Special Report: Hawaii Shippers Council on issues facing maritime industry

Pacific Business News
By Brian McInnis –

Worldwide ocean cargo shipping is playing catch-up from coronavirus-related delays at various ports, especially on the West Coast of the U.S. Mainland, but so far Hawaii has been largely insulated from additional costs.

That’s per Michael Hansen, president of the Hawaii Shippers Council, who spoke to Pacific Business News last week about trends in his industry. Hansen has been in the maritime business in Honolulu in various capacities since the early 1970s. He grew up surrounded by cargo containers; his father and both grandfathers were in the maritime industry, too.

The HSC was founded in 1997 on behalf of merchant cargo interests, or shippers, who entrust their goods for transport with ocean carriers. It was formed to support the Jones Act Reform Coalition, but also as a result of runaway costs of cargo ship construction in the U.S. as compared to peer nations, Hansen said.

The imminent threats of the day have changed.

Hansen identified a three-pronged issue as the main concern in Trans-Pacific shipping in early 2021: port congestion, which means backed-up quantities of ships and containers, due in part to a coronavirus-related workforce shortage, and in part by a surge in consumer spending; a shortage of containers in places like Asia as a consequence of them not being returned; and ship capacity shortcomings as urgency mounts to get cargo moved.

San Pedro Bay, which services the important hubs of the Ports of Los Angeles and Long Beach, has been especially affected by a backlog. Information attained from the Marine Exchange of Southern California by supplychaindive.com showed 46 ships at anchor there in January, twice the count of January 2020.

Hansen said the situation was similar at another primary West Coast port, Oakland/San Francisco Bay. He noted, however, that Hawaii’s two primary carriers, Matson and Pasha Hawaii, employ a fleet of smaller ships with mostly designated docks that allow them to bypass delays felt by other carriers. Matson, the publicly traded of the two companies, declared $193.1 million in net income in 2020, as compared to $82.7 million in 2019, spurred by heavy volume of service to China during the pandemic. Meanwhile, its container volume to Hawaii was down 0.6% in 2020. What is the consequence of the port congestions and container shortages, and how long will it last?

As a result, cargo freight rates, Eastbound and Trans-Pacific, have gone from around $2,000-$2,500 up to $4,500 for a 40-foot dry standard box. And there’s major container operators now saying, everyone is anticipating these conditions are going to last through midyear this year — at least. The big question is, will it continue long enough to actually [last into] the annual peak period prior to Christmas? In August, you start seeing cargo volumes increase for the Christmas season.

If that happens, the [carrier] companies will make lots of money, and freight rates will remain high. From what I can gather, freight rates on the Jones Act [domestic] side haven’t gone up that much, but certainly freight rates on the international side have risen substantially. How is this being felt in Hawaii?

Those freight rate increases on Trans-Pacific routes will be passed on to customers on the Mainland, there’s no doubt about that. But in the domestic Hawaii trade, we have not yet seen those kinds of major price increases in the freight rates.

The Jones Act freight rates are a whole lot higher than foreign flag freight rates, so we’re starting from a much higher level. But at some point I would expect [it could change]., depending on how long this situation of capacity shortage continues to exist. While we haven’t seen many problems or much movement in the freight rates in the Pacific domestic trade — Hawaii, Guam and Alaska — this is something that is certainly lurking in the background. Have people seen delays in getting things shipped here?

Matson, because of its unique position with dedicated terminals on the Pacific Coast, has been able to avoid these types of disruptions. And this is a major sales point for their Trans-Pacific service, because they guarantee they can deliver the cargo to the customer, and therefore charge more for freight.

Pasha, like Matson, operates relatively small containerships in the Hawaii trade — 2,300 to 2,400 TEU (20-foot equivalent units) capacity. While in the Trans-Pacific, containership capacity per vessel is approaching an average of approximately 10,000 TEU per vessel.

In 2020, the cargo volumes in Alaska and Hawaii are a bit depressed from 2019 levels. So we don’t have a capacity problem yet. That could change in the domestic trade once the lockdowns are over and the economy starts to open up again. That could be a definite possibility.

