The white elephant in the living room

It is gratifying to see a belated confirmation of the belief that major rate cross-subsidy exists between domestic and foreign shipments in the domestic offshore trades. It has been the long-held belief of domestic shippers that the shipping rates they pay are excessive. Domestic shippers have contended for many years that the rates charged by Jones Act carriers, on domestic cargoes, involve a cross-subsidy that benefits foreign shippers and cargoes. The Jones Act carriers have continually denied that this practice exists. The Jones Act carriers transport domestic and international cargoes on the same vessels with the domestic ports being "intermediate" to the ultimate foreign port destinations of the vessels. The practice of cross-subsidy between domestic and foreign cargoes has been unlawful for over 60 years.

William J. Coffey, in his letter to the editor (JoC, March 14), discussed the "profitability" of Sea-Land Service, which until 1999 was one of the largest Jones Act carriers as well as the largest U.S.-flag international carrier. Sea-Land was dismembered by its parent, CSX Corp., and its parts subsequently sold for $2.5 billion. Mr. Coffey noted that during his later years with Sea-Land, the carrier's returns on its international business had been either close to break-even "if not actually negative." CSX always represented that Sea-Land was a profitable business - the $2.5 billion it received in sales of its various parts confirmed the point.

In view of that, it is clear that much of Sea-Land's companywide profit came from the domestic offshore trades, which were a very small part of Sea-Land's overall business. It is a fundamental concept of commerce law that each form of cargo-shipment should pay its own way. Second, that it is unreasonable and unfair for one or more shippers to have to subsidize the business of other shippers through an improper carrier rate structure.

There have been a number of articles in The Journal of Commerce addressing the domestic offshore trades. The JoC's Domestic Maritime Conference, set for April 11-12, is said to address the issues of carrier pricing, among other topics. Mr. Coffey's recent article should provide fertile ground for discussion. It is now exposed that the great white elephant is alive and well, and residing in the Jones Act carriers' living room.

Rick A. Rude


Falls Church, Va.