IN DEFENSE OF THE JONES ACT

Transcription

1 IN DEFENSE OF THE JONES ACT ASBA Annual Cargo Conference Miami, FL September 26-28, 2012

2 Background of the Jones Act Section 27 of the Merchant Marine Act of 1920 (46 U.S.C. 883), commonly referred to as the Jones Act, requires that all waterborne shipping between points within the United States be carried out by vessels that are; Owned by U.S. citizens (at least 75%), Manned with U.S. citizen crews Built and Registered in the US

3 Stated Purpose of the Law Necessary for the national defense and the development of the foreign and domestic commerce of the United States that the United States shall have a merchant marine The Preamble to the law identifies four main objectives 1. Not just domestic commerce but a substantial portion of the waterborne export and import commerce of the US 2. Serve as a naval and military auxiliary in time of war and national emergency 3. US citizens own the vessels 4. Best and most capable vessels constructed in US shipyard and manned by US citizens

4 What Constitutes the US Flag Fleet The US Flag fleet is made up of two segments; the US Flag International Fleet and the Coastwise or Jones Act Fleet. Contradictory Stats; For example that of the number of ships in the US flag fleet represents only 1% of the worlds tonnage; Yet in terms of deadweight tonnage the US ranks about fourth in the world in terms of deadweight capacity at about 70 million tons of deadweight capacity; The US Flag fleet consist of approximately 200 ships, about evenly split between Jones Act eligible and US flag Foreign trade only. However the Jones Act Fleet totals over 40,000 vessels

5 What s the Difference Between the US Jones Act and the US Foreign trade Fleet Jones Act Fleet US Foreign Trade Fleet Fly the US Flag Fly the US Flag US Owned US crewed Vessels Built in the US Receive no subsidy Can compete both in the domestic and international markets US Owned US crewed Vessels Built Overseas (or US with CDS) Eligible for participation in MSP (Maritime Security Program) Foreign Trading only, but eligible for DOD and Cargo Preference cargoes

6 National Security and Use of the US Flag Vessel The U.S. Navy says U.S. Flag vessels are Critical to National Security However the reality is that vessels that trade domestic routes, i.e., the Jones Act fleet, the majority of which are tug and barge are seldom used to support the military outside the US. The vessels most critical to the military are tankers, ro-ro ships and container which are for the most part not Jones Act in that they were built in foreign yards and eligible for operating subsidies such as MSP.

7 So what are the Impediments to US Flag Vessels trading in International Trade Interestingly the US consumer is little effected by the US flag foreign trade fleet which may or may not receive subsidy payments, and who s existence is due exclusively to cargo preference laws and the support of the military. There is little complaint from the public about this class of ship because any subsidy received is a direct payment from the Maritime Administration to the vessel owner. These US flag carriers argue two points; that the US needs to have a ready, active fleet in times of national security to carry materiel and munitions but that reserve capacity is not adequately compensated; that there are no economic incentives for US firms to contract with US flag vessels over foreign flag vessels for their commercial requirements.

8 Why US Flag Vessels Cannot Compete in the International Arena Fact: US Flag vessels whether Jones Act or just not able to compete in the international shipping market without a robust cargo preference program and or direct subsidy payments. In September of 2011 MARAD released a study comparing US flag and Foreign-Flag operating costs, the study found that in 2010 the daily operating cost of a US flag vessel was nearly $22,000 per day versus $7500 for the foreign flag counterpart 2.7 times higher. US DOT Comparison of U.S. and Foreign-Flag Operating costs September, 2011

9 But Consider the reason why the US Flag Vessel will cost more than a comparable Foreign Owned and Operated Vessel Higher U.S. Construction Costs Unique to the Jones Act fleet because of the requirement to build in the US versus foreign yards in our sample voyage we will compare the difference between a US flag tanker and a foreign built tanker. Interestingly that is why in the domestic trade we see many more ATB s, tugs and barges versus ships. Labor costs US citizens and US work rule requirements the average US flag ship will have daily crew costs in the area of $13,000 - $15,000 per day versus a comparable foreign ship of about $3000 per day Maintenance and repair costs Higher cost of US shipyard versus foreign yards, US flag ships are subject to a 50% ad valoreum duty for non emergency repairs conducted in foreign yards also consider the restrictions on foreign riding gangs undertaking work while in transit

10 Why does the US Flag Vessel cost more than a comparable Foreign Owned and Operated Vessel Regulatory costs Differences in Regulatory costs include inability to transfer vessels in and out, no minimum manning requirements, a more rigorous inspection regime Insurance costs US vessel costs typically 1.5 times higher due to increased liability costs associated with mariner personal injury Taxes Many open registry nations have little or no income tax on the Vessel Owner s earnings. The US has one of the highest corporate income tax rates/

