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Demonstrating a real understanding of the need for Jones Act reform and the harm the Act does to the American economy as a whole and most especially the non-contiguous territories (like Hawaii and Guam), Guam Legislator (and Majority Leader) Rory Respicio (D), recently introduced a resolution requesting that Guam’s Congressional Delegate Madeleine Bordallo, “support modifications to the antiquated and restrictive ‘Merchant Marine Act of 1920,’ more commonly known as the ‘Jones Act,’ which continues to have an adverse effect on certain noncontiguous domestic jurisdictions of the United States, including Alaska, Hawaii, Puerto Rico, and the Territory of Guam.”  Michael Hansen, the Grassroot Institute’s Advisor and President of the Hawaii Shippers Council was present and testified in favor of the resolution.  Respicio’s resolution, which enjoys bipartisan support, stands a strong chance of passing. Hopefully, its passage will create a groundswell of support for amending the Act.  Below, you can find Mr. Hansen’s testimony in its entirety.

TESTIMONY OF MICHAEL N HANSEN, PRESIDENT

HAWAII SHIPPERS COUNCIL

BEFORE THE COMMITTEE ON RULES; FEDERAL, FOREIGN & MICRONESIAN AFFAIRS; HUMAN AND NATURAL RESOURCES; AND ELECTION REFORM

THIRTY-SECOND GUAM LEGISLATURE

IN THE MATTER OF RESOLUTION NO. 138-32 (COR)

RELATIVE TO REQUESTING THE HONORABLE MADELEINE Z BORDALLO, GUAM’S DELEGATE TO CONGRESS, SUPPORT MODIFICATIONS TO THE ANTIQUATED AND RESTRICTIVE “MERCHANT MARINE ACT OF 1920,” MORE COMMONLY KNOWN AS THE “JONES ACT,” WHICH CONTINUES TO HAVE AN ADVERSE EFFECT ON CERTAIN NONCONTIGUOUS DOMESTIC JURISDICTIONS OF THE UNITED STATES, INCLUDING ALASKA, HAWAII, PUERTO RICO AND THE TERRITORY OF GUAM.

TUESDAY, JUNE 4, 2013 (09:00 a.m.)

 

Good morning, Chairman Respicio and distinguished members of the Committee.

On behalf of the Hawaii Shippers Council, I am submitting testimony in support of Resolution No. 138-32 (COR).  We believe effective reform of the Jones Act is very important to the noncontiguous domestic jurisdictions of the United States, which include the Territory of Guam, Alaska, Hawaii, and Puerto Rico.

The Hawaii Shippers Council (HSC) is a business league organization incorporated in 1997 to represent the interests of the cargo owners – known as “shippers” – who tender goods for shipment with the ocean carriers in the Hawaii trade.

Our goal is to promote the most efficient shipping services for Hawaii and by extension Guam.  The two trades are inextricably linked because the Westbound ocean common carrier services from the United States West Coast to Guam also call at Honolulu.  The carriers are financially reliant on carrying cargoes to both destinations to complete a successful voyage.

We think the best approach to Jones Act reform for Hawaii and Guam is to include the other two noncontiguous jurisdictions encompassed by the Jones Act namely Alaska and Puerto Rico.  Among other things, this approach would create a single, coherent cabotage regime applicable across the noncontiguous trades.

We strongly believe that the limited Jones Act reform called for by the instant resolution would greatly improve the efficiency of the trades and provide important relief to the residents of noncontiguous jurisdictions.  That reform would be to exempt the noncontiguous domestic trades from the United States build requirement of the Jones Act.  Although Guam is exempt from the domestic build requirement, because the Hawaii and Guam trades are linked and a United States built ship is required to serve Hawaii, the Guam exemption is not useful in practice.

The cost of building oceangoing self-propelled ships in the United States is now approximately four (4) to five (5) times the cost of constructing a comparable ship in Japan and South Korea.  These are the types of ships that provide mainline services in the noncontiguous trades and include containerships, tankers, bulk carriers and vehicle carriers.

Approximately half of the Jones Act fleet of 96 oceangoing ships are typically employed in the noncontiguous domestic trades.  As such, the extraordinarily high cost of constructing ships in United States disproportionally places a huge burden on the noncontiguous jurisdictions to cover the capital costs of the Jones Act fleet.

The extremely high cost of United States built ships creates a significant barrier to entry into the noncontiguous domestic trades because virtually all potential new entrant operators are unable or unwilling to purchase ships at unrealistically high prices to challenge the incumbent operators.

The high barriers to entry create a market that is for all intents and purposes uncontestable by a new entrant and insulates the incumbent operators from almost any threat of competition.

The extraordinarily high cost of building an oceangoing ship in the United States has led to an ageing inefficient deep draft Jones Act fleet that is much older that its peers in the international fleet.  Jones Act shipowners replace their ships on a much longer schedule than internationally because of the high cost of the ships built in the United States.  Older ships are less efficient and incur significantly higher operating costs that must be passed along to the consumers in the noncontiguous jurisdictions.

Although it may seem counterintuitive, the Jones Act ocean carriers – such as Matson Inc. and Horizon Lines Inc. – do not want the noncontiguous trades exempted from United States build requirement.  The carrier’s opposition to an exemption unanimous despite the fact that such an exemption would give them access to significantly lower cost ships.

The Jones Act carriers support the domestic build requirement because it provides such an effective barrier to entry and is an almost absolute protectionist barrier.  The carriers prefer to acquire United States built ships at an extraordinarily high cost, because, at the end of the day, their customers will pay the additional cost of the protectionist measure.

Since 1992, slightly fewer than two (2) deep draft oceangoing ships have been built in the United States each year.  This production level is too low to effectively support a shipbuilding industrial base for commercial and national security naval construction purposes.  In contrast Japan and South Korea collectively produce several hundred ships per year, enabling the shipbuilding yards in those countries to operate at economies of scale unavailable to the major shipbuilding yards in the United States.

The proposed exemption would significantly lower the carriers’ capital costs, lead to newer more efficient ships operating in the noncontiguous trades, lower barriers to entry and make the trades more contestable, and create a larger market for foreign-built United States-flag ships that would bring competition and greater capacity to the noncontiguous trades.

It is therefore clear exempting the noncontiguous trades of Alaska, Hawaii and Puerto Rico from the United States-build requirement similarly to the Guam exemption, will bring important economic benefits to the residents of the noncontiguous jurisdictions.

Thank you for the opportunity to testify in support of Resolution 138-32 (COR).

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File Ref: HSC-507 (MNH testimony re Guam JA reso 2013)