Foreign Trade, Transshipment and the Jones Act

St Lawrence Seaway

By Harry Valentine 2017-01-22 20:07:19

Prior to the Jones Act, a British built cargo ship flying a commonwealth flag could sail from Halifax, Canada to New Orleans could stop at Norfolk to unload some cargo and also pick up cargo destined for New Orleans. Once implements, the Jones Act prohibited the foreign built, foreign flagged ship from carrying cargo from Norfolk to New Orleans and restricted such transportation to American flagged, American built ships.

Domestic Bulk Transport

At the time of its implementation, domestic ship transportation carried domestic cargo. On the Great Lakes, giant inland ore carriers routinely carried iron ore across Lake Superior from Duluth to the automobile manufacturing city of Detroit while other bulk carriers would carry salt from the underground salt mines at Detroit to other American Great Lakes ports. For decades, the domestic ship transportation sector of North America carried bulk cargo of domestic origins between domestic ports located on the Great Lakes and ocean coast, including sailing between east and west coast via the Panama Canal.

Despite the sailing distance between Los Angeles and New Orleans being three times the railway distance, domestic maritime transportation proved to be especially cost competitive against railway transportation and especially in the transportation of ore and bulk shipments. Much of the inland waterway transportation along the Mississippi and Ohio Rivers involves bulk transportation and often involves transfer of bulk cargo between river barge and domestic oceanic carrier at or near the Port of New Orleans. While the Jones Act may have a few domestic opponents, its defenders outnumber the opponents and will readily present a defense of the act.

Defense of the Jones Act

The Jones Act is politically sacred, as it protects America’s domestic shipbuilding industry from competition in areas of domestic maritime transportation. It assures continued industrial activity and economic opportunity at American shipyards. The jones Act may also have allowed for some innovation in maritime technology with the development of ocean-going tug-barges. Tug-barges were for decades the domain of the inland waterway transportation industry and ‘good old Yank ingenuity’ upgraded the river tug-barge concept into an ocean going technology capable of dealing with 20m or 65-ft ocean waves  while carrying domestic bulk cargo.

Foreign Trade

At the time of the Jones Act inception, America was a powerful manufacturing and exporting economy. American officials willingly allowed and even encouraged foreign built, foreign flagged vessels to carry American made goods to overseas ports. These vessels also carried foreign made goods to American ports where the goods were transferred mainly to the railways and some of the truck transportation industry. Prior to the era of 20-foot and 40-foot standard size container transportation, small goods were carried inside wooden crates. The completion of the Saint Lawrence Seaway during the late 1950’s gave ocean ships access to several inland ports.

While America and Canada have their own versions of the Jones Act, officials focused on restricting transportation of domestic goods and bulk to their respective domestic maritime transportation sectors. The idea of transshipment of bulk cargo of foreign origins from a foreign vessel to a domestic vessel at either American or Canadian ports was unheard of. Foreign built automobiles and crates of consumer goods were transferred from ship to railways at ports then railways to trucks at inland intermodal terminals. The domestic maritime industries of America and Canada endured and even thrived in an absence of ship-to-ship transfer of goods.

Containers

It took many years for the transportation and logistics sectors to make the transition from crates to standard size shipping containers. During the early years of international container transportation, container carrying ships were comparatively small compared to the mega-size container ships that sail the world’s ocean at the present day. Upon arrival at North American ports, containers were transferred from ships to the combination of the railways and the truck transport industries. During the early years of container transportation, the practice of transshipment or ship-to-ship transfer of containers was nonexistent.

Starting from the 1970’s, the size of container carrying ships steadily increased and almost all transfers of containers from ships involved the railways and truck transport industries. North America’s domestic maritime industries seemed content to have the exclusive access to domestic transportation of domestic bulk cargo and even engaged in export based ship-to-ship transfer of bulk from domestically flagged ships to overseas flagged ships destined to sail the ocean to distant overseas ports. Importation of oil invariably involved the transfer of foreign oil and foreign natural gas from foreign flagged super-tanker ships to domestic pipelines.

