The following article is adapted and abridged from a term paper I submitted for a Port Logistics and Management Course back in 2015.  If anyone is interested in seeing the full article or a complete list of references, just ask. For obvious structural reasons, rather than stick with my original footnote format, I will be linking directly to the references where appropriate (but not linking to the same article multiple times).

 

Legislative Hurdles To National Security In The Civil Maritime Domain

Ie.  A *Starting Point* for Maritime Deregulation

Part 1.

In 1890, RADM Alfred Thayer Mahan wrote, “The necessity of a navy, in the restricted sense of the word, springs from peaceful shipping, and disappears with it, except in the case of a nation which has aggressive tendencies, and keeps up a navy merely as a branch of the military establishment.”  This belief was shared by many legislators in the early twentieth century as the United States expanded its sphere of influence in the world and took a greater role in world affairs.  During that period, such pieces of legislation as are discussed below, played an important part in the development of our national maritime heritage – and set the stage for greater involvement on the world stage in the following years.  However, at this point in the 21st century, many of these regulations have outlived their original, stated (if not intended) purpose and serve now as barriers to greater economic expansion and security, while benefiting only a few vocal supporters at the expense of the greater population.

The goal of this paper is to examine the potential costs and benefits of repealing the Jones Act and similar associated regulations.  Not in a strictly economic sense looking at the potential trade [im]balances, but more focused on the security aspects originally envisioned by the act and how relevant they remain nearly a century later and how they could potentially be improved for a net gain for the operators, government, and taxpayers.  A strictly economic consideration of the impact of rescinding the Jones Act previously published estimates a minimum net gain of approximately $700 million annually.  [NOTE:  This is an excellent, well-researched paper on the whole – although if anything it’s a little conservative on the economic benefits re: Alaska and Hawaii.  It also makes some good points re: previous deregulation of the trucking and rail industries and economic growth that followed as examples.  Recommended reading!]

Although the Jones Act is the most well-known regulation limiting players in domestic water-borne trade, it is just one of a number of over-reaching regulations, which operate in concert to limit economic opportunities and growth – while similarly acting as potential barriers to improving national security options.  Upon closer consideration, legislation affecting the Jones Act alone will not in and of itself resolve some of the most pressing long-term national security considerations.

To begin with, it is necessary to define the specific characteristics of the Jones Act and the associated pieces of legislation to be discussed below.

  • Merchant Marine Memorial

    The Merchant Marine Act of 1920 (46 USC), also known as the Jones Act.  This piece of legislation is centered on domestic commercial shipping utilizing the common term of cabotage.  Specifically, the Jones Act placed formal restrictions on the nature of all vessels engaged in trade on US waterways and between domestic ports.  This trade can only be conducted by vessels constructed, owned, and flagged in the United States registry and all crew must be US citizens.  The definition of domestic ports includes not only facilities in Hawaii and Alaska, but also the territories of Guam and Puerto Rico – although additional territories such as the Virgin Islands and Greater Marianas islands have been granted waivers.  Additionally, the Jones Act grants specific rights and privileges to seamen employed by US carriers.

  • The Merchant Marine Act of 1936 (46 USC 27) – contrary to popular belief regarding the Jones Act – in part due to its official title, this piece of legislation formally created a National Merchant Marine service for the United States – a formal federal service auxiliary that could be called upon to support national defense for transportation/logistics purposes in time of war or critical need – while the vessels themselves were owned and operated by private interests.
  • The Tariff Act of 1930 (19 CFR 1466) – a subordinate portion of the overarching Smoot-Hawley Tariff Act of 1930 specifically addresses limitations regarding the repair and refurbishment of Jones Act-qualified vessels. Excepting emergencies, only minor repairs are permitted in non-US shipyard facilities and operators violating this provision are required to pay a 50% tax on all work-related expenses.
  • The Maritime Security Program (MSP) of 1996 (46 CFR 296) – A program administered by the United States Maritime Administration (MARAD) providing funding to US flagged vessels in exchange for ensuring their availability for necessary military requirements in time of war or emergency.
  • The Military Cargo Preference Act of 1904 (10 USC 2631) requires all military materiel owned or procured by the military services of the United States to be transported by US flagged vessels where possible.

In the cases of most pieces of legislation, including the sample posted above, it is possible to amend portions of the regulations without discarding the full law, but in many of these cases, we have reached a position in which it is significantly more beneficial to scrap the entirety of the regulation.

