At a webinar featuring U.S. Sen. Mike Lee and U.S. Rep. Ed Case,
the institute revealed exactly how much the Jones Act costs Hawaii
Hundreds of people from around the country tuned in yesterday to the Grassroot Institute of Hawaii’s webinar, during which it revealed the findings of its new groundbreaking study into the cost of the Jones Act to Hawaii.
As explained in the webinar and webinar transcript below, the protectionist Jones Act is the 100-year-old federal maritime law that requires all goods shipping between U.S. ports be on ships U.S. flagged and built and mostly owned and crewed by Americans. Supporters for Jones Act reform have long asserted that the act adds to Hawaii’s already-high cost of living, but exact figures were never available — until now.
The institute’s new study, “Quantifying the cost of the Jones Act to Hawaii,” was produced for the institute by nationally recognized economic researcher and consultant John Dunham, of John Dunham & Associates in New York. Exhaustively researched, independent and peer-reviewed, it found that overall the Jones Act costs Hawaii $1.2 billion annually, including 9,100 fewer jobs and $148 million in unrealized tax revenues.
Besides Dunham, U.S. Sen. Mike Lee of Utah and Hawaii’s own U.S. Rep. Ed Case were on hand to comment on the report’s findings — Lee from the Republican side of the aisle and Case from the Democratic. Both have sponsored bills in Congress to reform the maritime law, and both had many incisive things to say about the new report, and why it will help advance the debate in Congress over Jones Act reform.
Here is the webinar video; the full transcript follows:
The webinar transcript:
Keli’i Akina: Aloha, everyone, and welcome to the Grassroot Institute of Hawaii. We’re delighted that you’re with us today. Today’s occasion for coming together is the release of our brand new study entitled “Quantifying the cost of the Jones Act to Hawaii.” It is the year 2020 right now, and it is about 100 years since the inception of the Jones Act. The world has changed tremendously. The economy and the way we do national security have also changed. It may be time as well for some updating of the Jones Act for the 21st century.
I have three illustrious guests today joining me, two congressmen and the member of the Grassroot team that has put the study together. I’d like to introduce them to you just to say hello and welcome them before they give their comments.
First, Hawaii’s own representative to Congress, Ed Case. He’s a member of the House Appropriations Committee, and he has sponsored legislation relating to the Jones Act. Rep. Case, welcome to Grassroot Institute again.
U.S. Rep. Ed Case: Aloha. Good to be with all of you. Sen. Lee, good to have you.
Akina: Very good. In addition to that, from the state of Utah we have Sen. Mike Lee, a member and the chair, in fact, of the Joint Economic Committee. Mike Lee has been a friend of the Grassroot Institute, like Ed Case has, for many years. They have participated in programs. I’m glad to have you back. Sen. Lee, welcome to the program.
U.S. Sen. Mike Lee: Thank you and aloha.
Akina: In addition to that, we’ve got John Dunham, who is the principal author and researcher on our study, a member of the Grassroot Institute team and the president of the John Dunham & Associates. John, welcome from New York.
John Dunham: Thank you so much.
Akina: We’re going to move very quickly, and what I’d like to do is to give you a quick highlight of the results of the study. If you’ll take a look at this PowerPoint, we’ll then ask our congressman to comment on it.
First, the study is available online at grassrootinstitute.org, or if you want a hard copy, you can go to amazon.com. Basically, what the study shows is, in simple language, that the Jones Act actually has an impact upon Hawaii in terms of economic disability.
The Jones Act costs Hawaii. We ran five different scenarios and found that the median annual cost of the Jones Act to Hawaii’s economy is $1.2 billion. In addition to that, the Jones Act costs the average Hawaii family nearly $5 a day, which is $1,794 a year. We found that the Jones Act is responsible for approximately 9,100 fewer jobs representing $404 million in wages that are lost.
Cars, for example, sold each year in Hawaii, cost $9.7 million more than they do on the mainland. Hawaii drivers pay between $63.2 million more to own and operate their vehicles. The Jones Act adds $255.9 million to the cost of real estate and construction services in the state every year. The study also looked at over 200 economic sectors, from housing to restaurants, gas stations, college campuses, shipping and postal services, and so forth, and found a major impact in all of these.
What are the potential effects of Jones Act reform, if we could update the Jones Act? Hawaii families could see an annual across-the-board economic benefit of $154 million. Annual tax revenues would be $148.2 million higher, and under ship-build exemption, Hawaii could see an economic benefit of $531.7 million, and $30.8 million less in state and local tax revenues. That’s tremendous impact that could be positive by updating the Jones Act for the 21st century.
Right now, we’re going to go straight to our congressmen because we have to move quickly. We’re in the midst of a major crisis in our nation, and Congress is meeting; both houses are in session. In a few minutes both Sen. Mike Lee and Congressman Ed Case will have to go for votes.
In the meantime, let me talk with you, Congressman Case. You’ve looked at our study a bit, and you have introduced your own legislation. How does the study relate to your own legislation in terms of updating the Jones Act?
Case: Thank you for that, Keli’i. First of all, aloha, and thank you so much for having me on together with Sen. Lee, and mahalo to the Grassroot Institute for commissioning really a solid study, and to John Dunham, whom I talked with, for such a thorough study that can be easily defended. Again, Sen. Lee, a special aloha to you.
Just in the big picture, before I answer your question, the Jones Act has occupied my attention for somewhere around 25 years now. Somewhere in the mid-1990s, when I was in the state Legislature, I first started to understand the Jones Act in connection with shipping to Hawaii and, of course, the cost of living in Hawaii was a completely relevant topic. That is, as it is worse now.
