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One less Jones Act tanker is signal to lift U.S.-build requirement

Photo courtesy of Maritime Hawai‘i

“Houston, we have a problem.”*

That’s because America just lost another ship from its ever-dwindling Jones Act fleet, an oil tanker named the Houston that counted the islands of Hawaii among its ports of call.

After 37 years of service, including many visits to Hawaii, the Houston is now in India to be dismantled for salvage,[1] reducing the number of Jones Act-qualified oceangoing commercial vessels to only 92, down from 257 in 1980.[2]

The Jones Act is that 1920 federal law that requires all cargo transported between U.S. ports be carried on ships that are U.S. flagged and built, and mostly owned and crewed by Americans.

The intent of the law allegedly was to protect America’s maritime industry so as to enhance the nation’s national security. As economist Ted Loch-Temzelides wrote in Forbes magazine in 2017, “the Jones Act was meant to ensure that the U.S. would have a robust fleet in the event of a military confrontation.”[3]

However, after more than a century of such maritime protectionism, America’s oceangoing Jones Act fleet comprises less than 1% of all oceangoing commercial vessels in the world,[4] making a mockery of any claims that America’s merchant marine fleet is protected by the Jones Act.[5]

What it means for Hawaii

The Houston actually was a regular visitor to Hawaii. Last year, there were 17 tanker movements from the U.S. mainland to Hawaii. The Houston completed eight of them, with six other tankers making the remaining nine trips. The Houston also made 17 movements between Honolulu, Barbers Point and other ports in Hawaii.[6]

With the Houston slated to be scrapped, what Jones Act-qualified ship will fill the gap? Industry sources say a 9-year-old tanker named the Florida was called on to replace the Houston and has been serving Hawaii about once a month since November. But that still leaves the fleet in general one tanker short.

Oil tankers make up 55 of the 92 ships in the Jones Act fleet.[7] Through April 2022, four Jones Act tankers had completed nine movements from the mainland to Hawaii.[8] But with one less Jones Act tanker in the mix, that could result in Hawaii residents paying just a bit more for mainland oil.[9]

The Jones Act already prevents foreign-flagged vessels from transporting oil from the U.S. mainland to Hawaii, and that, ironically, has made it cheaper for Hawaii’s sole oil refinery, Par Hawaii, to import oil from foreign oil sources. In large measure because of the Jones Act, Hawaii is almost wholly dependent on foreign oil producers for its petroleum needs.

In March 2022, President Joe Biden banned Russian oil imports to the United States. At the time, Russia provided about 3% of all U.S. crude oil imports,[10] but Hawaii had been purchasing between a quarter and a third of its crude from Russia in recent years.

Unless Par Hawaii has found some ready foreign alternatives to oil from Russia, then the need for Hawaii to import crude from the U.S. mainland will increase. With the Houston gone, there is one less Jones Act-qualified tanker on which Hawaii can rely.

Origin of the Houston

So back to the Houston, that veteran commercial tanker that served Hawaii far from the limelight for so many years.

Originally christened the Gus W. Darnell, the Houston was constructed  in 1985, along with the oil tanker Paul Buck, by Tampa Shipyards Inc.[11] The two ships cost $52 million each, according to the U.S. Maritime Administration.[12]

The Gus W. Darnell’s first owner, Ocean Shipholdings Inc., chartered the ship to the Military Sealift Command, under which it saw action in what was known as the Tanker War, an exchange between Iraq and Iran in the 1980s that saw attacks on dozens of merchant ships in the Persian Gulf.[13]

In 2005, U.S. Shipping Corp. bought the ship from Ocean Shipholdings for $23.5 million and renamed it the Houston.[14] U.S. Shipping Corp. used the Houston to move crude and other fuels along the Gulf Coast and West Coast and from the mainland to Hawaii.

In 2021, the Houston made 25 movements carrying crude oil to ports in Hawaii. That same year, SEACOR acquired U.S. Shipping Corp. for an undisclosed amount.[15]

This January, SEACOR sent the Houston to be scrapped in India, where it arrived in April.

Where are most ships scrapped?

The business of dismantling ships for salvage, called “shipbreaking,” used to be concentrated in the United States and Europe. But strict environmental and labor regulations led to companies moving abroad, primarily to Southeast Asia.[16]

Several sites in the United States still break a limited number of vessels. The Port of Brownsville, Texas, for example, handles 85% of shipbreaking for the U.S. government. SteelCoast, owner of the largest domestic breaking yard, operates an 80-acre site and employs several hundred individuals in Brownsville.[17]

There is no law mandating that Jones Act ships be broken in the United States, so most U.S. carriers send their ships abroad.

