. But the ships Sen. McCain referred to operate in international trade, carrying 98 percent of U.S. commercial imports and exports. These ships arrive in the U.S., load or discharge their cargoes, and leave the U.S.
Under Jones Act repeal, these ships would be free to remain in the U.S. for as long as their owners wanted them to. These vessels could be subject to some but not all U.S. laws, depending upon the circumstances. But, once established in U.S. domestic trades, these ships would be free to displace U.S. businesses and American jobs, free to seize domestic cargo markets and free to abandon these markets at any time for any reason.
In addition, the foreign nationals working aboard these vessels would be free to remain in the U.S. with questionable immigration status. Neither Sen. McCain nor Mr. Bussey can say unequivocally that these individuals would present no terrorist threat, or that these individuals would understand and respect American values or share American merchant mariners' commitments to U.S. economic and national security interests.
Jones Act energy markets
Mr. Bussey apparently sees no real risk in allowing foreign-flagged and crewed vessels to carry crude oil in domestic markets or to transport fuels, chemicals and other hazardous petroleum products between and among U.S. ports in response to what Mr. Bussey characterized as "the tight supply of Jones Act vessels" and "problem" Jones Act shipping rates.
Yes, it costs more to move crude oil and petroleum products in Jones Act tankers than it would to move these same cargoes along the same domestic routes in foreign-flagged vessels. But most people probably would agree that the rate difference is well worth it, not only in terms of U.S. employment, but also in terms of safety, reliability and security.
With respect to Jones Act vessel availability, Mr. Bussey and the energy analyst he cited could have been swayed to their conclusion that the domestic fleet is deficient in number by a flawed report distributed in February 2012 by the Department of Energy's Energy Information Administration.
Addressing the possible shutdown of a Pennsylvania refinery and the consequent need to supply the Northeast with petroleum products from Gulf Coast refineries, the EIA concluded that Jones Act vessels may be "in short supply."
However, the EIA later conceded that it had undercounted the available Jones Act fleet - tankers and tank barges - by about 270 vessels, or 50 percent. Despite fessing up to its staggering error, the EIA refused to amend its report. Meanwhile, the Pennsylvania refinery continues to operate, and Jones Act vessels serve it routinely.
Commenting on this issue in April 2012, the American Petroleum Institute said it "has not sought, nor is it seeking, waivers to the Jones Act to move fuel from the Gulf Coast to the Northeast.
"API's members comply with federal laws governing the marine transportation of petroleum products, including laws and regulations relating to the coastwise trade such as the Jones Act, and API supports the current interpretation and implementation of these requirements," API continued.
Mr. Bussey also said Jones Act "ship availability" was a factor last year when Customs and Border Protection waived the Jones Act 48 times at the request of DOE to allow foreign-flagged tankers to carry crude oil drawn down from the Strategic Petroleum Reserve directly between U.S. ports.
The truth is that these waivers resulted not from a shortage of Jones Act vessels, but from the administration's calculated decision to simply deny the Jones Act fleet its lawful cargoes - the minimum per-shipment cargo volume set by the artful dodgers at the Department of Energy was just above what the largest of many available Jones Act vessels could carry.
Anything but 'rare'
Mr. Bussey characterized the recent delivery of the Jones Act petroleum product tanker American Phoenix by BAE Systems in Mobile as a "rare" event. But this vessel - manned in all licensed positions by American Maritime Officers - is actually the latest in a series of tankers turned out by U.S. shipyards for domestic service.
Aker Philadelphia Shipyard weeks ago delivered the first of two product tankers to Crowley Maritime Corp., which will accept the second vessel in March 2013. These ships - the Pennsylvania and the Florida - will operate under AMO contract.
Aker Philadelphia has built 13 Jones Act tankers in 11 years, and it has two crude oil tankers on order for Exxon Mobil.
General Dynamics NASSCO in San Diego completed a five-ship "State class" tanker project recently. Four of the new vessels are operating in commercial trade between U.S. ports, and one is operating for the U.S. Navy's Military Sealift Command. AMO represents the marine engineers and deck officers on the five vessels.
Short shrift on short sea
Mr. Bussey also gave the Jones Act short shrift on short sea shipping. He said the law impedes development of a fleet of small-to-mid-sized container vessels to provide cleaner, safer and more efficient "Marine Highway" alternatives to domestic freight shipment by road and rail along congested corridors on the East, West, Gulf and Great Lakes coasts. He said the cost of shipbuilding in the U.S. was the greatest obstacle to short sea shipping on a national scale.
The strong, implicit suggestion here was that, failing Jones Act repeal, the law should be amended to eliminate the U.S. construction requirement. But sacrificing U.S. shipyards would not do the trick.
One real roadblock to building a short sea shipping fleet is anemic demand for such services, coupled with shipper reluctance to accept waterborne transportation as an option. "Without greater demand, the water road concept won't float," said a May 22 report in the Washington-based Politico.
"It's a chicken-and-egg type of thing," former Maritime Administrator Sean Connaughton explained to Politico. Connaughton, who now serves as Virginia's Secretary of Transportation, added: "Shippers won't commit until there's reliable service, but you can't have that until shippers commit."
Another obstacle is limited access to commercial shipbuilding credit, and a third is a lagging Department of Transportation marine highway promotion initiative authorized in 2007 and developed by Connaughton. DOT has identified 18 marine highway routes ripe for private investment, but its effort is hampered by the recession and by spending restraints.
The greatest obstacle could be the inequitable application of the ad valorem Harbor Maintenance Tax on cargoes transshipped by water within the U.S. The HMT was authorized in the Water Resources Development Act of 1986, not the Jones Act.
When shippers move their goods from one U.S. port to another via the ocean and Gulf Coasts, the Great Lakes or inland waterways, they pay the HMT in both the U.S. port of origination and the U.S. port of delivery. When these businesses move their cargoes domestically via truck or railroad, they pay the HMT only at the U.S. port of origination.
Simple business decision: if it were your cargo, which transportation mode would you use?
Jones Act, Ex-Im: no link
Finally, Mr. Bussey cited as a Jones Act "disjuncture" a decision by GE to "ship a big wind turbine " to Kenya from its manufacturing plant in Germany aboard a foreign-flagged vessel, instead of shipping a U.S.-made turbine to Kenya on a U.S. ship from a U.S. port as "part of a potentially larger export deal."
Mr. Bussey said GE had found "few Jones Act ships" that "could handle the large load." But the Jones Act applies only to domestic trade, and a Jones Act vessel would not have been necessary for the Germany-Kenya shipment GE had settled on. The last time we checked, neither Germany nor Kenya was a U.S. state or a U.S. territory under Jones Act jurisdiction.
Mr. Bussey apparently did not know, or chose not to report, that the "export financing" that required GE to use "an American ship" was provided through the Export-Import Bank of the United States - the same institution The Wall Street Journal railed against as a dispenser of "corporate welfare" earlier this year when Congress was considering Ex-Im Bank's reauthorization. Mr. Bussey apparently did not know, or chose not to report, that the shipping law at issue was not the Jones Act, but the Cargo Preference Act of 1954.
In this case, U.S.-flagged heavy-lift ships were available to carry a U.S.-made GE wind turbine from the U.S. to Kenya, but GE chose to export both the U.S. manufacturing jobs and the jobs of American merchant mariners in a single transaction.
Tom Bethel
National President
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