11 The criticism of the Jones Act fleet is that it costs the US Consumer; US Flag Jones Act Eligible Tanker Equivalent Sized Foreign Built and Operated Tanker Size : MR 50,000 dwt Size : MR 50,000 dwt Construction Cost: $90 - $120 million Construction Cost: $30 million Vessel Daily Operating Cost: $25,000 Vessel Daily Operating Cost: $7,500 Market Time Charter Rate: $50,000 per day Market Time Charter Rate: $10,000 per day Freight Example: When you consider that fuel and port costs are similar for both, the landed cost of a gallon of gasoline on a sample voyage from the USG to Philadelphia may be 3 times higher for the US flag vessel versus the comparable foreign flag vessel. But Is that a price too high to pay for the benefits provided?

12 But we want deregulation right; isn t deregulation a good thing? Clearly, deregulation is good for the consumer, it has lowered costs in a number of industries and spurred advancement, resulting in numerous technological improvements; Successful industries where deregulation have clearly benefited the consumer and their own industries include; The oil industry Airline industry Trucking Telecommunications Utilities / Electric Generators Railroads

13 But if deregulation is so good why shouldn t it apply it to the Jones Act Critics of the law will say; It is high cost; That the law is protectionist; That the need for a national fleet is past; That it is essentially a subsidy for US flag vessel owners; Has limited value in wartime and national emergency since the fleet is predominantly composed of river barges;

14 But the Jones Act is No More Protectionist than other US regulations. Cabotage laws are hardly unique, a MARAD 1991 survey found that 43 of 56 maritime countries, had some sort of crewing, ownership or domestic construction provisions imposed on their merchant marine fleet. US is all about free Trade, well not exactly, we impose export restrictions on crude oil and natural gas, The Agriculture Reform, Food and Jobs Act of 2012 farm bill is essentially an agricultural subsidy for US farmers. We place a quota on how much sugar that we can import into the US in an effort to protect the US sugar industry; The domestic production of ethanol was heavily subsidized until last year; Aviation we reserve airline travel between US cities for US carriers, you may like foreign carriers but you cannot fly them on domestic routes; NAFTA when enacted was to allow cross border trucking of Mexican goods into the US by Mexican truck drivers, nearly 20 years later the pilot program has had such low participation because of the multitude of US impediments that Mexican truckers operating in the US cannot be evaluated and hence no cross border trucking. Contrast that to any foreign flag vessels can deliver goods anywhere in the US.

15 Those are Defensive Arguments the Jones Act is a good law because it s about. J-O-B-S Protects the American worker we don t allow foreign nationals to work and reside in the US without permits, why shouldn t that extend to our vessels engaged in domestic commerce; The Jones Act is good for our economy; it is estimated that approximately 74,000 jobs in commercial shipbuilding and domestic waterborne industries are attributable to the Jones Act fleet; These jobs resulted in $36.4 billion in US economic output and $6.5 billion in direct US labor compensation, It is estimated that another 425,000 jobs result indirectly; Jones Act business paid an estimated $2.5 billion in taxes at the federal, state and local levels;

16 National Security Security concerns with foreign nationals operating vessels in US waters; We don t outsource out military function we don t hire foreign mercenaries to fight our nation s battles; US mariners transported 90% of the combat cargo and supplies by the military in the Iraq war; Patriotic, its nationalistic, consider the role of the merchant mariner in World War II, the huge US merchant fleet provided critical logistical support during war efforts; the military clearly wants their materiel carried by US flag vessels;

17 National Security

18 Duty, Patriotism, and Honor Edmond J. Moran Is Dead at 96; Admiral Led Tug Fleet on D-Day By BRUCE LAMBERT Published: July 17, 1993 Retired Rear Adm. Edmond J. Moran, a major figure in the shipping industry and commander of the tugboat fleet that enabled Allied forces to carry out the surprise D-Day invasion at Normandy on June 6, 1944,

19 Fairness Fairness Issue - companies like ours have invested billions in new Jones Act equipment, all at a capital construction premium; It is settled law; There are no impediments to investors other than citizenship; There can be no new investment when there is indecision about the law; Provides support for our shipyards and a source crewmembers for ships in times of war and national emergency; US has tougher vessel inspection regime cite DEEPWATER HORIZON From the USCG report The {flag state} failed to ensure that the DEEPWATER HORIZON was in compliance with all applicable requirements..

20 The Jones Act Needs Our Elected Officials to Enforce It