2. Specific Limitations Associated with Crewing Practices on US-Flagged Vessels

  • A study by Price Waterhouse Coopers (PwC) on behalf of MARAD conducted a survey of US-flagged operators and non-US-flagged operators in order to determine the primary disparities in operating costs.  The primary determination was that the largest delta in expenses came from crewing costs.  Under the Jones Act, all vessels involved in cabotage and coast-wise trade must employ all US citizens.  That in and of itself is not particularly surprising given that the vast majority of the cabotage trade takes place on the inland waters of the United States, including the Great Lakes.  Somewhat more eye-opening is that, under the current regulations, every ship registered and flagged by the United States must demonstrate a 100% Citizen Crew Requirement, even those involved solely in international trade.

Unsurprisingly, this policy is considered by a majority of commercial carriers to be a significant barrier to flagging a ship under the United States registry.  Not only is the pool of available employees significantly smaller – or shallower in this case – but the costs are vastly higher.  Between cost of living expenses, standard wages, insurance rates – inflated by Jones Act protections and benefits, and union fees, the average crewing cost of a US flagged vessel is well over five times as much as a comparable non-US-flagged vessel.

There is one major counter to this policy, and it does provide an interesting contrast to the current civil regulations.  Both the US Navy and US Coast Guard allow (and have allowed since their inception) non-citizens to serve in enlisted roles throughout their surface forces.  This practice has multiple benefits not limited to providing an accelerated path to citizenship for qualified legal permanent residents (aka the kind of legal immigration we should continue to encourage), in addition to providing a steady source of ready, willing and able seamen to fill critical billets on all surface vessels.

Although this has been a longstanding practice in the sea services (and likewise all the other military services), there has never been an outcry against volunteer non-citizen permanent resident service members taking away jobs and pay from citizens.  Traditionally permanent residents have strong ties to their communities locally wherever they are stationed – and the salary they receive would traditionally not leave the country aside from the case of remittances sent overseas in support of family.  Accordingly, it is difficult to envision any real loss of capital were all other Merchant Marine jobs opened to qualified, eligible, non-citizens and the Citizen Crew requirement for US flagged vessels rescinded.

2. Continued Specific Limitations Associated with Crewing Practices on US-Flagged Vessels

  • An additional consideration in terms of lowering overall crew expenses is to re-examine the insurance requirements and labor union policies enforced by the Jones Act and similar pieces of legislation.  As in many other industries over the past few years, the evolving nature of operations has reduced the need for the union coverage and assistance.  Since the advent of the law – and increasingly rapidly in part due to containerization (beginning in the early ’50s) and more recent safety features introduced, the environment aboard vessels at sea has grown considerably safer and less hazardous on the whole – while specific vessel-types and operations obviously remain inherently risky by the nature of their locations and missions.  On a ship as anywhere else in our progressively more wired world, the optics of hazardous operations or personnel accidents are nearly instantaneously visible to newsrooms and shareholders alike – increasing the incentive to prioritize crew safety over equipment and profits.  Under the Jones Act however, a crewman retains the right to sue the carrier employing them – a practice which has raised insurance rates for US-flagged carriers far above the international average.

Northeast Marine Pilot boat docked in Newport, RI

One response to this may be found in a report made by the Cedar River Group on behalf of the Washington State Legislature.  This report was commissioned to examine the cost differentials to the state between state employees covered by the Jones Act working on Washington State Ferries and those other state employees covered by state Industrial Insurance.  The case of Washington state is unique compared to the other states operating state ferry systems (including Texas, North Carolina, Oregon, Alaska, and New York) because Washington alone has chosen not to invoke sovereign immunity and can therefore be sued by Jones Act eligible employees.  In a detailed summary, the numbers presented demonstrate that covering Jones Act eligible seamen by state Industrial Insurance would save the state money over the court costs and lawsuits brought under the Jones Act, but would also benefit the employees by providing insurance benefits in a far timelier manner than following the long wait associated with a lawsuit.  While the total dollar amount a seaman will receive may be less, the utility of receiving regular payments in a timely manner is far higher.

While this solution would not currently be relevant to a private firm engaged in similar operations, the numbers do provide a valuable, practical, realistic sampling to use for comparison.  This is the sort of precedent that could be used to demonstrate adequate coverage and model updated insurance costs should the Jones Act be revised to better meet current national requirements.  It must be noted however, that all the forecast estimates were based on pre-existing cases and developed prior to full passage and implementation of the Affordable Care Act – a key variable which will require additional review.