I asked, “Well, what’s this Jones Act about?” I introduced a resolution in the state Legislature to study the effects of the Jones Act on oil and got absolutely slammed by the Jones Act lobby and the people that benefit from the Jones Act in particular. They said, “There’s no need to study it. Everything’s good. There’s no cost consequence. Everything is good, and even if there was a cost consequence, it was defensible.”
I concluded that, in fact, there was something worth studying there. But I didn’t get that study then. Since then, of course, as John’s study demonstrates and summarizes, we’ve seen roughly a reduction in the number of Jones Act ships, down to less than 99, a reduction in the number of Jones Act ships that serve Hawaii, which is my particular interest. We’ve seen a glut of international shipping and a reduction in international shipping rates, which has not been in any way, shape, or form shared by Hawaii or other noncontiguous areas. We have seen rates on the Jones Act routes continue to increase.
From my perspective, what this study does is, once and for all, lend credibility to the basic underlying conclusion that the Jones Act does, in fact, result in major negative impacts to Hawaii in particular, and of course, to other noncontiguous areas of our country. I’m sure Sen. Lee will speak to the rest of the country as well.
My own focus here is on our noncontiguous areas because, as we all know, in Hawaii — for those that are watching and thinking about this for the first time, consider that you live in a state that has 97%-plus of all of its imports come in by ships.
We don’t have planes that bring it in. We have some planes but not a whole bunch. We don’t have any trucks. We don’t have any trains. It’s got to be shipping. If you can get ahold of the shipping lanes, you can make some money off of that, and that’s exactly what’s happening with the Jones Act.
The study, I thought there were a couple of things in this study that were particularly relevant, some of which you’ve already summarized. The first was the total cost of $1.2 billion. That’s a huge cost to our economy. We don’t have a big economy. So if you suck $1.2 billion out of the economy that doesn’t have to come out of that economy, that’s going to hurt people.
I thought that the consequences to individual families were especially consequential, and especially the study’s itemization down to lower-income families, because Jones Act rates are not progressive. Everybody gets hit with them. So if you’re going to hit a family that is trying to live at $30,000, $40,000 a year in Hawaii, with the highest cost of living in our country, with a surcharge of $1,500 to $2,000 a year, that’s going to really hurt that family. Maybe somebody that makes a lot more than that can cap it off to something else but not at that level, and that impacts everybody.
I hadn’t focused on the fact that this study raised that because some products that we use in Hawaii can, in fact, be directly imported from overseas on non-Jones Act ships, primarily our fuel — our fossil fuel energy that still, unfortunately, fuels so much of Hawaii — the people that buy that fuel go to the international market because of the cost of Jones Act shipping, where they could be utilizing the domestic market at a cheaper shipping cost, and that would be good for our national policy. They’re forced into the international market, when it would be better, all around, if they bought local, so to speak.
I think that the other thing that struck me was this, the quantification on the straight rates that are charged. I think John can speak to this. What I got out of this was that the average cost surcharge for container cargo, which is most of it, is about 16%, and for bulk cargo, 59%. That’s what Jones Act shipping costs, versus the international market.
The bills that I’ve introduced, I’ve done three of them. One is to exempt in other noncontiguous areas, all together, because of the severe impact of the Jones Act. The second bill says, “Look, you can’t charge more than 10% above the world market.” If you want to keep the Jones Act, then take the monopolistic, duopolistic consequences of that on individual consumers out of the equation. That mechanism exists but it’s really never been enforced.
Finally, if you’re on a shipping route that is controlled by Jones Act shipping — as we are in Hawaii, and so that you get into a situation where you have a monopoly or duopoly, as we do have in Hawaii — then the Jones Act gets waived as long as you have that duopoly. But if you can manufacture a real competitive market inside the Jones Act, well, then maybe it won’t be such a bad idea. Although I can argue that in another way. Take your pick — this is three ways of solving it.
I think the real value of the study, just to summarize, is, look, let’s talk about the facts now because really the other side has been wandering around not really wanting to acknowledge the fact that, if we can just all stipulate to the fact that is the actual cost of the Jones Act, then maybe we can get to a pretty good policy debate about, “Okay, is it worth it to sustain that actual cost and continue, or modify a 100-year-old law that in my mind has outlived its usefulness?”
Akina: Thank you very much, Rep. Case. Before we go to Sen. Lee, I want to give a note to our viewers: We welcome your questions for the two congressmen. If you get them in quickly they may be able to get to some of them before having to go off to an important vote today.
Sen. Lee, you have, like Rep. Case, for quite a while been arguing for reform of the Jones Act. Now that we have produced the Grassroot Institute’s study, which pertains to Hawaii, although that is relevant to the rest of the United States to some extent, how does that inform or complement your own work in terms of trying to reform the Jones Act?
U.S. Sen. Mike Lee: Your work through the Grassroot Institute on the Jones Act has been tremendously helpful. Let me just say at the outset, I loved everything Rep. Case just said. I think I agree with every word, every syllable he just uttered. It was a fantastic analysis, and you’re fortunate to have his advocacy on this issue. I also like the fact that he’s got several proposals, including one that highlights the fact that there is a subsidy by government through the shipping industry. In addition to eliminating it altogether, the fact that he’s got another bill that will, for example, impose a 10% cap on how much they can be subsidized by it, is a big deal.
I love Grassroot Institute of Hawaii, and I love the work in particular that you’ve done on this issue. It brings home something that frequently goes unaddressed in Washington, and that is the problem of concentrated benefits and dispersed costs. When you’ve got concentrated benefits and dispersed costs, it creates a real weird lobbying problem, where you basically have the rich taking from the poor, and your data, I think, bears that out here.
