Americas Marine Highways Impeded by the Jones Act

Congressional Research Service tells Congress the Jones Act is a barrier to America’s Marine Highway Program.

By Tony Munoz, Editor-in-Chief of the Maritime Executive Magazine and the MarEx Newsletter

While researching issues surrounding the Harbor Maintenance Tax, I came across a report issued by the Congressional Research Service dated January 14, 2011. Its author, John Frittelli, tells Congress that “if not for the Jones Act, domestic containers could be shipped between U.S. coast ports on existing services provided by international carriers. Foreign containerships carrying U.S. imports and exports already sail frequently between U.S. ports, providing an almost continuous conveyor belt of vessel space along each coast.”

For those not aware of the Congressional Research Service (CRS), here is a statement from its Web site: The Congressional Research Service (CRS) works exclusively for the United States Congress, providing policy and legal analysis to committees and Members of both the House and Senate, regardless of party affiliation. As a legislative branch agency within the Library of Congress, CRS has been a valued and respected resource on Capitol Hill for nearly a century. CRS is well-known for analysis that is authoritative, confidential, objective and nonpartisan. Its highest priority is to ensure that Congress has 24/7 access to the nation’s best thinking.

Ignorance Is Bliss

It is obvious that Frittelli is clueless about the national security implications of terrorism from the maritime domain or the Jones Act’s strategic importance for the rank and file of the U.S. Merchant Marine, which supports U.S. military operations worldwide. More importantly, his dubious report is filled with negative connotations about the maritime sector’s ability to move containerized cargoes through inland and coastal waterways. In fact, Frittelli’s report challenges every marine highway that received funding from DOT as being either too slow or too costly. Additionally, he demeans the U.S. maritime sector with his assessment of the fleet and the protectionism of U.S. shipyards by telling Congress “as of 2008 (latest data available) there were 42 active Jones Act-compliant ships suitable for deepwater marine highway service, including 27 containerships and 15 Ro-Ro vessels. Of these, 70 percent (29) were built before 1984 and thus approaching the end of their useful lives. The United States is the only industrialized nation that has a domestic build requirement for domestic shipping, and no such requirement exists for other U.S. freight modes.”

Moreover, Frittelli’s report could have far-reaching consequences for the Jones Act operators and U.S. shipyards because in the 2010 Congressional elections, Congressmen James Oberstar, Ike Skelton, David Obey, Neil Abercrombie and Gene Taylor, all strong advocates of U.S cabotage, either resigned or lost their seats. Today’s new congressional members are dependent on well-researched and trusted sources of information in order to make informed decisions about policy matters that might have a profound effect on the American people and the economy. The ‘laissez faire’ devotees on Capitol Hill whose barroom brawl capitalism brought the American people the Wall Street meltdown, the mortgage crisis, overseas outsourcing of U.S. jobs, which continues to feed 9% unemployment, and decades of U.S. industrial and manufacturing decline, might use this slanted report to execute a ‘double-tap’ on what some consider protectionism of the U.S. maritime sector via the Jones Act.

However, what Frittelli’s report fails to offer the Congress is the glaring reality that U.S. vessel operators and shipyards have not received federal subsidies since the Reagan presidency. Meanwhile, the U.S. airline industry gets $6.4 billion annually in subsidies; the agriculture industry gets $16 billion annually; U.S. oil companies get $4 billion annually, and the U.S. auto industry will get $25 billion in “green subsidies” to retool plants and, of course, they got $25 billion in 2008 in bailouts due to decades of lousy market intelligence. And let’s not forget the national freight railroad companies like CSX and Norfolk Southern who, while posting healthy profits, will have federal and state governments spend billions of dollars each year to maintain their inclusive infrastructure.

The fact is that, over the last three decades, U.S. maritime interests have been totally forsaken by the federal government because it deems the industry could have little value in alleviating the economic woes of the nation. The overwhelmingly negative governmental consensus about waterborne commerce can again be witnessed in the 2012 DOT-Maritime Administration budgets, which gave ZERO dollars to U.S. ports, shipyards and vessel operators. In fact, MARAD championed taking away $54.1 million of the $76.6 million in the Title 11 shipbuilding program because, as its administrator told Congress, “the maritime industry must share in the national sacrifice during these challenging economic times.”

