Category: Jones Act

Ship Technology
by Adele Berti

As Joe Biden and Kamala Harris prepare to take over the White House after their success over Donald Trump in the US election, maritime stakeholders are waiting to find out what the ‘blue wave’ they promised during their campaign will mean for them.

Having suffered from limited activity due to the coronavirus pandemic – while remaining excluded from Trump’s transport bailout packages – the sector is hoping that the new administration will come to its rescue after months of struggle.

From regulation to shipbuilding and port development, Cozen O’Connor attorney Jeff Vogel believes that many areas are in dire need of intervention. Based in Washington, the Cozen O’Connor Maritime practice group has experience in maritime matters including tariffs, sanctions and embargo laws.

As the transition period between the two administrations kicks off, Vogel outlines the key segments of the US maritime industry that Biden should focus on during his mandate.

US-flag operators in the wake of Covid-19

In April President Trump chose to exclude the maritime industry from one of his coronavirus relief packages, leaving stakeholders empty handed and struggling for financial support. This was in contrast to the aviation industry which received significant funding.

According to Vogel, members of the sector will be expecting (and demanding) a change in this direction from the new administration, especially as the US prepares for a potential second wave of the pandemic and with seabourne traffic remaining below pre-Covid-19 levels. “The industry needs some further support and some form of relief to offset the economic impact that we’ve seen in 2020 as a result of the economic downturn and Covid-19,” he says. “The sector has been going along with reduced cargo demand and increased operational costs from the need to provide personal protective equipment to their crew members and just deal with a new operating environment.”

Work is already underway in the US Congress to secure additional funding for the sector under the lead of Peter DeFazio, who chairs the House Committee on Transportation and Infrastructure. Earlier in July he proposed implementing a Maritime Transportation System Emergency Relief Act, which will be discussed during a National Defence Authorization Act session scheduled to take place soon after the election.

Over the next four years, US-flagged preference cargo will also need renewed support, having seen a steady fall-off since the pandemic. Under the Cargo Preference Act of 1954, about 50% of Civilian Agencies cargo and Agricultural Cargo needs to be carried on US-flagged vessels, though Vogel suggests that changing the requirement to 100% could help revitalise the sector.

Increasing funding for the shipbuilding industry and sealift operations

The US shipbuilding sector has long been feeling the strain of the pandemic and enhanced competition from Asia, due to which Vogel says it will need “organic funding from the new government”.

In particular, the Trump administration has previously authorised funding for the National Security Multi Mission Vessels, a fleet of ships used for training purposes by state maritime academies and in cases of humanitarian disaster aid. “The industry needs further support in making much more significant investments into its infrastructure base, and also to training bases so that more grants are available for training,” he comments. “The US certainly needs to make more investment trying to build up that industry from the first pencil-touching-paper and design stages, all the way through the skilled labour that’s necessary to complete a shipbuilding project.”

Similar efforts will be required to bring the US’s current sealift fleet up to speed with new, younger vessels and more financial support. Owned by the Maritime Administration and the Military Sealift Command, these vessels are activated during disaster relief operations. “That fleet is made up of 46 vessels that at this point have gone well beyond their useful life,” he comments. “The average vessel age is over 50 years old and some are over 60 years old.”

These vessels are critical to national security and therefore will need modernisation and investment from the Biden administration. “But these efforts should have been started 20 years ago and the maritime labour is looking at this as a critical area,” he adds.

Continuing port development in key areas

Over the past four years the Trump administration has made significant contributions to local ports, recently agreeing to a series of port facilities and freight infrastructure grants to roll out in February and October 2020.

However, much like shipbuilding, the port sector is starting to face competition from US neighbouring states such as Canada and Mexico. “In recent years we’ve seen significant investment [for example] in Vancouver, which faced significant expansion and moved towards automation,” he mentions. “The same took place at a number of Mexican ports and the net result is that US ports are facing stiff competition with cargoes that are ultimately destined for the middle of the United States.”