The fact that this is costing families in Hawaii on average $1,800 a year just to exist and live in Hawaii as a result of the Jones Act, that’s a lot of money. Especially when you consider the fact the average family is not making a whole lot of money. This is a very substantial chunk of their otherwise available disposable nontaxed income. This is very important. This might make the difference between their ability to not just take a vacation or not, but their ability to eat properly or properly clothe their children.
It’s quite absurd, if you stop and think about what this is doing. It’s akin to what might happen if the U.S. government were to decide, for example, people are driving cars. Not everybody is driving the same kind of car. What we’re going to do is we’re going to say that unless you can afford a Cadillac or something more expensive than a Cadillac, you can’t buy a car at all. By the way, it also has to be an American made car that’s either a Cadillac or something more expensive than a Cadillac. What’s that going to do? Well, for rich people it’s not going to do much unless they’re rich people who own the car-making company and then they’re going to get richer off it.
The marginal cost to the wealthy family is not going to be that high. But the marginal cost to the poor and middle-class families is going to be tremendous. Many of them are going to be priced out of the auto market altogether. Those who are not priced out of it are going to end up perhaps having to share a vehicle with someone else. Even then, the car they’re going to be able to afford is going to be a lot less affordable even on a shared basis.
It’s basically what we do with the Jones Act. This thing’s over a century old now. We got some very entrenched interests who benefit from these concentrated benefits. They benefit from the fact that the regulatory impact really just directs money in their direction, while taking from the poor and the middle-class, particularly in certain places like Hawaii and Puerto Rico. That really isn’t fair. So thanks so much for shining a white-hot spotlight on this, because we need people to pay more attention to it.
Akina: Well, thank you, Sen. Lee. Before we go to questions from our audience, I want to throw out one more question to each of you. If you’d answer quickly because there are several questions lining up, I’d appreciate that. Rep. Case, the Jones Act has sometimes been characterized as an issue that divides parties as partisan, or even divides union from nonunion people. What is your thought about this? Is this an issue that is partisan or is it one that can be bipartisan, and how do you build consensus?
Case: I think your screen demonstrates it. It can be quite nonpartisan since Sen. Lee and I, who come from different parties and in some cases, have different ideological perspectives, agree on this one. I think we’re coming to the same conclusion, and if you listen to what we both said, we said the same thing in different ways, in our own way, but we were both saying that it’s wrong for government to create a monopoly that is harmful to the majority of the people. We both said that.
I think that that is quite a nonpartisan thought. Frankly, I’m disappointed sometimes in my own party’s stands, or some members of my own party on the Jones Act because, after all, my party was the monopoly busters of a century ago, of the 20s, of the 30s. We were going after these concentrations of power and influence and market domination and yet, we have this situation where you have all of those things a century later and yet you’ve got, as Sen. Lee pointed out, quite a powerful lobby that has really manipulated this and has painted it, I think, in partisan terms.
Akina: Thank you, Rep. Case. Sen. Lee, at the Grassroot Institute, we like to practice what is called E Hana Käkou, let’s work together. What do you think is the key to building consensus across party lines for Jones Act reform?
Lee: Jones Act is a perfect opportunity for “E hana kakou,” for the simple reason that it really cuts against what both political parties believe. Rep. Case made a great point a moment ago about the fact that the Democratic Party has prided itself in being concerned and voicing concerns about the excessive concentration of market power in the hands of a few big, powerful corporations, and the champion of the poor and middle-class Americans.
The Republican Party also aspires to do the same things, and the Republican party, specifically, purports to be the party that is against excessive accumulation of government power, excessive regulation. Really, we’re trying to get to the same place. Both parties want to help America’s poor and middle-class through different mechanisms. Here, we’ve managed to find both political parties undercutting what they themselves believe in, through the Jones Act. The Jones Act is standard, textbook protectionism that favors a certain industry at the expense of everybody else, and that’s wrong.
Akina: Well, thank you very much. We’re going to go to audience questions now. Congressmen, I’ll appreciate it because you’re on tight schedules, if you’ll give very brief answers. I introduce now, Executive Vice President of Grassroot Institute, in charge of our research division, Joe Kent. Joe, would you moderate the questions, please? Let’s give as many people an opportunity as we possibly can. Then, later on, we’ll bring our principal researcher and author for the report back on, John Dunham, and he’ll answer questions as well. Joe, take it away.
Joe Kent: Sure. One person asked about why Sen. Lee is interested in the Jones Act. You seem to be from a landlocked state.
Lee: Yes. I’m from a landlocked state, Utah. We don’t have a single coastline anywhere. This is one of the many opportunities that I see, serving in the Senate: You take up an issue that doesn’t necessarily directly affect my state, but everything affects everybody else. And I’ve got friends, neighbors, relatives, people who know people who live in Hawaii and Puerto Rico and other places more directly affected by the Jones Act than people are in Utah.
I don’t hear about the Jones Act very often from Utah. When I do, it’s very often from someone who is either an economist or who operates in one way or another in international commerce and deals with international trade. There are oddly enough occasions when constituents in Utah will hear about my opposition of the Jones Act and come and lobby me in an effort to try to get me to support the Jones Act.
Their reasoning is often something that makes me, quite ironically, even more opposed to the Jones Ac. Their reasoning is basically, “Well, this is how it’s been for 100 years and we banked on government intervention. We’re going to do it.”