Case Re-Introduces Bills to Attack Key Driver of Hawai’i’s High Cost of Living

His proposals would amend the century-old Jones Act to combat monopolies in domestic shipping

(Honolulu, HI) – Congressman Ed Case (HI-01) re-introduced three bills in Congress to reform the century-old Merchant Marine Act of 1920 (commonly referred to as the “Jones Act”), which is widely credited with artificially inflating the cost of shipping goods to Hawai’i.

“These three bills are meant to end a century of monopolistic closed market domestic cargo shipping to and from my isolated home state of Hawai‘i as well as the other island and separated jurisdictions of our country that lie outside the continental United States,” said Case.

“The bills aim directly at one of the key drivers of our astronomically high cost of living in Hawai‘i and other similarly located jurisdictions.”

Case continued: “Because the Jones Act severely limits the supply of shipping to and from our communities, it has allowed a very few companies to control our very lifeline to the outside world and as a result command shipping rates way higher than the rest of the world.

“The Jones Act mandates that all cargo shipping between U.S. ports occur exclusively on U.S., not foreign, flagged vessels. Additionally, the law requires that these vessels are built in the U.S. and owned and crewed by U.S. citizens. Because Jones Act shipping has shrunken and international shipping has increased dramatically, especially in the last quarter-century, the Jones Act results in a very few carriers serving all domestic shipping needs.

“And those few U.S. flag cargo lines that remain have maneuvered the Jones Act to develop virtual monopolies over domestic cargo shipping to, from and within our most isolated and exposed locales – our island and offshore states and territories – that have no alternative modes of transportation such as trucking or rail.

“Hawai‘i is a classic example. Located almost 2,500 miles off the West Coast, we import well over 90 percent of our life necessities by ocean cargo. There are plenty of international cargo lines who could and would compete for a share of that market. Yet only two U.S. flag domestic cargo lines—Matson Navigation and Pasha Hawai‘i—operate a virtual duopoly over our lifeline.

‘While they are nominally subject to federal regulation, the fact of the matter is that cargo prices have gone in only one direction–up, fast and repeatedly, despite a surplus of international shipping–and it is indisputable that there is no downward market pressure which would otherwise result from meaningful competition.

“These accelerating cargo prices are not absorbed by the shipping lines, but passed through all the way down the chain, to the transporters, wholesalers, retailers, small businesses, mom-n-pops and ultimately consumers, of all of the elementals of life, from food to medical supplies, clothes, housing and virtually all other goods.”

“More broadly, there is much evidence about the direct impact of the Jones Act on shipping prices to noncontiguous areas. At a basic level, the everyday goods that we rely on in Hawai‘i cost much more than on the Mainland, a difference which largely cannot be attributed to anything other than shipping costs,” said Case.

Last year, the Grassroot Institute of Hawai‘i published a thorough and first-of-it-kind report, “Quantifying the Cost of the Jones Act to Hawai‘i.” The report found that:

  • The median annual cost of the Jones Act to the Hawai‘i economy is $1.2 billion.
  • The annual cost of shipping to Hawai‘i is estimated to be $654 million higher and prices $916 million higher.
  • The Jones Act annually costs each Hawai‘i resident more than $645.
  • Thanks to the Jones Act, Hawai‘i has approximately 9,100 fewer jobs, representing $404 million in wages.
  • Hawai‘i families across all income groups would benefit from Jones Act reform. In the absence of Jones Act restrictions, those making between $15,000 and $70,000 annually would see an annual across-the-board economic benefit ranging from $78 million to $154 million.
  • Annual tax revenues would be $148.2 million higher.
  • Focusing solely on the Jones Act requirement that vessels be built in the United States, they found that the build provision results in a 1.2% shipping cost increase for Hawaii. This translates annually to an added cost of $531.7 million to the state’s economy, or about $296 per resident.
  • It also means a loss of 3,860 jobs, and $30.8 million less in state and local tax revenues.

Case’s three measures and their proposed amendments to the Jones Act are:

  • the Noncontiguous Shipping Relief Act, which exempts all noncontiguous U.S. locations, including Hawai‘i, from the Jones Act;
  • the Noncontiguous Shipping Reasonable Rate Act, which benchmarks the definition of a “reasonable rate” which domestic shippers can charge as no more than ten percent above international shipping rates for comparable routes; and
  • the Noncontiguous Shipping Competition Act, which rescinds the Jones Act wherever monopolies or duopolies in noncontiguous Jones Act shipping develop.

