Study: Long Jones Act Waiver Could Cut U.S. Shipbuilding Activity by $2.6B
In a new study conducted for the Transportation Institute, international consultancy PwC has calculated the potential cost to U.S. maritime capability if the White House's Jones Act waiver is sustained for a protracted period: up to $2.6 billion in lost domestic shipbuilding demand, $1.8 billion in lost tax revenue, and $12 billion in lost labor income in a worst-case scenario.
As a response to the soaring energy prices brought on by the conflict with Iran, the White House instituted a Jones Act waiver for liquid bulk and certain dry bulk cargoes on March 17. The waiver was later extended to 150 days, and is up for renewal again soon; it has had little measurable effect on fuel prices, and the Act's supporters are encouraging the White House to end it early or allow it to expire.
The PwC report was commissioned in order to evaluate the likely effects on the American maritime economy if the long-term waiver keeps getting extended. It focuses in on four metrics that can be readily assessed, without diving into the debate over whether the Jones Act is good for the civilian economy. These include tax revenue; jobs and labor income; domestic shipbuilding demand; and domestic capital investment.
The PwC study evaluates a range of scenarios for long-term waiver effects; though not specifically defined, the parameters include assumptions about how much shipbuilding activity is affected by domestic demand, the response of shipyards and owners to changes in waiver policy, the difference between foreign-flag and Jones Act day rates, and the legal treatment of foreign operators, among other factors. PwC noted that the evaluation of net effects varies markedly with assumptions about these factors, and its findings reflect a broad range of possible outcomes - in some cases, varying by as much as a factor of 10.
For tax revenue impact, PwC estimates that the impact could be as little as $160 million and as much as $1.8 billion, depending on the circumstances. For employment, the net impact could be in the range 22,000 to 130,000 jobs, including direct and indirect employment.
For shipbuilding activity, the change in demand could be anywhere from $300 million all the way up to $2.6 billion per year. This estimate rests on an assumption that the Jones Act allocation out of total U.S. shipyard sector activity is (conservatively) about 20 percent, the remainder being performed primarily for the industry's U.S. Navy customer.
For capital investment effects, the range of outcomes appears narrower. A waiver could put $1.1-2.6 billion worth of annual investment in fleet renewal, shipyard modernization and supporting capital expenditure at risk, PwC estimated. The consultancy reached this conclusion by assuming a 15 to 35 percent reduction in annual investment in response to a prolonged waiver. This cut would come out of the average annual baseline expenditure of about $7.3 billion - far from a drop to zero, but still a major reduction.
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"These estimates should not be read as a forecast that all identified investment would be canceled or withdrawn immediately under a long-term waiver," PwC wrote in a statement. "Rather, they are intended to capture the order of magnitude of fleet and shipyard investment that could be exposed to delay, reduction, or redirection if a sustained waiver were to alter expectations regarding future demand for US-flag vessels and domestic shipbuilding."
PwC noted that the essential benefit of the Jones Act is in preserving domestic maritime capability to support national defense; a prolonged waiver could have security implications that "extend beyond the quantified economic metrics" in the report.
