The Jones Act is once again in the crosshairs of detractors looking to open our domestic transportation service to allegedly cheaper foreign-flagged vessels. This topic frequently comes up after a natural disaster, and no one wants to be seen as a possible hindrance to moving essential goods to the area of need. Therefore, regardless of whether there are U.S. flag vessels available, the Department of Homeland Security will often issue a temporary waiver to the Jones Act to open additional avenues of transportation. (For the record, we do not object to the administration temporarily waiving the Jones Act in time of national emergency.)
The Merchant Marine Act of 1920, commonly known as the Jones Act, is a federal statute that provides for the promotion and maintenance of the American merchant marine. Among other purposes, the law regulates maritime commerce in U.S. waters and between U.S. ports. In order to provide waterborne transportation services between US ports (including Alaska, Hawaii and Puerto Rico) your vessel must be constructed in the United States, owned by U.S. citizens, and crewed by U.S. citizens and U.S. permanent residents.
While the debate rages on over whether the Jones Act is an expensive alternative, those who wish to have the law repealed may not accurately assess its financial impact to the consumer or to the nation. However, the Jones Act is virtually free to the consumer and a revenue raiser to the U.S. government.
The notion that the Jones Act is an impediment to cost-effectively supplying U.S. locations is not accurate. Let’s break down the actual cost differential of building, owning and operating a Jones Act Tanker as compared to a foreign flag tanker, and we will assume a very conservative approach to this analysis:
New build cost differential: $100 million
Annual operating cost differential: $4 million
Life of the asset: 30 years
Delivery capacity for a standard MR tanker: 30,000 barrels per day
Trade route: 10-day voyage - Loading Houston, TX and discharging Ft. Lauderdale, FL
The cost per gallon attributed to the new build differential is 7/10 of a penny. The cost per gallon attributed to the annual operating differential is 8/10 of a penny. As such the combined cost per gallon of gasoline totals 1.5 cents.
Admittedly, this does not accurately account for the massive swings in the market whereby a charterer could either secure very favorable transportation costs or conversely, be subjected to extremely high transportation costs. The reason for only addressing the above is this assumes the consumer is constantly impacted by actual daily operating cost of the domestic vs. international differences over the entire life of the asset. This makes it an “apples to apples” comparison and takes out any global trading market fluctuations.
While the details of the example above are centered around the supply and distribution of gasoline, we can assure you the general economics of all Jones Act transportation is very similar.
Today, all domestically refined products and all domestically produced crude oil is free to trade worldwide. There are no restrictions whatsoever when it comes to importing or exporting any of the above. As such, our nation and all its consumers enjoy the benefits of the most cost-effective supply, distribution, transport and trading of refined products and crude oil in the world. Simply put, if there was any way that a gallon of gasoline, or a box of nails, or sheet of plywood could be landed in the United States cheaper than using a Jones Act vessel, then it would be done. Eliminating the Jones Act and using a foreign flag vessel to move that gallon, or box or plywood will never place any money in the consumer’s pocket.
The Jones Act market is relatively small when compared to the rest of the world. However, the financial impact to our nation is significant. Additionally, the Jones Act serves as an auxiliary to the military in times of national emergency, supports our industrial base and gives legs to so many other industries throughout our country.
PricewaterhouseCoopers – Contribution of the Jones Act Shipping Industry to the US Economy (2014 Study):
Jobs (direct and indirect): 475,000
Labor Income: $29 Billion
Value Added: $46 Billion
Output: $92 Billion
Tax Impact: $10 Billion
In summary, the Jones Act is virtually free to all consumers. Furthermore, the U.S. and its territories are always permitted to import from anywhere in the world in lieu of being supplied from any US location. Most importantly, the Jones Act adds significant value to our nation. In our opinion, arguments against the Jones Act are self-serving, based on unfounded data and would only help foreign interests and foreign companies if repealed.
Captain Jere White is the past Director of Commercial Operations at Overseas Shipholding Group. Captain White has extensive experience both at sea and ashore working with the Jones Act and sailed as Master on many vessels throughout his 45-year career.
Eric F. Smith is the Chief Commercial Officer at Hendry Marine Industries, Inc. which is the parent company for Gulf Marine Repair, Universal Environmental Solutions and Anchor Sandblasting and Coatings. Previously, Mr. Smith was the Chief Commercial Officer at Overseas Shipholding Group and has been involved with more than 20 new construction vessel projects over his 30-year career in the Jones Act.