“These long-overdue bills are of the utmost importance to the unique localities which have been left undefended to bear the brunt of the Jones Act. It is often difficult to pierce the veil of longstanding custom and understanding to see the real negative impacts of a law and what should instead be. It is even more difficult to change a law which provides a federally created and endorsed monopoly under which no competition exists to hold down prices. Yet clearly the time for these measures is overdue.”

Rep. Ed Case’s bills take aim at reforming Jones Act

Star-Advertiser

U.S. Rep. Ed Case of Hawaii said today he has reintroduced three bills in Congress to reform the Jones Act, which many critics say is responsible for artificially inflating the cost of shipping goods to the state.

“These three bills are meant to end a century of monopolistic closed market domestic cargo shipping to and from my isolated home state of Hawai‘i as well as the other island and separated jurisdictions of our country that lie outside the continental United States,” Case said. “The bills aim directly at one of the key drivers of our astronomically high cost of living in Hawai‘i and other similarly located jurisdictions.”

Case said because the Jones Act severely limits the supply of shipping to and from Hawaii’s communities, it has allowed a few companies to control the state’s lifeline to the outside world and, as a result, “command shipping rates way higher than the rest of the world.”

The 1920 Jones Act requires all cargo moved between two U.S. ports to be carried by vessels that are built in the country, owned by a U.S. entity and manned by an American crew.

Statement of Congressman Ed Case Before the Full U.S. House of Representatives Introducing Bills To Modernize The Jones Act

Madam Speaker, today I introduce three bills to end a century of monopolistic closed market domestic cargo shipping to and from my isolated home state of Hawai‘i as well as the other island and separated jurisdictions of our country not part of the continental United States. In doing so, we will break the stranglehold on the peoples and economies of these exposed communities and their resulting sky-high costs of living which results from just a few domestic shipping companies controlling the lifeline of commerce upon which we absolutely depend.

These bills all amend the Merchant Marine Act of 1920, also known as the Jones Act. That federal law mandates that all cargo shipping between U.S. ports occur exclusively on U.S., not foreign, flagged vessels. Additionally, the law requires that these vessels are built in the U.S. and owned and crewed by U.S. citizens.

The Jones Act was enacted in a protectionist era under the guise of preserving a strong national merchant marine. But today it is just an anachronism: most of the world’s shipping is by way of an international merchant marine functioning in an open, competitive market. And those few U.S. flag cargo lines that remain have maneuvered the Jones Act to develop virtual monopolies over domestic cargo shipping to, from and within our most isolated and exposed locales – our island and offshore states and territories – that have no alternative modes of transportation such as trucking or rail.

My Hawai‘i is a classic example. Located almost 2,500 miles off the West Coast, we import well over 90 percent of our life necessities by ocean cargo. There are plenty of international cargo lines who could and would compete for a share of that market. Yet only two U.S. flag domestic cargo lines—Matson Navigation and Pasha Hawai‘i—operate a virtual duopoly over our lifeline.

While they are nominally subject to federal regulation, the fact of the matter is that cargo prices have gone in only one direction–up, fast and repeatedly, despite a surplus of international shipping–and it is indisputable that there is no downward market pressure which would otherwise result from meaningful competition. These accelerating cargo prices are not absorbed by the shipping lines, but passed through all the way down the chain, to the transporters, wholesalers, retailers, small businesses, mom-n-pops and ultimately consumers, of all of the elementals of life, from food to medical supplies, clothes, housing and virtually all other goods.

The result is a crippling drag on an already-challenged economy and the very quality of life in Hawai‘i.

The broadest, deepest effects of the Jones Act on Hawai‘i result from its impact on westbound imports from the continental United States to Hawai’i. But Hawai‘i is an export location as well, in key products such as agriculture and livestock. Here the Jones Act also effectively stifles meaningful competition in getting those products to their primary markets on the U.S. Mainland. Because the producers of these products and all that rely for their own livelihood on their successful export have to eat inflated shipping costs, these export industries, which any economist knows are the ultimate key to any economy’s prosperity, are also crippled.