Worldwide, most shipowners send their vessels to India or Bangladesh to be broken up. Between 2012 and 2018, shipbreakers in India dismantled 2,142 ships. Workers in Bangladesh broke up 1,444 vessels.[18] The world’s largest ship-breaking site is in Alang, India, where the Houston will be dismantled

The Houston was no spring chicken

The owners of the Houston waited until the vessel was 37 years old before deciding to scrap it.  Thirty-seven years is a long time compared to the service life of most oil tankers in the world.[19] It is almost 20 years older than the average age of international oil tankers and more than 10 years older than when tankers are typically removed from the international fleet.[20] Many tankers age out of the fleet much earlier.

“When a tanker vessel is over 20 years of age, it will struggle to find employment with legitimate charterers,” stated an analysis from Frontline, one of the world’s largest tanker owners.[21]

Why did its owner wait so long to scrap the Houston?

Thomas Grennes, professor emeritus at North Carolina State University, blames the Jones Act.

“It is undeniable that the Jones Act contributes to the aging of the U.S.-flag fleet,” Grennes has written. “Because of the higher cost of new ships, American shippers have delayed replacing older ships, and the American fleet has gotten older.”[22]

As of 2022, building a tanker in the U.S. costs roughly three to four times more than building one abroad. This, no doubt, weighed heavily on U.S. Shipping Corp.’s decision not to replace the Houston years ago.

Despite the Jones Act’s dwindling fleet, the last tankers built in the United States were delivered in 2017. Kinder Morgan purchased four tankers from Philly Shipyard for a total cost of $568, or $142 million each.[23]

Meanwhile, in May 2022, a Greek company contracted a purchase of four tankers from a shipyard in Korea for $58.5 million apiece. Not only are these ships far less expensive, they will be more than twice as large as the ones built by Philly Shipyard.[24]

Conclusion

So what have we learned from the Houston, a ship that will never again bring shipments of oil to Hawaii from the U.S. mainland?

In a nutshell, it is emblematic of how the Jones Act distorts America’s maritime industry. The law in general has destroyed America’s maritime competitiveness, while the U.S.-build requirement in particular incentivizes U.S. shipowners to keep their ships on the water as long as possible, lowering their efficiency, endangering the safety of their crews and raising prices for consumers and businesses.

For Hawaii, it also adds a question mark regarding the state’s energy security, now that there is one less Jones Act oil tanker on which it can rely.

If U.S. lawmakers ever hope to enhance Hawaii’s energy security, rebuild the nation’s oceangoing U.S.-flag fleet and revive its merchant marine, they will need to start thinking outside the box.

So as Hawaii says aloha to the Houston, perhaps it is time Congress said aloha as well to the Jones Act’s domestic-build requirement.

* This article has been updated to reflect more recent U.S. Marine Administration data that America’s oceangoing Jones Act fleet is now down to 92 vessels, including 55 oil tankers, not 93 and 55, respectively.
______________

[1]Houston,” MarineTraffic, accessed May 8, 2022; Weekly Vessel Scrapping Report 2022: Week 4,” Ship & Bunker, Jan. 27, 2022.

[2] “United States‐Flag Privately‐Owned Merchant Fleet Report: Oceangoing, Self‐Propelled Vessels of 1,000 Gross Tons and Above that Carry Cargo from Port to Port As of: January 16, 2022,” U.S. Maritime Administration, Jan. 16, 2022. Also, Colin Grabow and Inu Manak, The Jones Act at 100: Time to Make This Protectionist Law History,” Cato Institute, June 11, 2020; also, personal communications with Colin Grabow, Policy Analyst at the Cato Institute, April 26 and May 5, 2022.

[3] Ted Loch-Temzelides, “The Jones Act: Friend or Foe?” Forbes, Sept, 28, 2017.

[4]Merchant Fleets of the World Privately-Owned, Oceangoing Merchant Vessels of 1,000 Gross Tons and Over as of January 1, 2016,” U.S. Maritime Administration, Jan. 1, 2016. The 1% figure is derived by dividing the U.S. ship gross tonnage by the world total gross tonnage.

[5] Jonathan Helton and Josh Mason,Five myths about the Jones Act,” Grassroot Institute of Hawaii, November 2021. For an example of a recent commentary that repeatedmay of the Jones Act myths, see Tony Munoz, The Jones Act is U.S. Wealth and Prosperity,” The Maritime Executive, May 9, 2022.