Anyway, bottom line is, I’m interested in this because this hurts good people, poor and middle-class Americans. Especially in places like Hawaii and Puerto Rico.
Kent: Another question from Sherry Bracken, Hawaii island: What will it take to get the Jones Act modification bills addressed by Rep. Case and Sen. Lee through Congress? What are the odds?
Case: Well, they’re long at the moment, but bear in mind that 25 years ago, the industry shut down the debate altogether, and here we are having a very, very open debate on this matter. The Jones Act dynamic has changed inside of 25 years ago; I referred to it earlier. The underlying defenses of the Jones Act have changed, they’ve eroded. It hasn’t worked. We did not have a greater merchant marine fleet, a greater ship-building capacity. Is that worth the price? You build in bits and pieces, and you keep on plugging away at it. You try different approaches. You educate people.
When I started out 25 years ago, it would be the rare person that really understood that there even was a Jones Act or what that meant. Nowadays, I think people understand it, so that’s a start. Then after that it’s heavy sledding through the persuasion process and getting enough folks to talk to elected officials, to get those opportunities to come along every once in a while in Congress to actually achieve it.
Kent: Another question. John asks about the study that was released recently, I think last week, by the American Maritime Partnership, that basically says the Jones Act helps Hawaii by $3 billion. If our study says it’s a $1.2 billion cost, then what do we think about that?
Case: Senator, can I answer this?
Kent: John Dunham could weigh in a little bit on that too, if you want.
Case: I’m sorry, Senator, go ahead. I’ve got a specific answer to that.
Lee: First of all, I’d love to know where that massive differential of billions of dollars is going. It’s a fake number. The fact is, this is a cost. Anybody who tells you that a government regulation that enriches any particular industry is a net positive for the economy, that is mathematically impossible. I’m sure Rep. Case has got a much more localized and more persuasive answer …
Case: I’m a lawyer and I think you are, too, Senator. I think so. I had a professor in law school that said anybody that doesn’t read footnotes, starves. I read that study and I read the footnote on that $3 billion, and it turns out that that is the net translatable value into the economy of the jobs in Hawaii that that study characterizes as Jones Act jobs — the vast majority of which are stevedores. They work the docks, and their jobs are not going away. They’re still going to work the docks. They’re going to work the docks whether there’s Jones Act shipping or non-Jones Act shipping. They’re still going to work the docks. That $3 billion disappears pretty fast.
Kent: Well, John, I’ll ask you to weigh in on that a little bit later, but let’s go to some more questions. Could you speak to the Jones — as John Wade asks — could you speak to the intent of the Jones Act protecting the merchant marine and all of that? Is the Jones Act doing its job?
Lee: If Congress’s intent 101 or 102 years ago — whenever it was passed — if the intent was to create a protectionist mechanism for the U.S. shipbuilding industry and for U.S. flagged and crude vessels, then yes, it’s doing that but again, at what cost? There are all sorts of things that we could do by reshuffling money through the economy. Anytime government acts, it does so at the expense of individual liberty and at the expense of the poor and middle-class of any economy. There’s really no other way around that. Government is about organized collective official coercive force.
You can collect that either with guys who show up with guns who collect taxes and then they go spend the money, or you can do it with guys who show up with guns and they force you to comply with certain regulations. It’s succeeded in doing what it was designed to do, but at what cost? It’s been at the cost of poor and middle-class Americans.
Kent: Mark Monoscalco asks: Is there any possible valid justification to continue the Jones Act?
Lee: No, I can’t think of one. If one exists, I’m not aware of it, and I can’t conceive of it.
Case: The arguments are there, but you have the facts in your study, and the question is: Does that cost justify those arguments? My answer is no. There are solid ways of addressing the pro-Jones Act arguments without imposing this kind of cost on the folks like in Hawaii that suffer from it the most.
Kent: Could you speak to a ship build exemption? One of the planks of the Jones Act is, it requires that goods going between ports be shipped on ships built in America. If that were waived or repealed, then how would that affect the economy?
Lee: Well, that’s a good cross-section, if you will, of the arguments against the Jones Act itself. Any particular piece of the shipping industry that you open up to competition is going to result in benefits to the consumer, because when you’ve got more competitors, prices tend to go down, quality tends to go up. With my example earlier with the automobile, while perhaps simplistic in many ways, it proves the point in that you lose not only the benefit of additional manufacturers and lower prices, but you also lose the innovation that comes when people have multiple choices — when they can’t simply rely on one set.
If you created a ship-build exemption within it, you would have more competition and prices will go down. It’s one of the reasons why, in addition to a bill offering the full repeal of it, I’ve also filed some legislation to create partial repeals. That would allow for a waiver of Jones Act compliance in the event that you couldn’t find a Jones Act-compliant vessel in an applicable jurisdiction for that particular type of product. Anything you do in this area is going to move the market.
Kent: Rep. Case, could you speak to your legislation that you introduced? What does that do or aim to do?
Case: Well, again, just to summarize very briefly: I’ve done three bills. The first bill simply exempts the noncontiguous areas of our country from the Jones Act. Now, if the mainland wants to repeal the Jones Act, I’m fine with that, but there’s a different dynamic going on in the continental United States than in the noncontiguous areas, where they do actually have some controls over the cost of the Jones Act monopoly because they do have alternative means of transportation. We don’t have that. I’m like, “Okay, fine. If the rest of the United States wants to do that, then let my people go.” That’s very spooky to the industry because the way this industry thinks in Washington is absolutely any change in the Jones Act is going to — any rock that’s taken out of that foundation, the slide is going to be irreplaceable. That’s the bunker mentality that they have.
