Author: LCDR_Fish

Legislative Hurdles To National Security In The Civil Maritime Domain

Ie.  A *Starting Point* for Maritime Deregulation

Part 3.

5. Inefficient Cargo Preference Requirements

Turning again to the regulations in question and their relevance in twenty first century operations, it is important to examine the specific national security concerns they addressed at the time of their introduction.

• While the Military Cargo Preference Act of 1904 (10 USC 2631) specifies that all cargoes purchased by the armed forces must be carried on a US flagged vessel – excepting where unavailable due to resources and/or costs are unreasonable – it does not require a great deal of effort to justify the use of a foreign-flagged vessel in the case of an emergency.  In a situation not dissimilar to the previous contradiction noted with the crewing differences between military and civilian operators, 31 of the 46 Ready Reserve Force ships maintained by the military for emergency transport of materiel in case of war, were constructed outside the United States and are therefore ineligible for any use domestically were they to be sold to a US-flagged operator in the future.

In an amendment to the Merchant Marine Act of 1936, passed in 1954, at least 50% of all general US government cargo must also be carried by US-flagged vessels.  The type of cargo specified in this legislation has generally focused on high volume products like food aid to be delivered overseas – and this amendment was further modified to 75% specifically in relation to food aid deliveries in 1985.  While it is not hard to fault the original intent of the legislation at the time it was developed, it appears to have very little utility in everyday operation – and in fact is more harmful than beneficial.  In the case of a real emergency or wartime situation, the military already has large amounts of munitions and materiel pre-staged.  During routine operations, there are far fewer routine shipments needed for military support than earlier in the 20th century – which makes sense given the smaller numbers of vessels involved as well.  Naval resupply for instance is predominantly conducted underway between Naval vessels and Maritime Sealift Command (MSC) auxiliaries – commercial vessels never enter the equation.  An exception to this from recent years has been the drawdown of military materiel following the formal end of hostilities in Iraq and to a lesser extent, Afghanistan.

In general, Cargo Preference to date is limited to emergency food aid and similar emergency aid programs.  The utility of this program has deteriorated greatly due to the increasing variability of international harvesting results.  Even Federal Aid Agencies are becoming less likely to utilize these programs – even when still required to by law – it can be far more efficient both in time and money to purchase the necessary aid or in the vicinity of the emergency and have it transported locally – rather than paying to have it acquired and shipped internationally on a ship that may not immediately be available when needed.

• These acts and the issues they embody are further reflected by MARAD’s Maritime Security Program.  Out of 110 US-flagged vessels participating in international commerce, a full 60 are enrolled in the Maritime Security Program.  By participating in this program, the operators acknowledge that the ships will be made available to the US government at the earliest possible convenience in the event of an emergency or wartime situation.  In exchange for this availability, these operators receive a cash allotment of about $3.1 million per vessel per year or about $8500 per day.  While initially appearing to be a significant amount, as the PwC MARAD report demonstrates, that amount only covers about 2/3 of the daily differential in operating costs between US and foreign-flagged vessels. [But it’s still your taxpayer dollars being shelled out]

6. Security Issues Specific to the Jones Act

• Returning to the Jones Act as a commercial speed bump, it is possible to force exceptions through, but the process is cumbersome and time intensive and requires action at the congressional level.  This includes a considerable number of cases where vessels have been repaired or refurbished overseas but have been certified by the Coast Guard that their refurbishments did not exceed reasonable limits as established by the Second Proviso of the Jones Act – currently listed in 46 CFR 67.177.  This issue is complicated enough on the surface – attempting to calculate the mass differentials from multiple pieces of equipment out of a very large vessel – but it often becomes far more politicized as commercial competitors will attempt to challenge each other on the legality of any foreign repairs.  Leaving aside that the repairs have already activated the Ad Valorem duty by default, if a corporation can prove that more than, say 7.5% of a competitor’s vessel’s steelweight has been repaired or worked on, that would potentially void the Jones Act eligibility that vessel for future operations.  Bearing in mind that the National Vessel Documentation Center is the only fully civilian staffed command under the Coast Guard – and possesses neither the resources nor qualified manpower to inspect the ships during refits to verify the claims made by the companies – which by and large have proven accurate under penalty of law.  This is also a sort of situation open to abuse in that in a number of cases, decisions by the Coast Guard have been retroactively reversed or thrown out by courts based on these corporate complaints, although the Coast Guard assessments have been conducted in good faith in accordance with their established legal precedents.  It is difficult in many cases to determine whether any US jobs are currently being lost by work conducted overseas due to the timing involved and the limited number of active shipyards – estimates and guesses are freely distributed by both sides of the argument, but there are no solid numbers available.
• The legislative limitations of the Jones Act are also such that those situations in which the casual observer would expect common sense to address swiftly, become political footballs.  US Coast Guard icebreakers for instance are an extremely valuable asset, but as there are only three currently active (between six and ten would be required to adequately meet all current operational goals), a waiver was required from the Department of Homeland Security (DHS) in order to resupply Nome, Alaska, after a Russian ice-class tanker was forced to take on fuel from Dutch Harbor to deliver to Nome as weather prevented the intended pickup in a Japanese port.  This situation among others, verges on the legal absurdity of applying a near-century old law in a blanket format with no available consideration for logic.

