Split Decision

Split Decision

There are two meaningful issues confronting the shipping industry. The question of whether to repeal the Jones Act is one for the long term. Everyone can only hope that the question of where to find an ocean shipping container these days is a simply a short-term problem.

First, let’s discuss the long-term issue.

The prospects for repeal of the Jones Act present a complex set of issues because there are reasoned arguments for both sides; however, I favor saying no to this legislation.

First and foremost to me is the bottom line: What happens if the Jones Act is repealed? The country loses thousands of good-paying jobs and transfers them to foreign countries. With 10 percent unemployment in the U.S., why would we want jobs sent abroad? Shipyards here can’t compete, those jobs would be gone, and our military vessels would be built in foreign shipyards, which could present security problems at some point.

The few ocean carriers we have left, not to mention tug and barge operations, won’t be able to compete. It would be grossly unfair to have the several entities that have complied with all Jones Act requirements to suddenly have to compete with one that doesn’t have to comply. They spent three to four times the cost to build the vessels they operate than their foreign counterparts.

During my 37-year career, nine U.S. liner companies have disappeared, and the few remaining are still alive because of the Jones Act. The companies won’t be able to compete unless they transform themselves into foreign-flag entities with vessels large enough to be efficient, and truly compete in the trans-Pacific and other global trade lanes.

One rationale for repealing the Jones Act is that there would be a freight savings of 20 percent to consumers. But Hawaii, Alaska and Puerto Rico are “market basket” trade markets, with goods such as canned foodstuffs, soda, beer, toilet paper, paper products and cars (new and used).

Assume a price of $2,500 per 40-foot container for loads of soda, beer or canned fruits and vegetables. Each 40-footer holds about 2,000 cases of 24 cans per case. The additional cost of 20 percent equates to about 1 cent a can. If it were bags of rice to Puerto Rico, it would be about the same 1 cent per pound of rice. So much for consumer savings.

The container question may seem simpler, but it certainly is more pressing for exporters.

I’ve attended three conferences this year at which shippers have criticized ocean carriers over the lack of ship space and containers. The Federal Maritime Commission has taken up the issue and apparently thinks tripartite committees and legislation that would give the FMC dispute resolution authority would fix the problem.

Let’s take a look at how we got here: We have read about the shortage of new containers, so don’t beat on that horse; it is taking care of itself. Slow-steaming supposedly occupies 100 additional vessels that require about 1.1 million additional 20-foot containers sitting on the water.

Carriers for years have had adequate space and equipment, and during that time they did things such as position empty equipment for exports. During their search for cost savings, carriers stopped this practice, saving them millions of dollars and putting the burden on shippers, where it belonged.

Does anyone recall how shippers moved their goods to ports before containers? They put cargo in railcars or in trucks and sent it to the port; the carrier didn’t pay for or position anything. In such instances, there is no equipment shortage. There is equipment and carriers won’t position at their expense, and apparently neither will the shippers.

A few other things exacerbate the problem. At one conference this year, a carrier executive looked at the attendance list, checked with his company’s Asian offices and found that the attendees at the conference had a combined 1,962 containers loaded for more than 30 days and not being emptied.

When asked if it could help with this, the carrier was told, “That is the customer, not us.”

Next, I have met several conference attendees who have manufacturing or other facilities far from major population centers, where most import containers are transported. The cost of positioning the containers at the cargo’s expense wasn’t even considered; the attitude was, carriers paid before, let them keep paying.

But if that isn’t an option, what’s the next best thing? Could it be to revert to moving goods by truck or rail to the closest port or closest point where containers are available and transfer the goods into containers? Nope, they didn’t want to rehandle the goods, even though about 25 percent of imports, primarily finished goods, are handled that way.

Finally, I have seen several presenters and audience members sharing their good fortune about moving 20 percent or more volume in 2010 than in 2009, and one trumpeted a 47 percent improvement. How could they do that with the lack of equipment and space?

And when they gave the carriers their 2010 forecasts last October and November, did they give them these numbers?

There probably is a complicated answer to that question, and the reason this is one issue facing the industry that has no easy answers.

Gary Ferrulli is president of Global Logistics Consulting in Chandler, Ariz. Contact him at ferrullig@mindspring.com.