This calls for increased infrastructure funding, training, research and development that will need to encompass both ports themselves and their supply chains. “There needs to be additional investment, not only in the ports but in the roads that connect to the ports and go all the way through the middle of America,” he continues. “All the infrastructure pieces that are necessary to get cargo flowing through our ports and to their ultimate destination.”

Clarifying the future of the Federal Maritime Commission

“What needs to be answered is the role of the Federal Maritime Commission in the future,” comments Vogel. Established in 1961 as an independent federal agency overlooking regulation of the US’s oceanbourne international transportation, the FMC could be subject to change under Biden’s presidency.

Having played an active role during the Trump administration, it could move from having three Republicans and two Democrats to the other way round. “The industry needs some clarity on what the role of the FMC,” he concludes. “Even though it is an independent agency and therefore isn’t subject to the same sort of changes that you see at other agencies, the change in administration [will probably lead to a change in the makeup of the Commission too.”

MarineLink
by Dennis L. Bryant – Bryant’s Maritime Consulting

The United States domestic maritime sector recently celebrated the 100th anniversary of the passage by Congress of the Jones Act. It is considered the most significant of various US cabotage laws. Few mariners though appreciate the long history of cabotage laws in this country.

Cabotage laws here are older than our nation. The British Navigation Acts and its predecessors were designed to develop, promote, and regulate British ships, shipping, trade, and commerce between other countries and with its colonies, including the restriction of foreign participation in its colonial trade. Later the goal of generating revenues from the colonies was added as a purpose of the Navigation Acts. This was done by prohibiting the colonies from exporting certain products to foreign nations and requiring the purchase of other products from Britain or British colonies. For example, molasses and later sugar could only be legally imported into the North American colonies from the British West Indies, even though these products could be purchased at a much lower price in the French West Indies. Such actions created dissention in the North American colonies, as well as increased smuggling, and were factors that led to the American Revolution.

Despite independence, the Navigation Acts found a permanent home in the new United States. The second law adopted by the First Congress imposed duties on numerous goods, wares, and merchandise imported into the new nation. The duty was lower if the imports were carried on vessels built in the United States and belonging to citizens thereof. The third law adopted imposed tonnage duties on ships in US waters, but again the duties were lower for vessels built in the United States and belonging to citizens thereof. The same Congress later adopted laws for registering vessels of the United States and for regulating the coastwise trade and for the government and regulation of seamen serving on vessels of the United States. Registered vessels were required to be wholly owned by citizens of the United States and the master was required to be a US citizen. The registry for vessels sold foreign was required to be surrendered. Another law imposed a significantly higher duty on foreign vessels trading between Customs districts than that imposed on vessels of the United States.

The Second Congress required ships of the United States to be commanded by US citizens. Foreign vessels captured in war and lawfully condemned as prize or adjudged to be forfeited for breach of laws of the United States and acquired wholly be US citizens were entitled to be registered as vessels of the United States. Another act provided for the enrollment of vessels of the United States and their entitlement to engage in the coasting trade or fisheries. Like registered vessels, enrolled vessels were required to be wholly owned by citizens of the United States and the master was required to be a US citizen. An enrolled vessel could not proceed on a foreign voyage until it had surrendered its enrollment and replaced it with a certificate of registry. Registered vessels could engage in the coasting trade, but if they carried goods, wares, or merchandise of foreign growth or manufacture, they were charged a higher duty.

In 1804, subsequent to the ratification of the Louisiana Purchase, foreign vessels coming up the Mississippi River were required to unlade in New Orleans. This effectively stopped all foreign vessels from operation on the Western Rivers upstream. In 1812, as an exception to prior law, steamboats owned wholly or in part by aliens resident in the United States were allowed to be enrolled and licensed, so long as they operated only in US bays and rivers and a bond of $1,000 was paid by the owner or owners. When the War of 1812 broke out, the duty on imported goods and merchandise was raised to 100%, with an addition 10% duty on goods and merchandise imported on foreign vessels. Also, the duty on foreign vessels calling in US ports was raised.