Let’s take a concrete example: Hawaii’s once-prosperous ranching/cattle industry, which is so key to the economic health and the very lifestyle of so much of areas like the rural Big Island, where I was born and raised. That industry depends on getting its product, young cattle, to West Coast pens and transportation hubs in a cost-efficient manner. There are foreign cargo carriers that specialize, through custom cattle ships and overall sensitivity and adjustment to rancher timetables and needs, in such transport, but the Jones Act outright excludes them from the Hawai‘i-Mainland market. As a result, Hawaii’s ranchers are reduced to two crippling, cost magnifying options. The first is to ship their cargo by foreign carriers to Canada, where they have to go through a myriad of bureaucratic, cost-magnifying gyrations to get their product eventually to their U.S. markets. The second is to beg for the goodwill of the domestic carriers, to whom this is simply a hindrance rather than a major commitment, to ship directly to the West Coast.

And it shows: most of the cattle are first shipped from Hawaii’s Neighbor Islands, where the bulk of the cattle industry is located, to O‘ahu, in small “cow-tainers,” where they sit for days in Honolulu Harbor awaiting the return to the Mainland of one of the massive cargo ships designed and utilized for quite another purpose. The result (besides associated higher costs) is in-harbor cattle waste disposal challenges, higher in-transit cattle mortality and lower-weight cattle delivery to market. That’s what happens when you try to squeeze a square peg into a round hole.

More broadly, there is much evidence about the direct impact of the Jones Act on shipping prices to noncontiguous areas. At a basic level, the everyday goods that we rely on in Hawai‘i cost much more than on the Mainland, a difference which largely cannot be attributed to anything other than shipping costs.

Last year, the Grassroot Institute of Hawai‘i published a thorough and first-of-it-kind report, “Quantifying the Cost of the Jones Act to Hawai‘i.” The report found that:

  • The median annual cost of the Jones Act to the Hawai‘i economy is $1.2 billion.
  • The annual cost of shipping to Hawai‘i is estimated to be $654 million higher and prices $916 million higher.
  • The Jones Act annually costs each Hawai‘i resident more than $645. (3.
  • Thanks to the Jones Act, Hawai‘i has approximately 9,100 fewer jobs, representing $404 million in wages.
  • Hawai‘i families across all income groups would benefit from Jones Act reform. In the absence of Jones Act restrictions, those making between $15,000 and $70,000 annually would see an annual across-the-board economic benefit ranging from $78 million to $154 million.
  • Annual tax revenues would be $148.2 million higher.
  • Focusing solely on the Jones Act requirement that vessels be built in the United States, they found that the build provision results in a 1.2% shipping cost increase for Hawaii. This translates annually to an added cost of $531.7 million to the state’s economy, or about $296 per resident. It also means a loss of 3,860 jobs, and $30.8 million less in state and local tax revenues.

In 2012, the Federal Reserve Bank of New York studied Puerto Rico’s economy and found that “the high cost of shipping is a substantial burden on the Island’s productivity.” The New York Fed found that, “[i]t costs an estimated $3,063 to ship a twenty-foot container of household and commercial goods from the East Coast of the United States to Puerto Rico; the same shipment costs $1,504 to nearby Santo Domingo (Dominican Republic) and $1,687 to Kingston (Jamaica)—destinations that are not subject to Jones Act restrictions.” There is only one reason why costs are double to ship from the continental United States to a domestic port in Puerto Rico as compared to foreign ports in the Dominican Republic and Jamaica: there is international competition on the latter routes, none on the domestic route and the shipping companies take full advantage of that lack of competition.

The three bills I introduce today say: enough is enough. If you, the continental U.S., wants to continue the Jones Act as to shipping between your locations, that’s your business. But don’t penalize us island and other noncontiguous locations by throwing us to the monopoly wolves you’ve created.

The first bill, the Noncontiguous Shipping Relief Act, exempts all noncontiguous U.S. locations, including Hawai‘i, from the Jones Act. The second, the Noncontiguous Shipping Reasonable Rate Act, benchmarks the definition of a “reasonable rate” that Jones Act shipping can charge to within ten percent of analogous international shipping rates. And the third, the Noncontiguous Shipping Competition Act, prevents monopolies or duopolies in noncontiguous Jones Act shipping. Essentially, the bills are intended to lay out options for providing relief for our U.S. noncontiguous areas. We can resolve the issue in many ways, but we must change the status quo which has had such a deep, broad and negative impact on my state and the other jurisdictions beholden to the Jones Act.