The second one, as I said was, “Okay, fine. If you’re going to keep the Jones Act in place then you can’t charge more than 10% above international rates.” As John has studied and will summarize, those international rates are a lot higher than 10% surcharge to the cargo rates.
Then third, again, if a Jones Act results in an open market situation when market competition is actually occurring, then I have far less problem with the Jones Act. But if you’re down to a duopoly, at that point — yes, okay, everybody presumably complies with the monopoly laws and doesn’t actually compare notes on rates. They’re pretty careful about that. I don’t accuse them of anything, but it’s pretty remarkable that there’s not a whole bunch of competition between those rates. They rise and fall at about the same rate. So there’s no market force operating. Everybody’s benefiting from that monopoly. They have a vested interest in not competing with each other.
Kent: Another questioner asks: Are there other representatives that side with you folks on this issue?
Lee: Yes. There certainly are. I don’t know what the current number would be in the Senate, but at any given time, … we have a handful of senators who are also very pro-Jones Act, and who are constantly on the lookout and are concerned as you described that anything that you do is going to upset the apple cart. And in a sense, they’ve got a point. In a sense, if you make any exemption to it, maybe they have a point and then it’s going to reveal how silly the whole thing is.
Now I think it’s even harder for them to argue against what Rep. Case is talking about. At a minimum, we ought to accept the noncontiguous land areas in our country so that they don’t have to comply with it, because it’s hurting them especially badly. The biggest problem, though, is that most members just aren’t aware of. They don’t know about it. I talk about it till I’m blue in the face, but until they hear about it from constituencies who are not me, and from more people, they’re not going to be motivated to act.
Kent: I have to apologize. I misstated a question earlier. John McCollum,this is his question: Sen. Lee and Congressman Case, the $1.2 billion claim cost of the Jones Act from our study is more than the revenue of all the Jones Act carriers serving Hawaii. Given that the large majority of container operator costs aren’t affected by the Jones Act, how is that number even possible? I think John Dunham might also answer this. I think the $1.2 billion is actually a multiplier effect type of a cost too.
Case: Happy to defer to John on that. I won’t get into the guts of his study. He needs his time to answer that question and more.
Kent: We can answer that one later, in that case. How will the changes to the Jones Act, let’s say the reforms that you folks, are mentioning, how would that affect the unions in this sector?
Case: The bills that I’ve introduced, at least, have always called on the Jones Act shippers to comply with U.S. laws. I don’t agree that people should be able to operate inside the United States, which between two U.S. ports is, for all intents and purposes, operating inside the United States even though it’s the open seas, the high seas. So presumably, the same laws would be applicable. If workers wanted to bargain collectively they could. [They] have to comply with environmental laws; that would be somewhat of a cost of Jones Act versus some of the international shipping lines that don’t have to comply with any of these laws. I think that’s only fair to do that.
Let’s recognize a real practical fact here, and that is that the unions that are directly impacted, possibly by the Jones Act, are the unions that work the ships themselves, the seafarers, the masters and mates union, not the ILWU. They’re not going to be affected. They’re still going to be working the docks, and the irony of this to me is — and this is starting to break down a little bit in Hawaii — the irony of this to me is that some of the non-Jones Act-related unions, for example, some of the construction trade unions, have felt the need to support that position even though it hurts their members in spades. Their members are the ones that are impacted by the Jones Act surcharge.
I think we can take care of the seafarers and be fair to them. The unions that are Jones Act-related but are not on the ships, they’re not impacted. And all the other unions benefit from Jones Act reform.
Kent: We got a question from elsewhere: The Jones Act also affects U.S. territories of Guam, Northern Mariana Islands, U.S. Virgin Islands and American Samoa. I hope we are not forgotten on this important issue. Could you speak to how the Jones Act affects other areas?
Lee: I’m unfortunately going to have to leave. They’ve called a vote and I’m going to have to run.
Kent: Thank you for joining us today.
Lee: Sure it has an impact there. I think it’s important also to emphasize, anytime you do something like this, anytime you impose a set of regulations like what we have in the Jones Act, its impact on the labor market, on labor unions — and all those things have to be taken into account — in connection with the fact that when you diminish economic productivity you’re going to be diminishing jobs. That’s bad for unions. It’s bad for producers and shippers alike. I’m sure Rep. Case is better equipped to answer the question about American Samoa than I am. Thank you very much for letting me join you.
Akina: Sen. Lee, thank you very much for being with us. Much aloha. Do well on your vote.
Lee: Thank you.
Case: I’ll answer that quickly, and then that should be the last question for me because you should move on, and I’m going to have to vote too. You can see up on my screen they called the next vote. It’s a mixed bag with — absolutely, I’ve not forgotten the territories and the other noncontiguous jurisdictions. As I’ve said, my bill calls for all the noncontiguous parts of our country which, by the way, includes Alaska. It’s a mixed bag. Some of the territories are actually already exempt from the Jones Act. The Virgin Islands, for example, is exempt. American Samoa is exempt.
The Northern Marianas are mostly exempt, as I recall, and Guam has a weird hybrid partial exemption. Puerto Rico is not exempt, and it has the same basic impacts as we suffer here. The economic multiplier is larger there just because their economy is larger, and so it tends to multiply more acutely. I haven’t forgotten anybody else at all. This is a particularly bad impact if you’re not part of the continental United States and shipping is your only transportation lifeline.
Akina: Rep. Case, thank you for being with us today. Wish you well on your vote.
Case: Thank you so much. Aloha to everybody.
