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Does the Jones Act Endanger American Seamen?

The Merchant Marine Act of 1920, more commonly known as the Jones Act, requires (among other things) that all goods transported by water between U.S. ports be carried on U.S.-flagged ships, constructed in the United States, owned by U.S. citizens, and crewed by U.S. citizens and U.S. permanent residents. This provision was intended to strengthen the today. Others complained that a more country's merchant marine and increase national security.

Now, nearly a century after the law's adoption, there is increasing evidence that it has the opposite effect. Because American-built ships have become increasingly expensive, shipping companies are slow to purchase new ones and, as a result, the U.S. merchant marine fleet has become older and less safe. This is an example of the unintended consequences of certain policies. It is doubtful that the original sponsors or the current defenders of the Jones Act intended to create conditions that would increase the dangers faced by American seamen, but that has been the result.

El Faro tragedy / A recent tragedy illustrates this point. In 2015, a Jones Act-compliant ship, the El Faro, sank on a voyage from Jacksonville, Fla. to Puerto Rico. All 33 crew members died after the ship sailed into a hurricane.

The El Faro was 40 years old, 31 years older than the average foreign-flagged ship of its type. There was strong criticism in the press about the poor preparation of the ship for the conditions, and a sharply worded article in the National Review asked if the Jones Act was to blame for the deaths.

If old age contributed to the disaster, exactly what factors were relevant? U.S. Sen. Bill Nelson (D-FL) and others complained about the inadequacy of the ship's open lifeboats. These lifeboats were once common, but newer ships rarely use them today. Others complained that a more modern ship design would have protected against the loss of propulsion that left the crew unable to control the El Faro in the powerful winds. Previous crew members claimed the ship was in poor general condition even after its owner spent $21 million on service and upgrades. In comments to CNN, they described the El Faro as a "rusty bucket" whose "decks were filled with holes."

The Coast Guard commissioned a Marine Board of Investigation that held hearings on the disaster to investigate its causes, possible misconduct and violation of laws, and to make recommendations to improve future safety. The board has not yet issued its report.

Older ships, greater risk / Systematic evidence indicates that American-flagged ships are older, and older ships are less safe. Age varies by type of ship, but over all types, the average age for U.S. ships in 2016 was 33 years old, whereas foreign-flagged ships averaged 13 years, according to the World Maritime News. In every ship category, U.S. vessels were older.

A recent study by a group at Southampton University analyzed shipping data for the last 15 years. It concluded that older ships were associated with more frequent accidents. Marine insurers have a powerful incentive to investigate the determinants of shipping risk, and their trade group, the International Union of Marine Insurance, has compiled data also indicating that older ships have had more frequent accidents. Signee nations of the Paris Memorandum of Understanding on Port State Control, an international agreement on ship inspections, collect data on inspections of ships in ports and frequency of detentions of unsafe ships. Their latest data for July 2017 indicate that U.S. ships ranked 36th out of 42 relatively safe countries. In safety, they ranked below all the Western European countries and Japan and China. They also ranked below two of the leading "flags of convenience" countries, the Marshall Islands and Liberia.

Comparative advantage / How does the Jones Act affect the safety of American-flagged ships? Answering that question requires an understanding of the economics of shipbuilding.

American shipbuilders once had a comparative advantage over other nations in producing ships because of the U.S. abundance of forest products. As a result, American shipbuilders had lower costs for wooden ships that were powered by sails and the wind. But American-built ships today cost approximately five times as much as comparable ships on the international market. Over 90% of commercial ocean-going ships are now produced in South Korea, Japan, and China. The United States is a small, high-cost producer with only three shipyards producing commercial, ocean-going ships.

Because new Jones Act-compliant ships are so expensive, domestic shipping companies delay replacing them. Consequently, the American-flagged fleet is older than the foreign-flagged fleet.

The lack of competitiveness of American shipyards is evident from the choices made by American companies that ship their products internationally. American exporters and importers are not constrained by the Jones Act, and they choose foreign-flagged ships nearly all of the time to make those shipments.

Subjecting American seamen to greater danger is an unintended consequence of U.S. shipping policy. There are other examples of government policies that have had the unintended effect of making transportation more dangerous. For instance, consider the 'Tracking" revolution in natural gas and oil extraction, which has resulted in oil being produced in locations not served by older pipelines. Strong opposition to building and extending pipelines has led to more oil being carried by railroads and, as a result, there have been widely reported deaths and substantial damage as a result of rail accidents. The opponents of pipelines probably have not intended to increase the volume of oil carried by railroads, but that is the result.