The Noncontiguous Shipping Relief Act would allow the noncontiguous jurisdictions to be serviced by non-Jones Act vessels and increase, or in some cases create any, competition in these critical shipping lanes. Again, this is a small portion of the total national Jones Act shipping where it is particularly destructive in application.

Let me address directly the argument offered up by the domestic shippers in defense of the Jones Act: that it contains important labor and environmental protections that would be lost upon repeal. My bill would retain these important protections. Specifically, it provides that all foreign shippers operating under the bill’s Jones Act exemptions must comply with the same labor, environmental, tax, documentation, U.S. locus and other laws as are applicable to non-U.S. flag ships and shippers transiting U.S. waters today.

The Noncontiguous Shipping Reasonable Rate Act would define a “reasonable rate” for the noncontiguous domestic ocean trade as no more than ten percent above the rate set by a comparable international rate recognized by the Federal Maritime Commission. Currently, the Surface Transportation Board technically has the authority to adjudicate and set precedent on what a “reasonable rate” is for Jones Act shipping, but it has almost never been used and never to a clear conclusion on what is a reasonable rate. My bill would define reasonable to remove uncertainty. Current Jones Act shipping rates vary widely and there is no central compilation of these rates. The ten percent benchmark would allow for variance but also ensure that Americans in our noncontiguous areas are not forced to pay exorbitant rates way above shipping rates which would otherwise be provided through international competition were the Jones Act not applicable.

The Noncontiguous Shipping Competition Act would exempt shipping routes to noncontiguous jurisdictions from the Jones Act requirements if a monopoly or duopoly exists on those routes. The Jones Act has resulted in the blossoming of monopolies and duopolies in our noncontiguous jurisdictions. To ensure that these communities, which are the most reliant in the country on shipping to receive necessities, are not held hostage to these dominant companies, my bill would give Jones Act exemptions to routes that are not serviced by at least three companies with separate ownership. In short, if a domestic route is in fact in a competitive environment, the Jones Act is less of a problem, but if there is no competition, then the route should be opened up to international competition by rescinding the Jones Act.

Madam Speaker, these long-overdue bills are of the utmost importance to the localities which have long borne the unfair brunt of the Jones Act. It is often difficult to pierce the veil of longstanding custom and understanding to see the real negative impacts of a law and what should instead be. It is even more difficult to change a law which provides a federally created and endorsed monopoly under which no competition exists to hold down prices. Yet clearly the time for these measures is overdue. I urge their passage.

Ed Case
1st District, Hawai’i
2210 Rayburn House Office Building
Washington, Dc 20515
Telephone: 202-225-2726
Fax: 202-225-0688

1132 Bishop Street,
Suite 1100
Honolulu, Hi 96813
Telephone: 808-650-6688
Fax: 808-533-0133
Website: Case.House.Gov

Committee On Appropriations
Subcommittees: Military Construction, Veterans Affairs and Related Agencies Commerce, Justice, Science and Related Agencies
Legislative Branch Committee On Natural Resources
Subcommittees: National Parks, Forests and Public Lands Water, Oceans and Wildlife Indigenous Peoples Of The United States

Zim files papers to start 2021 with New York shipping IPO

TradeWinds
By Eric Martin –

Fundraiser could seek $100m as Israeli operator seeks access to public equity markets.

Zim Integrated Shipping Services has filed papers to launch an initial public offering in New York, in a bid to make good on long mooted plans to go public.

The Israeli containership operator aims to list its shares on the New York Stock Exchange, where it will trade under ticker symbol ZIM, in a move that, if successful, would break a long absence of shipping IPOs on US capital markets.

The Haifa-based company did not give a timing for the IPO but pencilled in the aggregate value for the potential share sale at $100m.

Zim said that the main goal of the effort is to add to working capital and to create a public market for its shares, which would allow it to access equity markets in the future.

“We intend to use the net proceeds from this offering to support long-term growth initiatives, including investing in vessels, containers and other digital initiatives, to strengthen our capital structure, to foster financial flexibility and for general corporate purposes,” the outfit said in a draft prospectus.

The effort is backed by banks Citigroup, Goldman Sachs and Barclays as global coordinators, with Jefferies and Clarksons Platou Securities on board as joint bookrunners for the offering, according to the document.

A listing in New York would make Zim the second container liner operator listed on US stock markets, alongside Hawaii’s Matson.