[6] National Ballast Information Clearinghouse, NBIC Online Database, electronic publication, Smithsonian Environmental Research Center and U.S. Coast Guard. Available here; searched in January 2022.

[7]United States‐Flag Privately‐Owned Merchant Fleet Report Oceangoing, Self‐Propelled Vessels of 1,000 Gross Tons and Above that Carry Cargo from Port to Port,” U.S. Maritime Administration, Jan. 16, 2022, see table “Consolidated Fleet Summary and Change List.”

[8] Ibid; searched on May 9, 2022. Data on one product barge, the Pono Kai, was excluded since the ship was not a tanker.

[9] Vincent Smith and Philip Hoxie,Oil and the Jones Act,” American Enterprise Institute, April 17, 2020. See also Jason Fernando, Law of Supply and Demand,” Investopedia, Nov. 7, 2021.

[10] “The United States imports more petroleum products than crude oil from Russia,” Today in Energy, U.S. Energy Information Administration, March 22, 2022; “Par Pacific, Hawaii’s only oil refiner, suspends purchases of Russian crude oil,” Hawaii News Now, March 3, 2021; “Hawaii’s Energy Facts & Figures,” Hawaii State Energy Office, 2020, p. 3; and “Hawaii Refinery Task Force: Final Report,” submitted by ICF International and Poten & Partners to Hawaii Department of Business, Economic Development and Tourism, April, 9, 2014, pp. 4 and 39-42/

[11] Tampa Ships, LCC, now primarily builds smaller ships such as offshore support vessels. See fn. “Tampa Ship.”

[12]Tankers Built in U.S. Shipyards Since the MMA of 1970,” Shipbuilding History, updated Jan. 17, 2022; The Annual Report of the Maritime Administration for Fiscal Year 1981,” U.S. Maritime Administration, Oct. 1982, Chapter 1, p. 2. Those two ships would have cost $139.7 million a piece today, adjusted for inflation. The Paul Buck is currently a part of the Maritime Administration’s National Defense Reserve Fleet (NRDF). It is in port in Beaumont, Texas, where it is waiting to be disposed of. See: National Defense Reserve Fleet Inventory For the Month Ending February 28, 2022,” U.S. Maritime Administration, March 8, 2022, pp. 12-13.

[13] Robert Burns, Persian Gulf Duty Evokes Echoes of Earlier Wars,” Journal of Commerce, June 30, 1988; Ramtin Arablouei and Rund Abdelfatah, Remembering The ‘Tanker War’ Of The 1980s,” NPR, Aug. 1, 2019; Form 10-K, Annual Report Pursuant to Section 13 or 15(D) of the Securities Exchange Act of 1934,” U.S. Shipping Partners L.P., for the fiscal year ended December 31, 2008, p. 13.

[14]Tampa Ship,” Shipbuilding History, updated Jan. 3, 2022; Form Q-10 U.S. Shipping Partners L.P.,” Nov. 10, 2005, p. 9.

[15]Seacor Holdings Inc. Announces Acquisition of U.S. Shipping Corp,” press release from SEABULK, Aug. 13, 2021.

[16]The Problem,” NGO Shipbreaking Platform, accessed May 8, 2022.

[17] Alex Kamczyc, Sailing toward growth,” Recycling Today, June 4, 2021.

[18] Katharina Bucholz, India and Bangladesh Are Scrapping Bulk of Old Ships,” Statista, Mar. 13, 2019.

[19] Jonathan Helton, “Jones Act needs an update, and so does the Jones Act fleet,” Grassroot Institute of Hawaii, Dec. 21, 2021.

[20] Jan Hoffmann, Decarbonizing maritime transport: Estimating fleet renewal trends based on ship scrapping patterns,” UNCTAD, Feb. 25, 2020

[21]Frontline: ‘Demand for Freight in the Compliant Tanker Market Hurt by Scale of Parallel Oil Market, Where Sanctioned Crude Oil is Actively Traded’,” Hellenic Shipping News, Aug. 31, 2021.

[22] Thomas Grennes, Sacrificing Safety Is an Unintended Consequence of the Jones Act,” Mercatus Center, March 21, 2018.

[23]Kinder Morgan Expands Its Jones Act Tanker Fleet,” Seeking Alpha, Aug. 11, 2015; David Krapf, Philly Shipyard delivers fourth tanker to Kinder Morgan,” WorkBoat, Nov. 21, 2017.

[24]Navios Maritime Announces Acquisition of Four Newbuilding Tankers,” Maritime Executive, May 8, 2022.

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