The Jones Act: Reform Needed

by Cody Hensarling

“The high cost and lack of competitiveness of major U.S. shipbuilding currently burdens the businesses and residents of the noncontiguous jurisdictions with several adverse consequences.” – Michael Hansen, Hawaii Shippers Council

In last Thursday’s edition of the Hawaii Free Press, Michael Hansen, President of the Hawaii Shippers Council, has a stirring piece calling for the “noncontiguous jurisdictions” (including Hawaii) to be exempted from the U.S.-Build requirement for large deep draft oceangoing commercial ships contained in the Jones Act. Admittedly, for those unfamiliar with the current controversy regarding the Jones Act, a lot of that last statement may be confusing. Whether you are read up on the Jones Act or not, Hansen’s article is worth reading in its entirety and can be found here: http://www.hawaiifreepress.com/ArticlesMain/tabid/56/articleType/ArticleView/articleId/5974/USBuild-requirement-for-ships-Dilemma-for-Hawaii-Guam-Alaska-and-Puerto-Rico.aspx. I will seek to provide an introduction to the issue for the uniformed in what remains of this post.

The Jones Act requires that all ships transporting cargo or passengers between US ports must do so on US-flag, US-owned, US-crewed, and US-built vessels. The most onerous requirement of the four is the requirement that the ships be US-built. Currently, due to the protectionist bubble of Jones Act regulations, US shipyards are not competitive with international (particularly Chinese, South Korean, and Japanese) shipyards. American yards do not employ techniques such as specialization of the types of ships built and basing production on series lines, to allow for a more regular and predictable stream of production. The remaining US yards tend to focus on military production, and generally have large cost overlays and delays when producing commercial vessels. In fact, according to Hansen, the cost of building large oceangoing ships in the United States is at least three times greater than at the internationally competitive shipyards in Japan and South Korea.

The cost to produce ships in the United States is not competitive with the cost of production in other nations, yet many shippers, including six who primarily engage in shipping between noncontiguous jurisdictions, are required by law to pay the higher cost to purchase US-made ships. This has led to two major consequences. First off, most of these shippers have not replaced older ships that have exceeded the recommended twenty year service as a shipping vessel. This poses a greater risk the longer these ships go without being replaced. Secondly, the cost of compliance with the Jones Act has caused and is causing the shippers to pass on the cost through higher prices for consumers.

Hansen’s article gets much more in depth when it comes to consequences, but at its core, the main problem with the US-build requirement in the Jones Act is that it is an outdated, self-defeating form of protectionism. Those who believe in free markets should sympathize with the plight of the shippers and consumers affected and call for reform of these regulations.

Cody Hensarling is an intern at the Grassroot Institute of Hawaii.

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