In another situation, an oil drilling company which had previously been granted a Jones Act Waiver by DHS (under National Security auspices) to transport an oil rig from Texas to Alaska using a foreign built, foreign owned vessel was told that the waiver had been revoked and would require a new application.  Although the company halted the transit in Vancouver and used a US towing company to take the rig the remainder of the way, they were still fined $15 million – the equivalent value of the rig itself – for breaking the coastwise trades portion of the Jones Act.  This was in spite of a lack of available Jones Act eligible vessels needed for a timely transit and the fact that DHS refused to review their appeal in regardless of Congressional support, although – for example – 56 Jones Act Waivers were granted in the period of July-August 2011 (utilizing the identical national security rationales to allow private companies to transport oil from the Strategic Petroleum Reserve).  As the largest fine of its type to date, it’s also something of a precedent in that the company was charged the full value of the vessel being transported even though as an actual vessel it was argued that it should not be treated like ordinary cargo or merchandise being transported from one port to another port.  [Because FYTW]

This scenario does bring up a related question that has yet to be addressed, but which also further exposes the limitations of the Jones Act.  Recently, vast reserves of natural gas have been located offshore of Alaska.  These reserves are easily exploitable, and would benefit the state and country immensely – but for one issue.  Even if there are new Liquid Natural Gas terminals constructed on the west coast, it will be impossible for any LNG tanker to qualify for the Jones Act – in part due to the limitations discussed previously, the US simply does not possess the shipbuilding capability to construct one.  Given the legal precedents already established, it is unlikely that any corporation or vessel would receive a blanket waiver for the life of one or more foreign-built vessels to engage in Alaska to West Coast deliveries.  That basically means that under current legal rulings, Alaska will be required to transport and export all their natural gas internationally, with no net gain to national energy security.

7. Potential Corrective Legislative Actions

So, returning to legislative actions that would provide a net gain to national security utilizing Mahan’s rationale, each previously discussed act will be reviewed.

• The Military Cargo Preference Act of 1904 and all the follow-on associated legislation should be scrapped in full.  The US military already maintains its own Ready Reserve Force in addition to the federally operated Maritime Sealift Command ships.  Any needs beyond that in time of emergency should be addressed as needed – utilizing appropriate contingency planning and the best vessel available at the time of the requirement – without excessive micromanagement or favoritism.  Security concerns would obviously be observed and dealt with accordingly as necessary.  In the case of non-military cargoes, the respective federal agencies and departments should again be free to negotiate for the best available carrier to transport their cargo.  In this time of skyrocketing deficits – it is important to provide the best possible deal for the taxpayer.
• The Ad Valorem duty portion of the Tariff Act should be fully rescinded.  It functions simply as a punitive tax on companies that have very few options to begin with, while not providing any actual incentive to have repair work conducted in a US shipyard.  A better alternative might be to provide tax breaks for operators – US-flagged and otherwise – who do conduct their maintenance availabilities and repairs in US shipyards.  Additionally it is far too arbitrary in its enforcement – between the precedent-based measurements conducted by the Coast Guard, and the irregular legal reversals in the courts.
• Regarding the Jones Act itself, depending on the legislative process it might be easier to address the various issues in individual amendments, as opposed to replacing the entire piece carte blanche.  For instance, the citizen crew requirement should be removed immediately – at least for the seamen – although it would be worth reviewing in further detail whether that citizenship requirement should be left fully in place for ship officers.  Similarly, it should be examined further whether there is any inherent harm in removing the right to sue from a seaman injured onboard a vessel.  If insurance provided by the operator is adequate, in accordance with the routine union protections, there ought not to be any loss suffered by the seaman.  Again, there are precedents set for this that can be reviewed – both as a matter of routine policy for all US service members, but also for the seamen employed by non-US-flagged operators.

• 

  Finally, regarding the Coastwise Trade requirements of the Jones Act – it is reasonable to maintain the existing regulations for trade on the inland waterways of the United States – to include the Great Lakes – the precedents and general operating procedures established there are not in dispute.  However, at this time, given the existing restrictions and limitations on US shipyards, it makes no sense to maintain the US-flagged requirements for all trade between mainland ports, with particular emphasis on trade between the mainland and Alaska, Hawaii, Guam and Puerto Rico.  Like the Ad Valorem Duty issues, it is a regulation that has outgrown its utility in the last century and causes more considerably more economic hardship than benefit for both the operators and customers.  [A number of estimates place the cost of shipping a container from San Diego to Hawaii at 10 times the cost of shipping the same container from San Diego to Shanghai.  Numbers have fluctuated a little over the years.]

