Key takeaways:
- The Jones Act affects inland waterways and ocean shipping by insulating domestic firms from foreign competition.
- As a result of this protection, traffic volumes and shipbuilding have remained static while cargoes that can migrate to other modes of transport do.
- Two Canadian policies may provide an example for the U.S. to partially open inland waterways to competition while meeting the broader goals of the Jones Act.
America’s network of navigable inland waterways includes an interconnected system of rivers, the Great Lakes, and even canals. Most of the cargoes on inland waterways are bulk commodities like soybeans, wheat, coal, iron ore, and petroleum. Tugboats and barges haul most riverine traffic. On the Great Lakes, a mixture of traditional “lake boats,” tugboats and barges, and oceangoing ships called “salties” handle cargo shipping.
More cargo travels by ship and barge on America’s inland waterways than most people realize: over $380 billion each year.
The Jones Act and inland shipbuilding
As outlined in the first part of this series, the Jones Act requires domestic shipping to be conducted exclusively with vessels built and registered in the United States and crewed by American mariners. On inland waterways, this makes marine transportation less competitive compared to trains and trucks because shipping costs are too high to offset the inherently longer travel time. Absent the lower prices that competition and innovation could bring to marine shipping, shippers only turn to marine transport for the heaviest and bulkiest cargo.
This captive market remains profitable without requiring large capital investments in new ships or other assets. Inland vessels can remain in service for decades or even a century because they travel in freshwater, which is less corrosive. And with its cargo concentrated in bulk commodities, the industry faces little pressure to upgrade its vessels or launch new ones.
As a result, shipbuilding for this market remains essentially a cottage industry — another example of the Jones Act’s failure to preserve domestic shipbuilding. According to Dunn and Bradstreet, many of the top companies making inland cabotage vessels earn less revenue than recreational and fishing boat makers.
Foreign ships and empty trips
Foreign ships can venture into inland waterways to deliver cargo from overseas ports but cannot transport cargo between U.S. ports on their return trips. For example, a ship that delivers intermodal containers to Milwaukee from overseas cannot take containers from Milwaukee to Detroit on its way back. This leaves shippers with fewer options and forces vessel operators to make up the cost of running empty by charging higher rates for the cargoes they are allowed to carry.
Life after Jones
Unsurprisingly, libertarian and economically conservative commentators have long championed a full repeal of the Jones Act. Equally predictable is that domestic maritime organizations advocate for status quo protections from foreign competition. But neither full repeal nor blind support alone further the Jones Act’s mission or resolve its weaknesses.
Canada provides examples of possible reforms. First, under a pair of treaties between the European Union and the U.K, Canada allows vessels owned or controlled by entities incorporated in the EU or the U.K. to perform limited domestic trade, also called cabotage, in Canadian waters. The limited runs include short-haul feeder services between the ports of Montreal and Halifax, Nova Scotia. This agreement addresses the problem posed earlier, where a foreign container ship would have to run empty between American ports and pass that cost along where it could. Canada mitigates inefficient deadhead movement and improves port efficiency by allowing a limited exception to cabotage on the St. Lawrence Seaway.
Second, Canada allows other foreign vessels to engage in limited domestic trade with a license application under the Coasting Trade Act. The license depends upon the type of service being offered by the foreign vessel, and the Act gives preference to competing offers from Canadian vessels willing to provide the same service. Effectively, it allows foreign vessels to conduct domestic trade where a suitable domestic vessel is unavailable, as in the case of acute shortages after a storm or longer-term issues like the absence of any Jones Act-compliant LNG tankers.
Conclusion
The Jones Act has a durable constituency due to the jobs it purports to preserve. Acknowledging the importance of shipbuilding to regional economies while improving the Act’s function is critical to modernize the law. Canada provides a potential roadmap for policies to harmonize the Jones Act’s function with its goal of supporting American domestic shipbuilding capacity.
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