In 1813 a law was adopted, to enter into effect when war with the United Kingdom ended, making it unlawful to employ on any vessel of the United States persons other than citizens of the United States or persons of color or natives resident in the United States, except that masters in foreign ports were authorized to hire foreign seamen if there was a deficiency of US seamen in that port. This law, amended many times, remains in effect to date.

Commencing in 1817, the officers and at least three-fourths of the crews of vessels engaged in the fisheries were required to be citizens of the United States. The law also imposed a duty of fifty cents per ton for vessels of the United States, except for licensed vessels, engaged in transporting goods, wares, or merchandise from one state to a non-adjacent state. In 1819, the coasting trade law was amended to establish two ‘great districts’ – one on the east coast (and waters pertaining thereto) and the other on the south coast (and waters pertaining thereto). Vessels licensed for the coasting trade were allowed to so trade within their particular ‘great district’. Vessels could be separately licensed to trade between the ‘great districts’.

In 1825, enrollments and licenses for steamboats owned by incorporated companies was allowed for the first time. The enrollment or license was to be issued in the name of the president or secretary of the incorporated company. The president or secretary was required to swear or affirm that no part of the steamboat had been or was then owned by any foreigners.

In 1830, tonnage duties were abolished as regards vessels of the United States and vessels of foreign nations that likewise exempted US vessels. This remains the current US practice.

In 1848, yachts used exclusively for pleasure purposes were authorized to be enrolled as American vessels and could operate between ports of the United States without making entry.

In 1886, foreign vessels transporting passengers from one US port to another became subject to a fine of $2 per passenger so landed. In 1898, this act was amended to increase the fine to $200 per passenger. The 1898 statute also explicitly prohibited foreign vessels from transporting merchandise laden in one US port to another US port either directly or via a foreign port under penalty of forfeiture.

The Shipping Act of 1916 provided that no corporation, partnership, or association could be deemed a citizen of the United States unless the controlling interest therein is owned by citizens of the United States and, with respect to corporations, the president and managing directors are citizens of the United States and the corporation is organized under the laws of the United States or a state thereof. In 1918, this law was amended to provide that the controlling interest of a corporation shall not be deemed to be owned by citizens of the United States: (a) if the title to a majority of the stock thereof is not vested in ‘such citizens free from any trust or fiduciary obligation in favor of any person not a citizen of the United States ; or (b) if the majority of the voting power in such corporation is not vested in citizens of the United States; or (c) if through any contract or understanding it is so arranged that the majority of the voting power may be exercised, directly or indirectly, in behalf of any person who is not a citizen of the United States ; or (d) if by any other means whatsoever control of the corporation is conferred upon or permitted to be exercised by any person who is not a citizen of the United States.

was adopted consolidating and updating many of the statutes mentioned above. The Jones Act has been revised numerous times, expanding the cabotage laws to apply to such activities as dredging, salvage, and towing. In 2006, the Act to complete the codification of Title 46, United States Code repealed the uncodified portions of Title 46, including the Jones Act and the other cabotage laws and consolidated them into the United States Code. Judges, maritime lawyers, and members of the maritime community continue to refer to the cabotage laws as the ‘Jones Act’.

In summary, cabotage laws have been part of the fabric of the United States from the beginning. Ironically, the British Navigation Acts, the progenitors of our cabotage laws, were repealed in 1849 under the influence of a free trade philosophy.

By Colin Grabow, Inu Manak, and Daniel J. Ikenson

How an archaic, burdensome law has been able to withstand scrutiny and persist for almost a century.

For nearly 100 years, a federal law known as the Jones Act has restricted water transportation of cargo between U.S. ports to ships that are U.S.-owned, U.S.-crewed, U.S.-registered, and U.S.-built. Justified on national security grounds as a means to bolster the U.S. maritime industry, the unsurprising result of this law has been to impose significant costs on the U.S. economy while providing few of the promised benefits.

This paper provides an overview of the Jones Act by examining its history and the various burdens it imposes on consumers and businesses alike. While the law’s most direct consequence is to raise transportation costs, which are passed down through supply chains and ultimately reflected in higher retail prices, it generates enormous collateral damage through excessive wear and tear on the country’s infrastructure, time wasted in traffic congestion, and the accumulated health and environmental toll caused by unnecessary carbon emissions and hazardous material spills from trucks and trains. Meanwhile, closer scrutiny finds the law’s national security justification to be unmoored from modern military and technological realities.

