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Part I addressed the history and purpose of the Jones Act in this series.
By Daniel Brackins
Proponent Argument
In addition to national defense, proponents argue that the Jones Act provides additional benefits to the United States. Among these include job protection due to unfair competition by from other nations.
Job Protection
Phillip Grill (1996) says that job protected by the Jones Act is 124,000 (as cited in The Hidden Costs, 1996). Grill further says that these jobs must be protected in order to prevent the loss of jobs to foreign competitors, who charge less than fair wages for similar work done by U.S. workers. This is a claim to unfair competition. Indeed the wages of a merchant marine are incredibly high compared to their counterparts. A U.S. longshoreman or marine clerk can earn upwards of $100,000 to $137,000 per year (Longshoremen, 2002). Indeed this is a much greater salary found in such places as China. This increased cost of wages will be further analyzed.
National Defense
In the wars of this century, commercial shipping has been critically important. The relevant question is not whether future threats might require that fleets of commercial-type ships be available. The question is whether present programs provide such a capability effectively and efficiently. If the U.S. flagged fleet is fully employed during peacetime serving commercially important domestic and international trades, it is neither an entirely reliable nor a low-cost military reserve. This was verified during the Gulf War (Ferguson, n.d.).
Some security justification for transporting war material in peacetime exclusively on U.S. flagged ships is valid. The fact that a large fraction of military preference cargo consists of household goods and private automobiles dilutes any such basis for incurring the high costs of cargo preferences. Further, cargo preference does not buy much reserve military capability; the cargo preference largely supports bulk carriers and container ships that are of limited military use (Ferguson, n.d.).
The higher than competitive prices that are permitted under the antitrust exemption for conference ratemaking may be important, given present regulatory constraints, in sustaining the U.S. flag fleet. However, more than 80 percent of traffic in American international liner commerce is carried by foreign companies. Therefore, whatever military gain is achieved through conference price fixing accrues predominantly to foreign governments (Ferguson, n.d.).
The defense-related rationale for present policies presupposes that, despite the enormous capacity available on the open market, only U.S.-flag service could be relied on in an emergency. In contrast, the Military SealiftCommand made extensive use of foreign ships and crews in the Gulf War, and representatives of the Department of Defense have recently declared that there is no need to rely on the U.S.-flag commercial fleet in any foreseeable wars (Ferguson, n.d.).
Analysis
Operating Cost Differentials
Vessel costs are primarily comprised of capital and operating costs. Capital costs refer to vessel construction costs. Operating costs include wages paid to crews, direct fuel charges, insurance, maintenance and repair, and other administrative expenses. Of these, labor and maintenance costs are typically higher in absolute terms for U.S. vessels than for foreign-flagged vessels (table 1). U.S. crew costs generally account for most of the differences in operating costs between U.S. and foreign flagged vessels. For example, manning costs account for 77 percent of the operating cost differential for a typical oil tanker and 81 percent of the cost differential for a typical containership (The Economic Effects, 2007).
Table 1.
|
Expense Category
|
U.S. Flagged
|
Foreign Flagged
|
|
Crew
|
12,705
|
2,940
|
|
Fuel
|
4,410
|
3,045
|
|
Maint. & Repair
|
2,310
|
1,470
|
|
Insurance
|
13,335
|
13,335
|
|
Other
|
1,500
|
1,400
|
|
TOTAL
|
$34,260
|
$22,190
|
Source: The Economic Effects, 2007
The above table indicates a large crew expense for U.S. flagged ships. In addition to the higher salaries demanded, American ships must hire more crew members than foreign ships, often 23 or more, compared with as few as 11 on other vessels (Little, 2001). Even ship owners willing to pay American salaries say they were forced from the fleet because of all the other expenses that the U.S. flag requires. “Foreign crews eat less, they travel economy class, they seem to use less [provisions], there’s less overtime, no workers complaints,” said Vass, who re-flagged the LNG Aquarius. “I can’t think of anything that didn’t cost more. Like the beef. They would only eat prime American beef – not choice, like your wife feeds you, but prime, U.S. beef. We had to fly it out to Japan.”I’m not saying the Americans aren’t good. They are. But the foreign crew doesn’t mind eating Australian beef” (Little, 2001). In the past 25 years 1,600 vessels have left the U.S. fleet (Little, 2001).
In Hawaii many cattle ranchers have decided to use airplanes to ship their cattle. They find it cheaper and more efficient than shipping them on U.S. flagged ships. These cattle fly on 747s in livestock containers at 30 cents a pound (Little, 2001). They have no other choice since foreign flagged vessels are not allowed to ship cargo from one U.S. port to another.
If foreign vessels were allowed to participate in U.S. cabotage, some industry analysts maintain that, in addition to complying with environmental laws, foreign vessels operating in U.S. domestic waters would be required to comply with other U.S. regulations, including federal and state tax, immigration, and labor laws. According to industry representatives, foreign vessel compliance with these laws likely would increase the costs of such vessels operating in Jones Act trade, thereby substantially decreasing the cost differential between U.S. and foreign flagged carriers. However, only some of these laws would apply to foreign vessels if they were allowed to participate in Jones Act trade (The Economic Effects, 2007).
Job Protectionism and Unemployment
As has been noted the U.S. shipping industry attempts to increases the wages of its employers with the use of the Jones Act. This is primarily accomplished through unions.
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