Get Hawai’i Out From Under The Jones Act
Bear with me on this complex issue that affects all of Hawai’i. If you’re looking for someone that will go the extra mile on important issues, I went the extra mile on this issue. In the lengthy discussion below, I layout all the facts as we know them from extensive research of published resources on the Internet. At the end of this discussion, I present a comprehensive systems engineering approach to resolve all the negative impacts associated with the Jones Act and how to move forward in growing the Hawai’i shipping industry presence in the global shipping environment. While at the same time, reducing the high cost of living for everyone in Hawai’i. A win-win for all the people of Hawai’i.
“The Jones Act is an obscure 1920 regulation that requires that goods shipped from one American port to another to be transported on a ship that is American-built, American-owned, and crewed by US citizens or permanent residents. The goal of the legislation was to ensure the existence of a thriving US-owned commercial shipping industry so that in case of war there should always be a big supply of American-made, American-owned, American-crewed ships that could be counted on (and, if necessary, conscripted) to supply American commerce even in hazardous conditions.”-Vox
“For most Americans, this isn’t a big deal — it enriches a small number of American shipowners while introducing some weird distortions into the overall pattern of economic activity in the United States. For the residents of the island of Hawai’i, though, the Jones Act is huge. Basic shipments of goods from the islands to the US mainland, and vice versa, must be conducted via expensive protected ships rather than exposing them to global competition. That makes everything in Hawai’i unnecessarily expensive relative to goods purchased on the US mainland and drives up the cost of living on the island overall.” -Vox
“The goal of the legislation was to ensure the existence of a thriving US-owned commercial shipping industry, a topic that had become salient during World War I, when blockades underscored the close link between maritime commerce and warfare. One could certainly imagine an alternative universe in which the law was a smashing success. Protectionism for US merchant shipbuilding and US-owned and US-crewed merchant ships could have nurtured an infant industry and turned the United States into a globally competitive maritime powerhouse.” -Vox
“That’s not what happened. Instead, global oceanic shipbuilding is dominated by Asian countries, with China, South Korea, Japan, the Philippines, and Taiwan dwarfing American production. US output of merchant ships is even fairly tiny compared to combined European production. According to Daniel Pearson of the Cato Institute, US merchant vessels carry about 2 percent of the world’s cargo, far down from the 25 percent they carried 60 years ago.” -Vox
“Rather than nurturing the creation of a global shipping powerhouse, protectionism for US shipbuilders has allowed the industry to survive despite being laughably uncompetitive in global terms. In most cases, that works out okay in practice because the United States has one of the world’s most robust networks of freight rail. The problem is that you can’t ship anything by train to Hawai’i. The result of all of this is that in Hawai’i, the cost of living is far higher than it needs to be.” -Vox
“According to John Frittelli’s 2014 analysis for the Congressional Research Service, it costs about twice as much to operate a ship complying with the Jones Act as a typical ship used for international cargo. Drewry Maritime Research concluded in 2013 that US-built, Jones-compliant vessels cost about four times as much to build as comparable foreign ships. More expensive ships that are more expensive to operate add up to a situation in which Jones-compliant shipping is much more expensive than non-Jones shipping.” -Vox
“The cost of shipping from Los Angeles to Hawaii has been higher than the cost of shipping the same product from Los Angeles to Shanghai. An absence of domestic port-to-port shipping is an occasional distortion for the US mainland, but it’s a systemic economic impediment for places like Hawaii. This raises the cost of living on Hawaii and makes Hawaii an unattractive place to produce goods bound for the US mainland.” -Vox
“Debate over the act involves a tangle of contradictory claims with regard to labor unions, national defense, economic viability, international trade, the maritime industry, proper responses to emergencies and natural disasters, the future of the merchant marine, and the cost of living including the price of gasoline. Billions of dollars in potential profit are at stake in this fervent debate, as well as the future of the shipping industry and the idea of free trade itself. Opponents of the Jones Act see it as a significant burden on the American economy. But as one observer noted, the dedication of Jones Act supporters is ‘almost religious.’ ” -CRC
“The support of unions is critical to the survival of the Jones Act—support from the Maritime Trades Department of the AFL-CIO, the International Longshore and Warehouse Union (the Longshoremen), the Sailors’ Union of the Pacific, the American Maritime Officers, the International Organization of Masters Mates and Pilots, the Seafarers International Union, the Marine Engineers Beneficial Association (MEBA, the oldest and largest maritime union in the U.S., representing both engine and deck crew members), and the Inland Boatmen’s Union (representing primarily tug and barge and ferry workers). The breadth and depth of this coalition makes it a formidable force. In concert with the shipping companies themselves, the unions work swiftly and decisively to oppose any Jones Act reform, even smaller changes that might serve as slippery slopes to reform.” -CRC
“Economic evidence abounds that the Jones Act harms business and the U.S. economy. Nearly every independent study of the act’s effects finds it creates expensive barriers to trade. In 1995, a report from the U.S. International Trade Commission, an independent agency, found that removal of the Jones Act would lower domestic shipping prices by 26%. A 2013 report on global trade and its barriers from the World Economic Forum, in collaboration with Bain & Co. and the World Bank, described the Jones Act as “the most restrictive of global cabotage laws and an anomaly in an otherwise open market like the United States.” The report called on the U.S. to set a global example in opening markets by enacting reforms, albeit mild reforms.” -CRC