Akina: Aloha to you.
Akina: Well, thank you to the viewers who are with us still. We had more than 500 people register for today’s webinar, and we have many questions and we hope to honor some of those who’ve asked questions by continuing now with our principal researcher and author on the study, John Dunham. Before I introduce John and to go to respond to your question, let me mention that John has done tremendous work in terms of the Jones Act and its study on impacts across the nation. He’s the author of the leading study on the costs of the Jones Act to Puerto Rico.
That has been a much renowned study, and we’re delighted that he’s able to be with us today. John, once again, is the president of John Dunham and Associates in New York, and he’s also a member of the Grassroot Institute team of scholars. We’re just delighted to have you on board and your expertise. Not to mention that Joe Kent himself is one of the leading thinkers about the Jones Act here in Hawaii, and he works with our research team at the Grassroot Institute. I’ll let Joe and John continue to field questions from the audience.
Kent: Okay. Well, John, there’s just a lot of questions about the costs here. This is going to be great to do a deep dive about that.
Can you first talk just generally about the methodology? Someone asked: How did you compute these costs? In about 30 seconds, if you could explain that.
John Dunham: 30 seconds, OK. The hard part of doing this analysis is that there just isn’t a lot of data available. The domestic shipping rates and domestic cargo volumes are hidden. They’re state secrets. It’s very difficult to get data on that. So we have to derive that. What we did was we created a model of what international shipping costs would be for the same routes to Hawaii, based on international shipping rates, which are readily available. Then, because we don’t know what the domestic costs are, we took a number of different assumptions and shocked those against the international rates.
We used some assumptions that were very low differentials, some which are higher differentials and came up with a range.
Kent: You have these different scenarios and that results in different pictures of a cost. Basically, the idea is that if we have a shotgun approach to looking at the cost of the Jones Act, one of the scenarios is probably right.
Dunham: It gives you a good range with the scenarios. I think it’s on the higher side personally, just from what I know about transportation economics, but we looked at some of the lower costs as well just to be fair and honest.
Kent: Okay, then could you speak to the American Maritime Partnership study? They said there’s virtually no cost to the Jones Act in Hawaii and they compared prices. Could you speak to that?
Dunham: Well, first, if there was no cost to the Jones Act in Hawaii, the American Maritime Partnership wouldn’t be spending the millions of dollars they are in lobbying. There’d be no need to, because they would be shipping at a market rate and they would be able to compete freely. On the study itself, as the senator said, the devil’s in the details on these things and as Congressman Case said, if you look at the footnotes, you’ll see where the problems are.
These are the guys that actually have the data on shipping rates, which is kind of ironic. What they did was they looked at the prices of commodities. Let’s say they weren’t cherry-picked. They were a market basket of commodities, were on the internet at different major stores, and lo and behold, the internet price at Walmart for a jar of spaghetti sauce is the same no matter where you are. It’s the same price in Bentonville. It’s the same price in California. It’s the same price in New York and in Hawaii. The devil is that shipping costs are different no matter where you go.
In Hawaii, the shipping costs are four or five times as high as they are in say, New York City. So the overall delivered price to a consumer in Hawaii is much, much higher than it would be if it was in California.
Kent: So instead of looking at just the online price, you really have to look at the price on the shelf. Grassroot Institute actually hired someone in Los Angeles to look at the price on the shelf. We did the same here with the exact same products as the American Maritime Partnership study and found prices in Hawaii are about 14% higher at Walmarts. That’s a really big difference than the American Maritime Partnership study. Is that the shipping cost is factored into that, as you mentioned?
Dunham: There’s a lot of stuff that’s factored. It’s more expensive to do business in Hawaii in general, but the shipping costs is a big piece of that.
Kent: Part of that.
Dunham: It is. It is. Any study, and in the studies that I do, in the studies that the partnership is on, every study depends on the assumptions that are made and the data that are used. The key is to look at those assumptions in that data. Do they make sense? In the case of that study, I hate to say it, I was quoted, I think, of saying it was silly, because it was. The assumptions that were used and the data that were used, they just weren’t applicable.
Kent: Okay. Just for anyone who wants to look at the study, it’s at grassrootinstitute.org/jonesact, and there you’ll also, if you want to download it, you can do it that way. You can also go on Amazon and find it and you’ll find the link at grassrootinstitute.org/jonesact. You can get a physical copy if you’d like.
Laren asks for Mr. Dunham: Last year, you presented your then preliminary research on the Jones Act costs, and you were using a synthetic Hawaii methodology. Is this still the case? This is a pretty technical question here. Can you describe the variables, the inputs that you put into this synthetic? Do you understand that question?
Dunham: I do. I was out in Hawaii. I, fortunately, was able to travel to Hawaii last time. We had just released a very similar study for Puerto Rico. We were using the Puerto Rico model and running the Hawaii economy through the Puerto Rico model. Now we have an actual Hawaii model is based on the —
Kent: Built from the ground up.
Dunham: Built from the ground up in Hawaii based on the international shipping costs of Hawaii, based on the actual production functions for all of the different industries in Hawaii. It’s very, very Hawaii specific.
Kent: Great. Another question: Shouldn’t the Jones Act have been excluded with Hawaii when it became a state? In any case, the Jones Act is in place right now.
Dunham: It would have been nice, I guess. People haven’t really mentioned it, and I think it’s really important — Sen. Lee represents Utah, and Utah is landlocked. It doesn’t have any seaports. It’s also the biggest producer of vitamins in the country. It’s vitamin central for the United States. Every one of his constituents that produces vitamins and ships them to Hawaii has to ship them at a higher cost, which makes the demand in Hawaii for their vitamins less than it should be, and it costs the residents of Hawaii more. The Jones Act affects everybody, not just Hawaii, not just the noncontiguous states. It really has a cost across the entire country.
