The following Honolulu Civil Beat “Community Voice” commentary was first published on Nov. 26, 2024 under the headline “Matson’s New Vessels Illustrate Jones Act’s Grip On Hawaii Shipping.”
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Shipping giant Matson, based in Hawaii, recently announced it is buying three new containerships from the Philly Shipyard in Pennsylvania for $1 billion — hundreds of millions of dollars higher than global prices.
But the company likely isn’t concerned much about the excessive price because its customers — mainly in Alaska, Hawaii and Guam — ultimately will be the ones to foot the bill, thanks to America’s protectionist maritime law known as the Jones Act, so its profits likely will remain strong.
The 104-year-old law quashes meaningful competition, both foreign and domestic, by requiring that all goods shipped between U.S. ports be on ships that are U.S. built, U.S. flagged and mostly American owned and crewed.
The law was intended to strengthen America’s maritime industry in the name of national security, but it has had the opposite effect — and American consumers are paying the price.
Matson’s news release about its capital outlay said the three vessels represent “an investment of approximately $1 billion” and will “match the size and speed of Matson’s two existing Aloha Class ships, Daniel K. Inouye, and Kaimana Hila, which were also built by Philly Shipyard and entered service in 2018 and 2019, respectively.”
What the news release failed to mention is that the nearly identical Aloha Class ships built in 2018 and 2019 cost $209 million each at the time — compared to more than $333 million for each of the new vessels.
But even $209 million was vastly more than the prevailing world price. According to the Congressional Research Service, U.S.-built ships often come with a price tag at least four times higher than those built abroad.
For example, in 2022, two containerships powered by liquid natural gas ordered from South Korea cost just $120 million each and came with double the cargo capacity of the new ships Matson is buying. And an LNG-fueled containership with five times the capacity was recently ordered from a Chinese shipyard for $210 million.
It’s not like U.S.-built ships are any better than ships built overseas. In fact, most U.S.-built ships these days rely heavily on foreign designs and foreign-made parts.
Not only that, the few U.S. shipyards still capable of building oceangoing vessels are not even wholly owned by Americans anymore. This includes the Philly Shipyard, which was acquired earlier this year by a Korean conglomerate.
Nevertheless, Matson is bound by the Jones Act to buy U.S.-built ships at crushingly high prices, but apparently it doesn’t mind.
Turns out, Matson is among the most ardent defenders of the protectionist law. Early last year, it posted an essay on its website titled “The Jones Act — More Relevant Than Ever,” and its recent annual report called the Jones Act “a long-standing cornerstone of U.S. maritime policy.”
The company is also a prominent member of the American Maritime Partnership, the country’s leading Jones Act lobby group, and a Matson executive, in fact, is the immediate past president of AMP, which similarly describes the Jones Act as a “cornerstone of US maritime safety and security.”
Most important for Matson, the Jones Act serves as a virtually insurmountable barrier to entry for potential competitors — not only foreign, but domestic as well.
Matson admitted as much in its latest annual report, stating that “If the Jones Act were to be repealed, substantially amended or waived and, as a consequence, competitors were to enter the Hawaii or Alaska markets with lower operating costs by utilizing their ability to acquire and operate foreign-flagged and foreign-built vessels and/or being exempt from other U.S. regulations, the Company’s business would be adversely affected.”
Matson does have one major competitor in the Hawaii market: Pasha, which is also represented on AMP’s board of directors. Together, Matson and Pasha have a lock on the Hawaii waterborne transportation market, and Hawaii consumers have little choice but to pay what the two companies charge.
A 2020 study commissioned by the Grassroot Institute of Hawaii estimated that the Jones Act costs Hawaii residents about $1.2 billion a year, or about $1,800 per average Hawaii family — essentially a hidden “Jones Act tax” borne by the state’s consumers. The study found the Jones Act’s U.S. shipbuilding requirement alone costs Hawaii’s economy an estimated $531 million annually.
In short, Matson’s $1 billion investment in its new overpriced ships is made possible thanks to the Jones Act, which protects it and similar companies from competition, and enables it to pass along its unreasonable expenses and operating inefficiencies to its customers.