” “It’s a simple situation where basic economic freedom and the good of the local economy go hand-in-hand,” noted Richard Rowland, president of the Grassroot Institute of Hawaii, a state think-tank that supports repealing the Jones Act. “Greater competition in shipping would bring down prices and make the business climate more investor-friendly. Really, the only one being helped by the Act are the shipping interests.” Jones Act opponents in the non-contiguous states have long argued for a full or partial Jones Act exemption for their regions. Citizens and small businesses in Hawai’i have asked courts to void the act as unconstitutional, while a pending effort seeks support from Alaska and Puerto Rico for an anti-Jones lawsuit.” -CRC
“Former U.S. Rep. Ed Case (D-Hawaii) has highlighted the problems the act causes for businesses in the non-contiguous states. “Even today, Big Island ranches must charter a weekly 747 out of Keahole Airport to get their cattle to the mainland because that’s cheaper than Jones Act shipping. There’s something wrong with that picture.” ” -CRC
“Even the companies and unions that seem to benefit from the Jones Act may not be that much better off. That’s because—as often occurs in cases of protectionism, government subsidies, bailouts, and other forms of “crony capitalism”—the ultimate result is becoming dependent on government favors. The U.S. shipbuilding industry has been left dependent on Jones Act support. A 2001 Commerce Department study found that U.S. shipyards build only about one percent of the world’s large commercial ships, with few ships ordered from U.S. shipyards other than for cabotage. U.S. operators of ships in cabotage have an incentive to keep using old vessels rather than replace them with relatively high cost vessels built in the U.S.” -CRC
“This brings us back to the contention that national security requires a strong maritime industry. The argument has a certain logic. Who will our nation rely on in wartime if not on our homegrown shipping industry? “The Jones Act … plays a critical role in protecting our national security by helping us maintain our ability to build, crew and deploy U.S. ships when they are needed,” insists U.S. Rep. Colleen Hanabusa (D-Hawaii).” -CRC
“But does it really? For protectionist legislation, the act has done an abysmal job of protecting that industry. Again, the U.S. shipbuilding industry represents only about one percent of the world market for ocean-going commercial vessels. By every possible measurement, the U.S. maritime industry has been in a long, ignominious decline. In 1946, there were more than 2,300 American cargo ships carrying nearly half of all imports and exports involving the U.S. Forty-five years later, there were only 360 such vessels in service. By 2000, there were only 250, hauling only three percent of American imports and exports. And in 2007, the U.S. ocean-going fleet was down to less than 200. Nor was this drop accompanied by a decline in international trade; quite the opposite.” -CRC
“As for preserving those essential maritime jobs? The Jones Act battles in Congress during the ’90s demonstrated that the act hadn’t managed to prevent 40,000 longshoremen and 40,000 merchant seamen from losing their jobs. Nor were the shipyard workers immune; more than 60 American shipyards had gone out of business (with another 200,000 jobs lost). The U.S. International Trade Commission report at the time estimated that Jones Act repeal would affect about 2,450 laborers in the coast-wise shipping trade and would cost only 36 jobs in the shipbuilding industry.” -CRC
“If our sea-power is really tied to the strength of our domestic maritime industry, we are in trouble. As Michael Perry, an engineering officer on one of the few U.S. flag ships, said in a 2001 Los Angeles Times report on America’s declining merchant marine, “We have the most powerful Navy in the world and one of the smallest merchant fleets…. How can we be so shortsighted?” ” -CRC
“There is little comfort in the belief that those U.S. ships and shipyards are more technologically advanced than their foreign rivals. Jones Act defenders sometimes suggest that without its protections, commercial shipping would become the domain of rusty, dangerous ships, possibly manned by pirates. In truth, the greater concern is the state of the U.S. flag fleet. The high cost of repair and replacement under the Jones Act means the U.S. Jones Act fleet is among the world’s most aged.” -CRC
“The Jones Act lobby is a rare case of industry and labor working a shared purpose—to defeat any attempt to reform the protectionism and subsidies the maritime industry enjoys. For years, this powerful lobby even enjoyed the advantage of its own Congressional committee (the Merchant Marine and Fisheries Committee, which has now been absorbed into the House Committee on Natural Resources). Both unions and shipping companies have also benefited from the influence of generous political action committees. Merchant marine and longshoreman unions contributed over $2.4 million to candidates in the House and Senate between 2006 and 2012. (Some of the biggest recipients of their generosity include Sen. Hirono at $103,500; Rep. Bishop (D-N.Y.), $54,000; and Rep. Hanabusa, $51,500.)” -CRC
“Finally, one more group with deep pockets and political clout wants to keep Congress from touching the Jones Act: lawyers. That is, personal injury lawyers who bring suits for seamen under Jones Act provisions. As Michael Hansen explains, these trial lawyers fear that reforming the act’s cabotage sections could also lead to re-examining the seamen’s rights provisions and thus damage the lawyers’ lucrative business.” -CRC
“Perhaps the most sensible course is a series of reforms aimed first at allowing U.S. shipping companies to become more competitive in the global market and easing the pressure the Jones Act causes to American business—especially those in the non-contiguous states. The ultimate goal would be to render the Act unnecessary or moot, but unless the political climate changes substantially, the best strategy may be to carve out reforms that can lessen the economic damage caused by the act and put the U.S. shipping industry on a course toward real economic viability—viability, that is, independent of any special protection by the government.” -CRC
The bottom line is that the Jones Act isn’t working and there are stakeholders on both sides that resist reform and compromise.