Kent: Okay. Someone asks: How would the cruise ship industry be affected by a change in the Jones Act? Actually, the cruise ship industry is under a different act. It’s the Passenger Vessel Services Act. Grassroot Institute has a report coming out about that in a few weeks. Stay tuned for that. Another person asks: “I’m in the passenger charter trade and have very few choices for appropriate charter vessels in the U.S. Hopefully, any change in the Jones act will remove this pain.” Basically that’s the same thing. Just stay tuned for our Passenger Vessel Services Act study. Some people are asking for the link.
Okay, a question: Can the Jones Act be suspended if Hawaii took a direct hit from a hurricane or a massive storm. And actually it could, just like it was in Puerto Rico in 2017, I believe; the Jones Act was waived for that for about 20 days. During, I think, Hurricane Lane, the Grassroot Institute requested a waiver of the Jones Act to deal with that, but thankfully we weren’t hit by Hurricane Lane in a huge way. But it could be done. Another question I’m trying–
Dunham: Very few and far between though.
Kent: Yes. [Question]: “I’m trying to ship two crates from Georgia, and the pricing varies over $4,000 on the quotes. How do you price anything like that with 10 items if you can establish a landed cost?” Could you speak to that, John?
Dunham: Yes. Pricing in the steamship industry, in the waterborne trade industry, is the same as airline prices. Your neighbor in a seat next to you could have paid half as much as you did depending on when they booked and how they booked and who they booked through. The thing about steamship rates is they’re hidden. You cannot figure out what they are. You can’t go on Kayak or something and look and compare. They’re all hidden, so you have to negotiate everything individually.
Kent: Question from Roger Tierney. He asks: How does the Jones Act cost Puerto Rico? Well, we have the man that did the study on that, too. Could you comment on that?
Dunham: Yes, I could go back and get my numbers. It’s exactly the same thing. It’s exactly the same analysis.
Kent: If I remember, a $1.5 billion cost to Puerto Rico.
Dunham: It was quite large. The effects, actually, a lot of the effects are the same for Hawaii. It’s not as much even the container trade. It’s the bulk trade; it’s the project cargo trade. It’s those things, and in Puerto Rico, fuel oil was a huge driver of their costs.
Kent: How badly does the Jones Act prevent other industries from doing business here in Hawaii?
Dunham: Like everything, it’s costs. Hawaii is an expensive place to do business in general because it’s Hawaii. It’s in the middle of an ocean, it’s got its own issues with costs, just like where I am in New York City.
As you raise the cost of anything, you get less of it. That’s simple economics. If I raise the cost of coffee, I sell less coffee. If I raise the costs of buildings, I get less buildings. And if I raise the cost of doing business, I get less business. It’s not just the stuff that’s being shipped in. It’s the actual operating costs. Your electricity is more expensive. Your housing is more expensive. Everything is more expensive in Hawaii because of the Jones Act.
Kent: OK, there’s a lot of questions, just saying a lot of people appreciate this webinar, and they want us to do more, and they want us to do more studies. Someone asks: Can the Grassroot Institute conduct a similar study on Guam and the Mariana Islands? Well, to address that, it would be great to do more studies on the mainland, and we want to see how much the Jones Act costs every state in the nation. That’d be great to see, but perhaps one day.
How much money does shippers like Young Brothers and Matson contribute to local political campaigns?
That’s public information. You can look that up online. I actually did go and look that up to see how much was given to local political candidates, and it’s about half of them between $100 and $1,000, around there on average. But some people get nothing, so it’s a scattershot on that one.
Given that Paul Brewbaker of TZ economics is local, is there any chance that we could have him on a future discussion? Well, that’s probably a good idea. He helped with the American Maritime Partnership study that looked at those different costs.
Do you plan to — so these are more of, do we plan to hold more webinars here? Let me look for some other ones.
Wouldn’t eliminating the ship-build requirement also helped Jones Act operators, or are they afraid they’d have more competition from other American companies? Asks Rob Quartel.
Dunham: (Laughter)There’s why you don’t want to put the camel’s nose under the tent. Exactly. The main reason that there are only two shipping companies serving Hawaii — in effect only two shipping companies serving Hawaii, is there are no vessels. The minute you allow other vessels to enter the trade — you’ll have the Maersks of the world, you’ll have the Evergreens of the world. You’ll have the [indecipherable] shipping companies, the majors, starting to serve Hawaii as part of their transpacific trade. But now, they would have to build a U.S. ship, which is insanely expensive, and would only be used in that one trade. It doesn’t make any sense for them to do that.
Kent: Bill Hicks asks, he’s saying: “The GAO study in 2013 that focused on Puerto Rico did not clearly address the cost to residents. Mahalo for this study that clearly addresses this for Hawaii But why did the GAO study miss that mark so badly?” John, are you familiar with that study?
Dunham: Sure, yes. The GAO study was looking at operating costs and was comparing operating costs for international ships versus Jones Act ships. Operating costs aren’t prices, right? If I have a monopoly, I’m going to charge a lot more than my operating cost. I’m not going to charge my marginal cost. It’s not the same thing as what prices you’re paying, but they looked at differential operating costs.
Kent: Dwayne Lopez asks about taxes, Hawaii taxes, all aspects of trade, shipping, delivery, storage, et cetera, and services: What impact will an end of the Jones Act have on Hawaii’s tax base?