Jones Act's durability / Nearly all systematic studies have concluded that the Jones Act has imposed net costs on the American economy. Its contributions to national security have also been called into question. (See "America's Welfare Queen Fleet: The Need for Maritime Policy Reform," Summer 1991.) Couple that with the greater danger for American crews, and we're left to wonder how the law has survived for nearly 100 years.

The act has the political advantage of having concentrated benefits but diffuse costs. The beneficiaries are a small number of shipbuilders, operators, and their labor unions. Those groups have formed an effective lobby in favor of continuing the act.

Conversely, many of the law's costs are spread rather evenly among millions of users of transported products. Most consumers are not aware of the Jones Act, and the cost per person is small relative to most items in their budgets. One estimate places the total consumer cost of the Jones Act at $1.8 billion per year. Spread that cost evenly among 325 million Americans, and the cost per person would be about $5.50 per year. That is little more than the cost of a couple of gallons of gas and less than one six-pack of good beer. Hence, individuals have little incentive to spend their time and money lobbying against the Jones Act.

The law also continues to receive strong support from presidents and members of Congress in both parties. It has developed one of the most effective lobbies in Washington. U.S. Sen. John McCain (R-Ariz.), one of the few prominent opponents of the act, stated in 2012 that repeal legislation would not get 20 votes in the Senate. Earlier attempts to reform the Jones Act, including the efforts of a former commissioner of the Federal Maritime Commission, were not successful.

However, the safety issue could weaken the support of some members of Congress for the act. Surely no Jones Act supporters intend to increase the risk faced by American seamen when they do their jobs. The huge cost differences in ships are indisputable, and the high cost of American-built ships has resulted in an older and less safe American-flagged fleet. Less safety is an unintended consequence of the Jones Act.

Union leaders are strong supporters of the Jones Act. Do they represent their members well if the Jones Act results in less safe working conditions? Or are union leaders subject to the same agency problem faced by heads of corporations? Many shareholders have complained that CEOs have represented their own personal interests rather than the best interests of shareholders. Are union leaders ignoring the additional risks faced by officers and crews of older and less safe Jones Act ships?

Reform / The Jones Act's perverse incentives that make American ships older and more dangerous could be eliminated by simply repealing it. Unfortunately, the political realities noted above make it unlikely full repeal will happen anytime soon. However, a more modest reform would reduce the incentive to use older ships on some of the most dangerous routes.

Ocean-going ships traveling to and from the non-contiguous regions (Hawaii, Alaska, and Puerto Rico) could be exempted from the Jones Act mandate to use the more expensive American-built ships. This exemption would allow carriers to buy the much cheaper and more modern foreign-built ships and replace them more frequently. This exemption has been formally proposed by the Hawaiian Shippers' Council. Other features of the Jones Act, such as requiring American crews, ownership, and registration, could remain in force.

Support for this modest reform could be increased by offering to compensate some shipbuilders for possible loss of jobs. Buyouts of special-interest groups that gained from historical protectionist policies are controversial, but they have been used successfully to end some old and inefficient programs, such as the U.S. tobacco and peanut support programs that dated back to the 1930s. Even with the cost of the buyout, those initiatives have benefited the general public by removing a gross inefficiency.

Conclusion / Requiring Americans to use American-built ships on domestic routes increases shipping costs in the short-run and reduces innovation and slows growth in the long-run. In addition, the Jones Act makes the American-flagged fleet older and less safe than it would otherwise be. Instead of producing a stronger merchant marine, the Jones Act has contributed to a smaller and older domestic shipping industry with more dangerous conditions for American seamen.

READINGS

* "An Economic Analysis of the Jones Act," by Thomas Grennes. Mercatus Center Research Paper, April 2017.

* "Bad Regulations Can Kill: El Faro's Sinking Is a Tragic Example," by Eftychis John Gregos-Mourginakis and Joshua Jacobs. National Review, October 12, 2015.

* "Protectionist Shipping Law Hinders Gulf Cleanup," by Dan Griswold. Cato-at-Liberty (Cato Institute blog), June 23,2010.

* "US-Built Fleet Much Older than Global Fleet Due to Jones Act," published World Maritime News, March 22, 2016.

THOMAS GRENNES is professor of economics emeritus at North Carolina State University.
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Title Annotation:BRIEFLY NOTED
Author:Grennes, Thomas
Publication:Regulation
Geographic Code:1USA
Date:Sep 22, 2017
Words:1744
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