8. Conclusion

Reducing or eliminating these regulations should not be carried out in a vacuum, but in conjunction with providing more incentives to operators and service providers.  As with other industries, it should be the goal of the government to make normal business operations easier, not more difficult – whether in developing or maintaining a shipyard, transporting cargo and passengers, or anything else.   These are all capital-intensive industries that provide a very large number of secondary and tertiary jobs and business opportunities across the country – which in turn provide far more tax revenue in net gains.  It is possible to restore and revitalize our nation’s maritime tradition, but the way forward involves far less government interference and legislation, not more.

 

Part One; Part Two

Legislative Hurdles To National Security In The Civil Maritime Domain

Ie.  A *Starting Point* for Maritime Deregulation

Part 2.

3. Commercial Shipbuilding Obstacles Hamstringing Maritime Development

The second area in which existing legislation could be amended in order to affect a significant increase in national economic well-being is related to shipbuilding and maintenance policies.  Over the years, it is clear that the nation has allowed our shipbuilding capability to deteriorate to levels that severely impact our overall national security.  Simply in order to meet the requirements of the Jones Act, a vessel must be flagged in the US and have an all-citizen crew.  Additionally, the ship must have been built in the United States.

Of the 126 active, registered shipyards operating in the United States, only 20 are recognized as capable of building large ships – and as demonstrated by the numbers, 10 out of 12 deep-draft vessels delivered in 2014 were ordered by the federal government.  In fact, taking into account the ongoing long-term Naval and Coast Guard construction and modernization projects, over 70% of total shipbuilding and repair revenues come strictly from military orders.  For further comparison, out of 1067 total shipyard deliveries in 2014, only 11 were made to the federal government.

In short, while there is clearly a robust system for constructing and delivering smaller craft tailor-made to operate in the littoral region and inland waterways of the United States, the national capability to construct large vessels has vastly deteriorated since the second World War.

• As a point of contrast, consider the shipbuilding industry in South Korea. Reviewing a report from 2015, in 2006 the industry employed approximately 150,000 people directly – but that number should be extrapolated higher over the intervening decade considering the increasing number of deliveries.  By comparison, MARAD recorded a little over 110,000 people directly involved in the domestic shipbuilding industry in 2013 (rising to 400,000 when including secondary jobs associated with the industry).  At the same time, for the year 2013, US shipbuilders delivered 227 ships and commercial vessels of which only 28 were above 2000 gross tonnage (GT) (including government orders) – and of those 21 were offshore support vessels or ocean-going barges.  By comparison, South Korean shipyards delivered at least 301 vessels measuring 5000 GT or more each in 2013, including offshore support vessels.  That there are several magnitudes of difference in production in spite of the numbers of employees involved in both cases reflects several issues.

An improvement in the economy of scale is a goal to aspire to for any nation – and while the United States was previously capable of great strides in shipbuilding during specific periods such as World War II with the Liberty and Victory class freighters, at this date, delays and cost overruns are common – both in military and civilian shipbuilding.  A new cargo vessel can cost up to three times as much from a US commercial shipyard as one built overseas, while taking significantly longer.  Additionally, a common belief held by commercial carriers and operators is that US shipbuilders contribute to these factors by refusing to commit to fixed price contracts or delivery by a fixed date.

While these commercial failings are frustrating, they can in turn be attributed in part to  the continuously growing burden of governmental regulations and standards placed on domestic companies, which will be discussed further below.  Traditionally, critics have pointed to lower environmental standards, salaries and costs of living in shipbuilding countries like China and South Korea – but as has been proven repeatedly before, a rising tide lifts all ships and we are rapidly seeing all of those factors approaching the western world – particularly in South Korea.  Simultaneously, examining the governmental policies of South Korea also provides an interesting contrast to the US.  While initially operating on several policies not dissimilar from the US regulations discussed here, by the mid 1980s, the government realized that corporate competition on an international scale was sufficient to allow domestic shipbuilding corporations to operate on their own under free market principles without excessive governmental support – and rescinded several key acts.  Additionally during a recession in the early 90s and periodically since then, the government has recognized the need to make additional capital available for expansions or upgrades of facility but these have been acts of limited duration with the intents of the measures highly specified.  These policies stand in contrast to the domestic regulations discussed here – some of which have been established for over a century and have consequently become that much more ingrained in the political consciousness – and accordingly difficult to address in a reasonable manner.