International profile

Unlike Matson, which owns its vessels and is mostly focused on protected US trades, Zim brings a mostly chartered-in fleet and a global profile. It is ranked as the 10th largest operator by aggregate fleet capacity.

Its unique profile relative to other US-listed shipping stocks could work to advantage.

“The market loves logistics and hates the shippers [shipping companies], most of which erroneously get lumped into the same bucket as tankers and correlate with energy,” said J Mintzmyer, lead researcher at Value Investor’s Edge.

“I think Zim has a good chance to help break this cycle by clearly pitching the global logistics business, plus the timing is perfect as we’re in the middle of the biggest containership boom in a decade.”

Eli Glickman-led Zim, which recorded a record profit in the third quarter amid booming box rates, had made no secret of its intentions to go public. The company was reportedly eyeing London and New York as potential locations for a listing, apparently choosing latter.

“We are a global, asset-light container liner shipping company with leadership positions in niche markets where we believe we have distinct competitive advantages that allow us to maximize our market position and profitability,” Zim said in the draft prospectus filed with the US Securities and exchange commission.

The company owns just one vessel, with its remaining 69 ships brought in through charter deals, the IPO papers show.

Zim operates 66 weekly lines serving 310 ports in 80 countries. The company, which carried 2.82m teu in cargo last year, has an aggregate fleet capacity of 359,000 teu.

The company’s largest shareholder is Idan Ofer’s Kenon Holdings, which holds a 32% slice. Deutsche Bank owns 16.7% of Zim’s shares, while Greek containership owner Danaos holds 10.2%.

Congress Overrides Trump’s Veto, Enacting Maritime Priorities in NDAA

MARITIME EXECUTIVE

The U.S. Senate voted Friday to override President Donald Trump’s veto of the National Defense Authorization Act (NDAA) for FY2021, joining the House to continue an unbroken 60-year tradition of passing an annual military policy bill. In addition to servicemember pay, weapons procurement and other defense-related measures, the package contains countless legislative amendments on parallel matters – including high-priority questions for the American maritime industry, like financial relief for U.S. seaports, new rules for passenger vessel safety, and new language that applies federal offshore energy regulations (and the Jones Act) to offshore wind farms.

The NDAA contains language that ensures that offshore wind farms count as U.S. points for purposes of federal law, just like offshore oil and gas facilities. This provides certainty that foreign-flag vessels cannot be used to carry goods between U.S. ports and wind projects on the U.S. outer continental shelf.

According to the American Maritime Partnership, the NDAA also clarifies the terms and procedures that apply when an emergency administrative Jones Act waiver can be issued. In particular, a national defense waiver must be tied to a legitimate national defense need; non-defense waivers are now time-limited; and all waivers are subject to public reporting requirements whenever they are used.

“As we end this most challenging year, we are encouraged by Congress’s recognition of the contributions American Maritime makes to our security and to a healthy and resilient American economy,” said Michael Roberts, President of the American Maritime Partnership. “We are also grateful for the tangible progress made in this bill to reinforce the requirement that those who do work in our home waters must hire American workers and obey American laws. We look forward to building on that progress in the next Congress.”

The now-enacted law also creates a new Maritime Transportation System Emergency Relief Program (MTSERP) to provide funding to ports after natural disasters and emergencies, including the COVID-19 pandemic. It also raises the authorized funding level for the Port Infrastructure Development Program (PIDP) to $750 million annually, up from $500 million.

The NDAA also requires the Government Accountability Office to conduct an audit of federal agencies’ compliance with long-ignored cargo preference laws, which require government-owned and government-financed cargoes to ship aboard U.S.-flagged vessels. The audit will examine the degree of agency staff and contractor compliance, along with the past levels of enforcement effort by the Maritime Administration.

The NDAA also provides coastwise trade endorsements for three specific vessels that might not otherwise qualify. These include the St. Kitts-flagged cruise ship Safari Voyager; the formerly Russian-flagged expedition yacht Pacific Provider; and the Canadian-built tall ship Oliver Hazard Perry.

Creaking Jones Act Ships Turn to Chinese Shipyards for Maintenance Needs

Cato Institute
By Colin Grabow

Jones Act supporters, including the owners of ships operating in the domestic fleet, often claim the law is necessary to thwart China’s maritime ambitions. But it’s unclear how many of them actually believe such rhetoric. Despite professed concerns about China and the need to avoid foreign reliance for U.S. maritime needs, Jones Act shipping companies regularly make use of shipyards outside the United States for repairs, maintenance, and upgrades of their vessels. Including facilities in China.

