New life to Jones Act debate

New life to Jones Act debate

Richard Couch wants to make it clear which side of the debate he's on: If U.S. truck lines can buy Volvo tractors, and U.S. airlines can buy Airbus jetliners, why can't U.S. ocean carriers in the domestic trades purchase foreign-built vessels? The answer is well-known to anyone in U.S. shipping: The Jones Act forbids it.

Couch is president of Osprey Lines, which shuttles containers on barges among Houston, New Orleans, and other Gulf ports. He has closely followed the progress of the Maritime Administration's short-sea domestic shipping initiative, and sees opportunities for Osprey. European shipyards for years have been building 400-to-600-TEU container ships for short-sea service, and at a fraction of the price a U.S. yard would charge.

As the idea of shifting cargo from congested highways to waterborne short-sea routes gathers momentum, the debate about the 1920 Jones Act has been reignited. The law requires cargo moved between U.S. ports to travel on vessels built, owned and crewed by Americans. An effort in the 1990s to repeal or amend the law ultimately went nowhere, but that was before anyone started talking about major highways such as I-95 reaching capacity. Now that congestion is emerging as a major transportation issue, the Jones Act is once again a matter of discussion.

Some are now asking: Why not amend the law - or provide waivers for a few years - to let carriers buy fleets of short-sea vessels on the global market? Not surprising, U.S. builders don't like the idea.

"The message you're going to hear is, 'Don't meddle with the Jones Act,' " said Herschel Vinyard, vice president of Atlantic Holdings in Jacksonville, Fla., the parent of Atlantic Marine in Jacksonville and Alabama Shipyard in Mobile, Ala. "The Jones Act has served this nation very well."

Vessel costs, of course, are just one piece of a puzzle that the industry and government must solve to make short-sea shipping a reality. Although Marad is selling the initiative as congestion relief for overtaxed highways, the success or failure of short-sea comes down to cost. If shippers can't get water transportation at competitive prices and service levels, they're not likely to switch their business from road or rail.

But that hasn't diverted attention from the Jones Act in the short-sea debate. Defense of the Jones Act is vigorous and politically potent. The strength of the law is in the three legs that support it: U.S. labor, U.S. ownership and U.S. construction. But the U.S.-build requirement may be the weakest leg in the tripod. A decade ago Marad surveyed cabotage laws in 34 nations. The U.S. is one of only five nations that require domestic shipping be built in domestic yards. None of the world's largest shipbuilding powers - China, Japan or South Korea - have home-build provisions in their cabotage laws.

It's true that U.S. shipyards can't build a large commercial ship at a price that's competitive with Asian yards, said Allen Walker, president of the Shipbuilders Council of America. But U.S. builders do compete in the world market for smaller vessels - tugs and offshore service vessels. "Large ships are not what short-sea shipping is about. For relatively small ships, we are competitive," Walker said.

The Jones Act says merely that ships for the domestic trade must be U.S.-built. The U.S. Coast Guard defines what that means by regulation, said Thomas Willis, director of the agency's National Vessel Documentation Center in Falling Waters, W.Va. The regulations stipulate that the hull and superstructure must be built in the U.S. Other components may be imported. For example, U.S. yards import slow-speed marine diesel engines because there is no one in the U.S. who makes them. Willis said U.S. builders also could import ready-made engine room assemblies without violating the law.

John Graykowski, general counsel of Kvaerner Philadelphia Shipyard and former acting Marad administrator, asked why Jones Act construction couldn't use the same definition that's applied to other U.S.-made products under the North American Free Trade Agreement. A product with 51 percent U.S.-made components may be labeled "Made in USA," he said. "The U.S. auto industry can source anywhere. Boeing is sourcing wings and tail assemblies for its 7E7s to Japan," he said. If other manufacturers can find competitive suppliers overseas, why can't U.S. shipbuilders?

Willis said that the Coast Guard rules could be changed to allow a greater proportion of foreign components, but no one has ever filed a petition to do so. U.S. manufacturers would not allow such a change without a fight.

Walker said that U.S. builders could cut the cost of short-sea ships by developing a standard design, or better, buy a foreign yard's tried-and-true design. To make that feasible, U.S. Jones Act operators would have to commit to buying more than a ship at a time, and builders complained that no carrier has ordered ships in a series for 20 years.

Any vessel would be cheaper by the half-dozen, but "U.S. owners tend to want specialized vessels, and a shipyards quote for a single ship," Walker said. Foreign builders keep their costs down by building standard designs many times over. How much would a buyer pay if he ordered General Motors to relocate the rear-view mirror on his new truck, Graykowski asked.

No ship operator will likely take the risk in short-sea until he knows there is a market for it - no one is going to build a short-sea ship on speculation, Walker said. "Shippers will have to be convinced that the water alternative is feasible and needed," and shippers have largely stayed out of short-sea discussions.

"If short-sea is going to succeed, we should be having these conversations," he said. "Shippers are going to have to speak up."