• The issue of shipbuilding capabilities touches on several specific factors.  To begin with, it is a very capital-intensive industry.  Unlike building construction, which takes place from the ground up at the desired location – often utilizing a wide variety of mobile, easily transportable equipment and tools, shipbuilding requires very large, very expensive pieces of equipment that must be fixed in place (or potentially very costly to move in a limited fashion) in a set location.  In order to incentivize stakeholders to maintain or upgrade – or even develop and build – these facilities, there must be clearly achievable economic benefits to doing so.  Specifically, they must have an expectation of future orders on which to predicate continue operation – and in turn employee manning, secondary and tertiary orders and subcontracting requirements.

More to the point of this paper – once a company becomes insolvent or determines that the shipbuilding portion of their portfolio is no longer economical, mothballing or shuttering operations is a decidedly final step for equipment and facilities.  Without constant use or maintenance much related equipment – particularly dry-docking facilities or cranes – rapidly deteriorates, and the prime waterfront real estate these facilities occupy can be disposed of equally efficiently.  At this juncture, given the political realities – taking into account environmental regulations, particularly with finding an appropriate location, it would likely be very difficult to build, establish and open a new shipyard domestically without expending an extremely large amount of capital.

As previously stated, there are well over 100 shipyards currently operating in the United States and many of them operate on a much smaller scale.  The geography of the United States with its myriad rivers and lakes, supports a broader, shallower base of smaller vessels that must still be built to detailed specifications in order to meet Jones Act requirements – which in turn do employ large numbers of employees.  Korea in contrast, builds virtually exclusively for blue-water operations, taking into account that over 90% of deliveries were for international buyers.

Which consequently introduces the second issue regarding shipbuilding in the United States – to put it bluntly, there is no competitive advantage whatsoever for a corporation to construct a ship domestically.  Even if a company wanted to order large cargo vessels domestically in order to participate in Jones Act commerce, the turnaround time for almost any order would be significant, measured in years at a minimum.  This assumption is predicated strictly on the limited numbers of available domestic shipyards capable of actually constructing a large, ocean-going vessel.  One report commissioned by the US Navy in 1991 estimated that from conception to delivery, a new 42,000 DWT single shaft commercial cargo vessel would take approximately 57 months.  Of those numbers, the 12 month concept development window is the portion that would most likely be reduced – significantly – by the various technological advances that have taken place since the report was generated.  The 15 month contracting period and the 30 month construction period still appear largely accurate under the current industrial environment – although if the vessel was constructed in a shipyard owned by a parent corporation, that would probably result in a reduction in time as well.  While that situation is not rare to see in South Korea, at this date, none of the current US flagged shipping operators maintain their own shipyard facilities – although given the numbers involved, it is clearly not a surprise.

While MARAD does run a number of incentive programs offering competitive loans and even grants for shipyard and port modernization and fleet upgrades to private corporations, it is telling that only a limited number of carriers reported direct experience with these loans, and that the surface consensus appeared to be that approval was overly complex.  Similarly, the official website for the Small Shipyard Grant program hasn’t been updated since 2013 and as of its last update, reported nearly $10 million in outstanding grant funding.

(*NOTE*: site has been updated since this article was drafted in 2015 and reports there is no funding currently available – yay – and frankly – who really wants to be on the hook to Uncle Sugar?)

4. Onerous Tax Burdens

• One other legislative antique is the Ad Valorem duty on overseas ship repairs for US flagged ships – associated with the Tariff Act of 1930.  In short, for any repair work conducted on a US flagged vessel beyond emergent work necessary for safe operation – that is to say, routine overhaul maintenance or upgrades involving rebuilding more than a certain percentage of the superstructure or replacement of equipment measured in tonnage, must be conducted in a US shipyard or else face a 50% tax on the dollar value of the work.  While this measure was established to direct more work to US shipyards and US jobs, it is difficult to see at this juncture what its value is to the overall economy.  Indeed shipping companies report that even after paying the Ad Valorem duty, they are still saving a significant amount of money over the amount they would pay for the work to be conducted domestically.  This is to say nothing of the time involved waiting for an available shipyard to open up.  With so few large shipyards capable of handling larger cargo vessels, it becomes increasingly difficult to schedule availabilities in a timely manner.  [NOTE:  From my Navy experience the past 7 years, including multiple maintenance periods two of which were in dry-dock (both of which ran multiple months longer than originally scheduled) – this is an understatement if anything.] Different companies have different maintenance standards and while some may schedule repairs and refurbishments in advance of actual faults, in accordance with the tight budgets and timeframes of the shipping industry, others will gladly continue operation until forced otherwise.  In these cases in particular, the lack of an immediately available, affordable shipyard is a key factor in deciding to conduct necessary work overseas.

 

Part one here

 

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.

• 

  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.

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.