No operator of Jones Act ships is a more enthusiastic patron of Chinese dry docks than shipping firm Matson, whose vessels have paid more than 50 visits to the state‐​owned COSCO (China Ocean and Shipping Company) shipyard in Nantong for needed work. Indeed, Matson has been such a loyal customer that COSCO hosted senior executives from the U.S. firm last year to celebrate the two companies’ 20‐​year relationship.

And Matson isn’t alone. A vessel owned by Jones Act shipping firm Pasha Hawaii, the Horizon Spirit, recently departed Nantong after nearly 50 days in a local shipyard, suggesting its stay was for more than a mere paint job.

According to maritime attorney Wayne Parker, who served for nearly eight years as in‐​house counsel to Matson and now‐​defunct Horizon Lines, “I never heard of any of our Jones Act‐​qualified container vessels being dry‐​docked, surveyed, or undergoing routine maintenance in U.S. shipyards. This was always done in foreign, usually mainland Chinese, shipyards.”

Although there is nothing objectionable about this from a free trade perspective, the irony and hypocrisy are inescapable. Both Matson and Pasha Hawaii have board of directors positions with the American Maritime Partnership, a leading Jones Act lobbying and advocacy group that frequently asserts the 100‐​year‐​old law serves as a bulwark against China. Yet these same Jones Act companies regularly send ships to the country to save on repair and maintenance costs.

Incredibly, the Jones Act actually helps keep Chinese repair yards humming. While ships plying the world’s oceans are typically scrapped at 15–20 years of age, Jones Act vessels—thanks to a U.S.-build requirement that dramatically raises the cost of buying new ships—are often kept in service until age 40 or beyond. An old fleet means more maintenance—and more business for Chinese shipyards.

Let’s review what’s going on here. By massively increasing vessel replacement costs through its U.S.-build mandate, the Jones Act promotes the use of older ships requiring more maintenance. Some of this maintenance is then hypocritically performed in Chinese state‐​owned shipyards, a portion of the cost savings from which is then spent on lobbying and advocacy work urging the Jones Act’s retention as a vital tool against China.

You can’t make this up.

Beyond the rankling hypocrisy, this use of Chinese shipyards further illustrates the gaping chasm between the Jones Act’s intended results and reality. The Jones Act has not fostered a vibrant domestic maritime industry or freed the United States from foreign reliance to meet its maritime needs. What it has produced is economic harm, a domestic fleet insufficient to meet U.S. national security needs, and shipyards so uncompetitive that vessels are dispatched to the far side of the Pacific Ocean for repair and maintenance.

This is a case study in the failure of protectionism, and one that should no longer be tolerated.

The Continuing Advance Of Automated and Autonomous Vessels

MONDAQ
By Lewis Brisbois –

In October 2019, San Francisco Marine & Energy Partner David Russo spoke at the BiLog Conference in La Spezia, Italy about the advent of autonomous and highly automated vessels. Beyond the numerous legal and technical issues raised by the advancement of this technology (discussed in this article), it was noted at the conference that this technology was accelerating. It was expected then that an extended Atlantic voyage would happen in 2020. That has now occurred.

In August 2020, the U.K. company Sea-Kit successfully operated its autonomous 12-meter vessel on a 22-day voyage mapping the ocean floor in the North Atlantic. The vessel was operated from the company’s shoreside office. This followed an earlier test crossing of the North Sea.

NYK Line has been on the forefront of this technology, having operated a 70,000-ton autonomous ship for a three-day voyage in September 2019. And earlier this year, it tested a manned but remote-operated tugboat in Tokyo Bay.

Perhaps the best sign of the significance of this developing technology was the U.S. Coast Guard’s recent action on this subject. In August 2020, the Coast Guard issued a public Request for Information to address the numerous issues raised by this technology. The Coast Guard solicited comment on matters including (1) the identification of current statutory or regulatory obstacles to the development and implementation of this technology, (2) recommendations for regulatory changes to advance the technology, (3) the benefits, costs, and risks of the technology, including impacts on the maritime workforce, safety, the environment, and cybersecurity, (4) necessary changes in training, and (5) infrastructure needs.