Dunham: It would actually have a positive impact on Hawaii because there would be a lot more shipping to tax, and that’s the key. The whole idea of an economy is you want to have more stuff moving around. Everybody wants more stuff. By reducing overhead cost, which is what the Jones Act is, it’s an effect tax where the revenue is not going to anybody. It’ll increase all of the economic activity in the islands.
Kent: I should clarify. We mistakenly said that under a ship-build exemption, that Hawaii would see $30 million less in tax revenues. Actually, what we meant to say, $30 million more in state-
Dunham: And more.
Kent: -tax revenues just for the ship build exemption. It would be even more if there were other reforms. This is a longer question: How sure are you that this will bring down prices relative to mainland prices? This questioner says: “I worked as an assistant store manager for Target when they opened Hawaii back in 2008. We were told that the shipping prices added about 2% to 3% but generally, our prices were 12% to 14% higher than Targets on the mainland. We were told to tell customers and the press that the differences in prices were due to shipping regardless. Are we really sure that we’re measuring the right costs here?”
Dunham: Yes, I know we’re measuring the right costs. Are we absolutely sure it’s $1.2 billion, $1.3 billion? No, it could be $1.5, it could be $1.1. It’s a study, it’s a model. But you’re definitely going to see lower prices. Shipping costs don’t represent a huge amount of the cost of really any product unless it’s a giant blob of steel or something. It’s how the shipping costs work their way through the entire production process.
The cost means more money to bring in a can of beans. Maybe it’s just a penny a can, but that gets marked up by the wholesaler. That gets marked up through the higher insurance on the trucking. It gets marked up by the retailer. They’re using similar margins, so that one cent turns into three, four, five cents very, very quickly.
Kent: Someone asked if this webinar will be recorded and yes, it will be. You’ll be able to watch it later on grassrootinstitute.org. Just watch for that and make sure you’re on our email list so that we can notify you about that. Peter [unintelligible 00:54:06] asks: “How can we get the man on the street in Hawaii to know what the Jones Act is? A very small percentage of Hawaii voters even recognize the name Jones Act.”
Actually, I did a little survey myself and found that about 30% of people in Hawaii know what the Jones Act is. They know it’s a shipping law. They’re generally against it, and that percentage is about 1% nationwide, less than 1%. People in Hawaii do know about it, and my sense is that people in Puerto Rico also know about it. How can we do more? Do you have any thoughts about that, John?
Dunham: In Hawaii or nationally?
Kent: Just nationally, I guess.
Dunham: I think nationally, as I said before, people don’t realize how much more expensive the Jones Act makes everything in the country. I was looking at some numbers here. The cheapest way to ship anything, really, is by water. Shipping tonnage by water is much cheaper than shipping by air. It’s insanely cheaper than shipping by air, it’s much cheaper than by truck and rail, but only 4.6% of all the cargo in the United States goes by water. It’s insane that we ship oil in tank cars. It’s insane that we ship steel on rail cars. In Hawaii, anything that came by truck would get really wet. But everything that goes by air is much more expensive than it need be.
Kent: One more thing, I want to go back to John McCollum’s question. He was asking specifically about the — I’m sorry not his question; someone else asked about the $3.3 billion AMP supposed cost, supposed addition of the Jones Act to Hawaii’s economy. In other words, the American Maritime Partnership says that the Jones Act benefits Hawaii’s economy by $3.3 billion. Have you looked at that number, and what do you think of that?
Dunham: The senator, or actually the congressman, I think, touched on this really well. It’s not the Jones Act that benefits Hawaii. It’s shipping that benefits Hawaii. If you took all of the longshoremen and all of the chandlers and all of the shipping companies, and you took them out of Hawaii and you dumped them on the moon, the economy of the moon would be $3 billion. It has nothing to do with the Jones Act because ships are going to still come in. As a matter of fact, more ships will probably come in if you get rid of the Jones Act, and that effect would be even larger. It’s the net loss that you’re going to get from the Jones Act of that economy.
Kent: I see. Well, we have time for probably one more question here. Let me see here. Boy, and I’m sorry for all those that I didn’t get to, but let me get one from Ken Schoolland: Doesn’t it seem odd that we now have military alliances with other countries such as Japan and South Korea, yet we can’t trust them to sell us ships at one-fifth the cost of U.S. ships? Would it make sense to do this with automobiles, too, where we couldn’t buy our automobiles overseas? What do you think about that?
Dunham: It could be anything, right? I should buy only stuff on my block here because that’s going to support my economy. You support your economy by doing more with less, and if trade helps you do more with less, you trade. It’s not really efficient to build ships in the United States. It’s much, much more efficient to build them in Korea and Japan and even Italy. That’s where you should get ships from.
Kent: Well, I wish I could have gotten to all the questions here, but let me throw it back to the president and CEO of the Grassroot Institute, Dr. Keli’i Akina.
Akina: Much thanks to John Dunham for your research on the study, your leadership in our scholarship. We appreciate that very much. Thanks for being on board today, and much thanks to Joe Kent for moderating the questions and contributing as well. I appreciate the fact that so many of you asked questions, and the fact that there are many more questions that weren’t answered means the conversation needs to go on.
I invite you to become part of the Grassroot Institute. You can subscribe by going to our website grassrootinstitute.org, and you can get our weekly publications. In addition to that, you can get a copy of the recent study on the Jones Act. Watch the news because we are giving many interviews. The study is being covered and news is being made in terms of Jones Act reform, updating the Jones Act for the 21st century. Mahalo to all of you, and aloha.