Containers and Domestic Maritime Transportation

The domestic maritime transportation sector has accepted the transfer of containers from foreign flagged ships to the railways and has shown little interest in the container transportation market. Seaway-max size container ships have sailed from European ports to inland ports such as Port of Toronto, the largest container port on the Great lakes and Port of Cleveland. Precedent has shown that the domestic maritime transport sector earns their income almost exclusively from domestic transportation of ore and bulk cargo of domestic origins. Their fleets are almost exclusively bulk carrier vessels and some flat deck vessels such as barges.

Containers that arrive at North American super-ports aboard foreign flagged, mega-size container ships almost exclusively involve goods of foreign origins. Such goods have traditionally been outside of the protected market served by the domestic maritime transportation sector. The methods by which containers would be transported between super-port and smaller domestic ports would in no way infringe upon the exclusive markets being served by the domestic American and Canadian maritime sectors. Domestic maritime transportation of crates and/or containers of goods of foreign origins have traditionally been outside of the American Jones Act and its Canadian equivalent.

Freedom of Container Transshipment

The domestic North American maritime transportation sector has remained viable transporting domestic bulk cargo between domestic ports in a market protected by the Jones Act and its Canadian equivalent. Freedom of transshipment of containers between super-ship and smaller ships at super-ports, for maritime transportation to smaller ports should in no way infringe on the existing bulk markets being served by the domestic maritime sector. Barges that sail the Mississippi River system are unique to that river system and incapable of undertaking trans-oceanic voyages carrying containers. These barges would interline with mega-ships near New Orleans.

Seaway-max container ships are becoming unique in North America with the closest fleets of such vessels operating in Asia and thousands of miles from the Gulf of St Lawrence. Competition between neo-Panamax container ships and the combination of mega-ships and smaller ships along the North American east coast makes market regulation unnecessary. The foreign origins of the containers aboard mega-ships that arrive at an Eastern Canadian super port should allow foreign flagged smaller ships to complete the voyage to domestic North American ports. On the west coast, small ships could interline with mega-ships to carry containers to smaller ports.

Canadian Domestic Shipping

Canada has revised regulations to allow domestic carriers to obtain foreign built ships at 25 percent tariff to operate domestic services. This initiative is intended to improve efficiency of domestic transportation. However, builders of large ships that sail the Upper Great Lakes have a natural form of market protection as the ships that sail these lakes are too big to transit downstream navigation locks between Niagara Falls and Montreal. The foreign origins of the cargo in the containers aboard mega-ships arriving in Eastern Canada should allow for foreign flagged small vessels to carry containers along the St Lawrence River.

The construction of the Saint Lawrence Seaway placed some American and Canadian ports in very close proximity to each other across a river and connected by a bridge. Foreign flagged vessels could carry containers between an Eastern Canadian super port and an American inland waterway port at very competitive prices. The competition of such operation combined with the foreign origins of the cargo should prompt Canadian officials to provide maximum market freedom to Canadian domestic carriers seeking to carry containers between an Eastern Canadian super port and inland Canadian ports.

Conclusions

The American Jones Act and its Canadian counterpart have long protected the markets of domestic carriers carrying domestic bulk cargo between domestic ports. Non-bulk cargo of domestic origins makes up a very small percentage of their business and their earnings while they have rarely if ever transported interlined non-bulk cargo of foreign origins.

On the American west coast, transfer of containers loaded with goods of foreign origins between mega-ship and small ships that sail to small domestic ports could operate outside of the Jones Act. Such service would in no way infringe upon the traditional bulk cargo market of the domestic American ship transport industry.

On the Gulf of Mexico at the Port of New Orleans, river barges that carry containers along the Mississippi and Ohio Rivers could interline with mega ships at a super port near New Orleans. A natural barrier prevents foreign barges from sailing across the Gulf of Mexico and Caribbean Sea while the tugs would carry flags or be registered to propel barges along an American inland waterway, making the Jones Act irrelevant in this case.

On the East Coast, small ships that interline with mega-ships at a Canadian super port would sail under international rules to East Coast American ports and American ports along the St Lawrence Seaway. The foreign origins of the cargo should be the basis for market freedom for interlining carriers to sail to Canadian ports along the inland waterway. 

The opinions expressed herein are the author's and not necessarily those of The Maritime Executive.