This paper examines how such an archaic, burdensome law has been able to withstand scrutiny and persist for almost a century. It turns out that, as in so many other cases of rent seeking, there is an asymmetry of motivations among those who benefit from the Jones Act’s protections and the vastly greater number who bear its costs. The protected domestic shipbuilding industry has a captive market from which it benefits handsomely and seeks to preserve by promoting fallacious arguments about the law’s necessity to national security, while the vast costs are dispersed across the economy in the form of higher prices, inefficiencies, and forgone opportunities that few people can even tie to the cause. That so many federal agencies and congressional committees have at least partial jurisdiction over different facets of the Jones Act also helps to explain its longevity. Lastly, this paper presents a series of options for reforming this archaic law and reducing its costly burdens.

Introduction
The Merchant Marine Act of 1920 has been a fixture of U.S. law and an imposition on the U.S. economy for almost 100 years. Better known as the “Jones Act,” the law was presented as a plan to ensure adequate domestic shipbuilding capacity and a ready supply of merchant mariners to be available in times of war or other national emergencies.1 The law aims to achieve those objectives by restricting domestic shipping services to vessels that are U.S.-built, U.S.-owned, U.S.-flagged, and U.S.-staffed. A century of evidence supports the conclusion that the Jones Act has failed in its main objectives while imposing substantial economic costs.

As a result of these restrictions, the U.S. economy endures artificially inflated shipping costs because the transport of cargo between U.S. ports and within the country’s vast inland waterways is off‐​limits to foreign competition and domestic shipping firms must pay vastly higher prices for the ships they use. Although higher shipping rates are the most obvious cost of the Jones Act, they are merely the first in a cascade of adverse consequences unleashed by the law’s restrictions.

Higher prices for waterborne transportation drive down demand for shipping services. When businesses move less cargo by water, shipping companies purchase fewer vessels. Reduced demand means that producers build fewer ships and, accordingly, there are fewer employment opportunities for merchant mariners. Meanwhile, artificially inflated waterborne shipping rates increase demand for alternative forms of transportation, including trucking, rail, and pipeline services, raising those modes’ rates and inflating business costs throughout the supply chain. Transportation expenses — incurred to move raw materials and intermediate goods to the next stage in the production process and final product to retailers and end users — comprise a significant portion of the cost of goods sold. Elevated transportation costs affect nearly every business in nearly every industry, rippling through supply chains, squeezing profits, curtailing business investment, disadvantaging U.S. companies relative to their foreign competitors, and depriving U.S. households of savings to spend elsewhere in the economy or to invest.

Meanwhile, heightened reliance on trucks and freight trains not only increases infrastructure and maintenance costs from wear and tear on roads, bridges, and rail, but also generates greater environmental costs. Surface transportation produces more carbon emissions than ships do, and its more intensive use increases the likelihood of highway accidents and train derailments involving hazardous materials. Relatedly, time wasted in growing traffic congestion — especially on highways running parallel to U.S. sea lanes — generates enormous opportunity costs from lost wages and lost output. Significant opportunity costs also can be observed in the loss of revenues experienced when, for example, a hog farmer in North Carolina purchases corn feed from Canada instead of from a farmer in Iowa because exorbitant delivery costs make the latter’s price uncompetitive. But even though some foreign suppliers benefit by happenstance in this manner, the Jones Act has been a persistent irritant to some of our most important trade partners, serving to prevent better access for U.S. exporters in their markets.

Despite these considerable costs and the absence of any measurable benefits, the Jones Act has persisted for nearly 100 years. Why? The answer is complex, but it boils down to the same causes that explain the persistence of rent‐​seeking behavior more generally. The small number of beneficiaries, which primarily include domestic shipyards and some labor unions, are more powerfully motivated to preserve the status quo than are the far more numerous adversely affected interests in seeking its repeal.