Many economists estimate that the Jones Act accounts for 10% to as much as 30% of the high cost of living in Hawai’i. Approximately 90% of Hawai’i’s goods arrive in Hawai’i via Jones Act ships. These goods are not only end user goods, but goods that Hawai’i based service providers use in providing their local services. These goods are also used by our state and local governments in performing their services for the people of Hawai’i. The Jones Act cost impacts have broad compounded effects across the whole of our Hawai’i economic infrastructure. Service providers pass the increased costs to their customers. Government passes the increased costs to residents and businesses in the form of higher taxes. This effectively increases the cost of everything in Hawai’i including on the key issues of housing, education, infrastructure, and healthcare.
Let’s look at what it might look like here in Hawai’i if the Jones Act were repealed. Say the economists savings estimates were a little high and the Jones Act only adds 10% to the cost of living in Hawai’i. How much would a 10% reduction in the cost of living save you on your annual spending?
The 2018 state GDP is projected to be $88 billion and grow to over $100 billion by 2021. In a simplified analysis, let’s assess this from a viewpoint that 90% of our goods come to Hawai’i via Jones Act shipping and a 10% savings on the projected GDP of $88 billion this year. The repeal of the Jones Act would realize an $7.92 billion reduction in spending costs across the entire state economic infrastructure for government, state businesses, and private citizens. If we divided that $7.92 billion by the total number of residents, businesses, and government services in Hawai’i, approximately 1.45 million, we could project an average savings of $5,462 per resident, business, and government service. That’s over simplified in that the services and individuals that spend more will realize larger savings than those that spend less. But you get the idea, it’s a significant number.
Here in Hawai’i, the Jones Act currently provides protectionism for about 23,000 jobs and local shipping businesses at significant negative impact to the remaining over 1.4 million residents and businesses of Hawai’i. We need to address the negative impact that those 23,000 people would experience if the Jones Act was repealed with no follow on action by the government. The US government bailed out the auto industry and the banking industry in the past 10 years to get those vital US industries through hard times of their own making. The US shipping industry is also vital. Due to the effects of Jones Act over the past 50 years, the US Government is the main underlying cause for the challenges that the US shipping industry faces in being non-competitive in the global shipping market today. Any repeal of the Jones Act must be accompanied by a US government bailout to help transition the US shipping industry back to being a competitive global player. If the savings in the cost of doing business are even a fraction of what economists predict, the State of Hawai’i could use state government spending savings realized from repealing the Jones Act to also subsidize those 23,000 Hawai’i jobs and shipping businesses until such a time that they are competitive again in the global shipping free market.
And I will go even further with the new opportunities that will be realized here in Hawai’i with the removal of the overly restrictive Jones Act regulations. There will be a shipping industry paradigm shift with the removal of the shipping limitations resulting in significant new shipping routes. With local government support in partnership with the local shipping unions, we can leverage Hawai’i’s prime location in the Pacific to grow in our Hawai’i based shipping industries into a centralized Pacific global shipping hub.
I will work to repeal the Jones Act and secure the US government support required to get the US shipping industry back to being a global player. We can reduce the cost of living for everyone in Hawai’i while growing our local shipping industries into the global shipping market.
“We choose to go to the Moon! We choose to go to the Moon in this decade and do the other things, not because they are easy, but because they are hard; because that goal will serve to organize and measure the best of our energies and skills, because that challenge is one that we are willing to accept, one we are unwilling to postpone, and one we intend to win, and the others, too.” -John F. Kennedy