A variety of entities (e.g., IMO, BIMCO, American Bureau of Shipping) are already developing standards in this arena. How the Coast Guard will regulate this area remains to be seen in the years ahead. Interestingly, the Coast Guard was testing its own unmanned vessel for coastal waters surveillance in Hawaii at the time of this writing.

So, what are some of the legal implications of autonomous vessels? While we understand the concept of an unseaworthy ship with current technology, how will that change with smart ships and autonomous ships? Does every software glitch cause the vessel to be unseaworthy? What new standards will apply to define an unseaworthy ship? With the coming of the autonomous ship, we have to re-ask the questions, “What is the vessel owner’s duty of care? What will it mean to provide a reasonably safe ship when its operation is controlled by computer programs? Who will be considered the captain of the vessel? Will there be persons defined as seamen anymore, when those operating the ship are not exposed to the perils of the sea?” These are some of the questions that the courts and lawyers will have to address in the years ahead.

Video: Drone Survey of ONE Apus Container Collapse

Maritime Executive

The video and images can be viewed on Webster’s website.

The cargo claims consultancy WK Webster released the first images of its initial damage survey of the container ship ONE Apus. The company’s inspectors were in Kobe, Japan for the arrival of the vessel and they also conducted a remote drone survey as it transited Osaka Bay towards Kobe Port.

The images are being used by Webster and its clients to understand the scope of the incident while excerpts have been posted on the company’s website for the public to view. The images were taken by two drones using ultra-high definition camera technology as part of the company’s new drone survey product. The images very clearly show the scale and detail of the devastation on board and are being analyzed in conjunction with experts appointed by Webster.

The process of removing containers from the ONE Apus began on December 11 after permission was granted by the Japanese Coast Guard. The ship’s owners, Chidori Ship Holding, and managers, NYK Shipmanagement, which had operated the vessel as part of the ONE Express Network estimated that it would take “over a month” to remove the dislodged containers using a schedule formulated by stowage planners. “Once unloaded, each will be assessed, and when the discharge of cargo is complete, there will be a full assessment of damage to the vessel and subsequent repairs,” they said in a prepared statement.

Webster’s team of surveyors in Japan, however, reports that the process started slowly. Only five containers were removed from the vessel last week and work did not proceed over the weekend. Webster also termed the owner’s assessment of the timeline for the process as “optimistic.”

From its team’s initial visual assessment and the analysis of the video and still images, Webster reports that it can be seen that there are 22 bays on deck of which 16 have collapsed to both port and starboard, leaving only six intact or partially intact. “With 20 rows of containers per bay and with stack heights of between six and eight containers, we anticipate that approximately 2,250 containers have been lost or damaged,” they reported. They also noted that the vast majority appear to be 40 foot units and therefore equivalent to approximately 4,500 TEU.

“The vessel owners/operators are not currently prepared to release the vessel’s stowage/bay plans,” they said in their update making it more challenging for customers to determine the status of their shipments. Webster said it was seeking further information regarding the fate of individual containers on a case-by-case basis, but noted that “It is likely that some of the upper stowed containers were either empty or holding lighter weight goods.”

While the images clearly show the extent of the toppled stacks, thousands of containers remain on deck and will have to be examined individually to determine the full extent of any internal damage. The vessel had a capacity of 14,000 TEUs with the managers saying that a total of 1,816 containers were lost over the side when the vessel encountered heavy weather on November 30 in the Pacific at a position about 1,600 nautical miles northwest of Hawaii.

Webster and its experts are continuing to analyze the evidence with the company preliminarily saying the total loss could exceed $200 million, and it could be greater than the value of the vessel which was built in 2019.

Among the issues Webster will be considering in determining the cause of the incident are the weather conditions encountered and what was done by the vessel to mitigate the impact of the weather. They will also be looking at the lashing and securing equipment used and its adequacy, the stowage condition of the vessel on departure from Yantian, China, and the voyage planning, as well as other issues.

The owners and managers of the ONE Apus have also said that a thorough investigation is being conducted into the incident and, of course, Japan as the vessel’s flag state, and other maritime authorities are also investigating. Due to the size and complexity of the loss, it will likely take some time before a report will be available and what steps will be taken to reduce future risks.