A National Recovery Without the Maritime Industry?

The U.S. national debt is expected to reach $15.4 trillion by September 30th. Meanwhile, the government estimates about 13.3 million Americans are unemployed, but experts say it’s closer to 23.7 million. In 2011 already, there have been 1.6 million bankruptcies and 998,544 home foreclosures. Moreover, crude oil is sitting around $115 per barrel and the national average for gas is $4 per gallon, but that’s low in South Florida.  The U.S. has had a foreign trade deficit since 1975 and February’s stood at $45.8 billion. This is an awful state of affairs, and yet the U.S. maritime industry has been benched by the Department of Transportation until much later in the decade. The maritime industry as a whole is one of the best trained and technologically equipped modes of transportation in the world.  Mariners have been under U.S. Coast Guard and IMO STCW-95 training compliance since 1995, and vessel operators are about to have strict regulations imposed on them for stack emissions and ballast water treatment issues. More importantly, the maritime industry is paying for all of its training and regulatory compliance with its own earned monies.  Meanwhile, the 2012 DOT budget authorizes $4.9 billion to the Federal Motor Carrier Safety Administration to train commercial truck drivers to drive more safely over the national highway system, and the federal government will provide the auto industry with $25 billion in green subsidies to retool their plants.

Frittelli’s report continues hammering nails into the maritime coffin with, “Most of the marine highways services that have received federal grants are carrying, or likely to carry, no more than a few thousand containers annually. On a per truck basis, therefore, the federal cost of diversion is likely to be in the neighborhood of several hundreds of dollars….this equates to a federal outlay of $625 per container, which is in the neighborhood of what a shipper would pay for trucking a container….thus, the federally supported project roughly doubled the nation’s freight bill for these container movements.” And then he ponders, “Can the federal investment in marine highways produce benefits that outweigh the costs?” and “Will marine highways divert enough trucks to provide public benefits commensurate with their costs?”

In terms of the Harbor Maintenance Tax, Frittelli reports, “The (Army) Corps also estimates that waterborne shippers pay about 10% of the federal cost of providing navigation infrastructure, either through the harbor maintenance tax or the barge fuel tax. This compares with highway user fees (including truck-specific tax and fees) that cover most of the federal cost of highway infrastructure and railroads, which by and large privately finance their infrastructure. Thus, legislation that further reduces the financial burden on waterways users raises equity and economic efficiency issues with respect to competing modes.” 

The fact is that the Harbor Maintenance Tax (HMT) Trust fund has over $5 billion of unspent monies in its coffers. The federal government collects about $1.5 billion each year, but only releases about half that amount for dredging projects. Because of this, marine port dredging and river lock maintenance is fast becoming a national problem, which will eventually slow maritime commerce and impact regional and port revenues.  

And, in the End

Frittelli’s report to Congress postulates cost facts for his contrarian point of view about whether the maritime industry can contribute to the overall well-being of the nation. His commentary concludes that America’s Marine Highway will only exasperate the modern modes of surface transportation provided by truck and rail and have an adverse impact on its users by costing more and slowing down the process.  

But the fact is if there were thousands of vessels working the coastline and inland waterways, freight would move much faster and much cheaper than by truck or train. Yet the government will not invest in its waterways for domestic transport even though the Internal Revenue Service and the Government Accounting Office have made it very clear that tugs and barges and commercial vessels are cleaner, safer and do less harm to the citizens of this nation. What this country doesn’t need are more trucks and trains clogging the roadways and rails and polluting the populace. With petroleum prices off the charts, why not invest in cleaner modes of transport such as coastwise vessels and inland tugs and barges?

Congress really needs to understand that this nation’s waterways can quickly put people back to work as shipbuilders and mariners, that more vessels and frequency in trade lanes would actually reduce transport costs and alleviate roadway congestion and pollution. But, in the end, reports like John Frittelli’s for the Congressional Research Service undermine investment in the maritime sector due to slanted and misconstrued facts. Meanwhile, the industry remains on the sidelines, waiting for visionaries to take the reins of the status quo.  – MarEx 

Tony Munoz can be reached at [email protected]