13 June 2010

Jones Act

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When I started at Kings Point in July 1987, I heard much about The Jones Act

In a nutshell, the schpeel went something like this:
The Jones Act is the most important piece of legislation related to American Shipping.  Without the Jones Act, you wouldn't have a job.  Without the Jones Act, there would be no American Ships.  Without the Jones Act, your pathetic life would be short, nasty and brutish.  Evil people want to gut the Jones Act.  They want to give your jobs away to cheap, unskilled, irresponsible peasants who will put the entire world at risk.  The only thing that maintains the earths polarity is the Jones Act.  Support it.  With your life, if necessary.
When I got out school and joined the Union, the rhetoric was even more fantastic.  And the ships on which I worked in those days?  Tankers with steam plants built in the late 1960's, still running in 1991.  Why was I working on 25 year old ships?  Why was my first ship, the SS King with AHL, built in 1953 and which had a sound tube to the pumproom ("I NEED MORE STEAM!!!  I'M GIVIN' HER ALL I GOT!") still in operation (and then modified to a double hull tanker in response to OPA90)?  The Jones Act.

The Jones Act says that any cargo transported between any two American Ports must be carried on an American Flagged, American crewed, built in America ship.  If there's no American ship available, then you can hire who you like.  So, in 1995, the chartering department of OMI somehow knew that my ship, the OMI Willamette, was the only ship available to carry a cargo of jet fuel from Anacortes to Honolulu, if we could get to Anacortes by such and such a time on such and such a day.  Typical tankers rates were? I don't know, something like $13,000/day at the time.  OMI said, "We'll do it for $45,000/day" or some such insane number.  And we got the charter.  Why?  'cause Company A who contracted to bring jet fuel from Anacortes to Honolulu for Company B didn't anticipate that there would be only one American Flag ship available.  And the Jones Act forced his hand.

Companies such as Lykes Brothers (RIP) were operating steam breakbulk ships into the early '90's because they couldn't afford to have new container ships built in American yards.  Hvide ordered a bunch of "Double Eagle" class tankers from Newport News and went belly up.  TOTE upgraded their ships with some new ones built in San Diego, but probably could have gotten better and cheaper ships built in Korea.  But couldn't.  The Jones Act.

Ironically, I sort of owe my job today to the Jones Act.  I'm working with a multinational company in their international fleet, on an LNG carrier ... and the reason they hired me was because I had extensive steam experience ... due to the perverse incentives of the Jones Act which made it rational for American companies to keep operating inefficient ancient ships manned by Americans.

But the Jones Act is like Rent Control.  Or an even better example:  the mortgage interest deduction.  Sure, we should get rid of it.  It distorts the market. BUT!  It would kill me, because I made my decision to buy my apartment based on the calculation that I could deduct my mortgage interest.  The transition costs would be heaped upon those who, following the current rules, made business decisions.  TOTE would go out of business if anyone could move trailers between Tacoma and Anchorage, not just American built American Flagged American crewed ships.  Why should TOTE be punished?

I'm sure some smart economist somewhere could develop a transition plan.  But the political pressures to keep the Jones Act (and the mortgage interest deduction) in place are formidable.

But the law of unintended consequences is just as strict as the law of gravity.

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