Jones Act/Domestic Shipping

Related Issue: Jones Act and the Gulf Coast Oil Spill

America's dependence on the seas remains integral to its economic health and survival as a nation. Similarly, because of the vastness of the nation, the expansive network of rivers, lakes, and canals is critical to the efficient transportation of natural resources, food, and manufactured goods from state to state and ultimately to market. Because of the importance of the merchant marine and the critical role that coastwise and inland waterway transportation plays in its economy, America has always made sound decisions about protecting the integrity of this system along with the vitality of our waterways.  

Thus, the Jones Act, titled after its sponsor Senator Wesley R. Jones, from Washington State, was passed as part of the Merchant Marine Act of 1920. This federal legislation imposes four primary requirements on vessels carrying goods between U.S. ports; specifically, the vessels must be:

These requirements apply to all trade between ports in the U.S. mainland, Alaska, Hawaii, Puerto Rico, and the Virgin Islands. While excluded from the Jones Act, the outlying territories, such as Guam, are covered by similar laws that require vessels be U.S.-flagged, owned, and crewed, but do not impose the U.S.-build requirement. The Secretary of Homeland Security can waive the Jones Act requirements on a case-by-case basis during times of national emergency or in the interest of national defense. For example, the

Jones Act requirements were waived for about two weeks in the wake of Hurricanes Katrina and Rita to expedite the transport of oil and natural gas.

Provisions such as these are not unique in the world, nor are they new to the United States. A survey conducted by the Maritime Administration -- an agency of the Department of Transportation -- found that 47 nations have laws restricting foreign access to domestic trade. These similar cabotage laws -- from the French word “caboter” which means to sail coastwise or “by the capes” -- reserve a country's domestic maritime transportation for its own citizens. Cabotage principles are designed to guarantee the participation of a country's citizens in its own domestic trade. These laws foster the development of a merchant marine and give preference to local labor and industry. More importantly, they support national security and protect the domestic economy. Cabotage laws have been the norm since the early days of our nation. In 1789, the first Congress of the United States restricted registration for coastal trades and fisheries to U.S.-built and U.S.-owned vessels and gave these vessels preferential treatment with respect to tonnage taxes and cargo import duties. Additional cabotage laws were enacted during the intervening years between that first cabotage law and the enactment of the Jones Act over a century later. Variations of these cabotage laws exist today in the U.S. transportation, utility, and communications industries. Federal laws reserve other kinds of U.S. maritime activity to Americans -- including passenger ships, fishing in U.S. territorial waters, towing in U.S. harbors or between two points in the United States, salvage operations in the U.S., dredging in U.S. waters, and the exploitation of minerals and other energy resources within the 200 mile economic zone.

 

Maritime Administration
Survey of Fifty Three Maritime Nations

Source: U.S. Department of Transportation

The Jones Act fleet includes over 39,000 commercial vessels and annually transports approximately one billion tons of cargo. Based on the principle that cargo carried between U.S. ports is vital to the American economy, the Jones Act protects the nation's waterways from being turned over to foreign ships, owners, or crews.

Important Benefits of the Jones Act

Jones Act vessels support a wide range of American industries. For ocean shipping, the coastwise and intercoastal fleet primarily employs crude oil and product tankers while the domestic offshore fleet mainly employs container vessels. For Great Lakes shipping, the Jones Act fleet carries iron ore, coal and limestone. Inland waterways shipping carries more domestic cargo than ocean shipping and Great Lakes shipping combined, transporting farm products, petroleum products, coal and non-metallic minerals, and chemical and allied products in bulk by barge.

Every State Benefits From Jones Act Trade

Jones Act cargo movement includes crude oil in coastal tankers from Alaska to California, grain via inland river barge from the Midwest to the Gulf Coast, metallic ores from Minnesota and Michigan in massive self-unloading Great Lakes vessels to Indiana and Ohio, inter-plant movement of chemicals and fertilizers along the Texas Gulf Coast, coal by barge from Appalachia to the Midwest, and merchandise to and from Alaska, Hawaii, and Puerto Rico.

Economic Impact of Jones Act Fleet

The operation of the Jones Act fleet leads to economic activity in a variety of sectors of the economy. Jones Act vessels are built in U.S. shipyards and ship owners are required to undertake periodic inspection, monitoring and maintenance ("drydocking").  Jones Act operations require loading and unloading of cargo at ports, warehousing of products prior to shipping, and ground transportation to position the cargo. These activities require coordination and oversight. For most Jones Act operators, the number of shore staff exceeds the crew on ships. The economic contribution of the Jones Act extends beyond ship operations. Shipbuilders purchase steel and other products from domestic companies to build ships. In turn, those companies purchase other products. At each level of production, wages are paid to employees who spend that money, generating additional economic impacts.

A Major Source of Employment

In 2006, an estimated 73,787 jobs were directly attributable to the Jones Act fleet and provided U.S. citizens with employment.  These  jobs include the crewing of vessels, the building, maintenance, and repair of those vessels, and the shore-side management and support of trade. Another 425,889 jobs arise from indirect and induced employment.  The indirect impact measures the economic activity in other U.S. industries that sell goods and services to Jones Act businesses. The induced impact measures the economic effect of goods and services purchased out of payrolls arising from the direct and indirect impacts of the Jones Act fleet. The combination of these effects comprises the overall contribution of the Jones Act fleet to the U.S. economy.

A Large Contributor to the American Economy and Tax Base

In 2011 dollars, the indirect and induced jobs account for $33.6 billion in U.S. value-added (i.e. Gross Domestic Product) and $21.7 billion in labor compensation. Overall, the Jones Act fleet is responsible for nearly half a million U.S. jobs and generates $45.7 billion in value added, $28.9 billion in labor compensation, and $9.9 billion in taxes to federal, state, and local governments.

TOTAL OPERATIONAL AND CAPITAL INVESTMENT IMPACTS OF
THE JONES ACT SHIPPING INDUSTRY ON THE U.S. ECONOMY, 2011

  DIRECT IMPACTS INDIRECT OPERATIONAL IMPACTS INDIRECT CAPITAL INVESTMENT IMPACTS TOTAL IMPACTS
Employment 82,040 382,850 13,550 478,440
Labor Income ($ millions) 7,213 $20,970 $768 $28,952
Value Added ($ millions) $12,060 $32,456 $1,229 $45,745
Output ($ millions) $34,261 $55,647 $ 2,632 $92,540
Tax Impact ($ millions) $2,580 $7,022 $274 $9,876
Source: PricewaterhouseCoopers commissioned by the Transportation Institute

The water transportation segment is responsible for most of the economic contribution of the Jones Act fleet, accounting for 56 percent of employment and 78 percent of output.

DIRECT CONTRIBUTION OF THE JONES ACT SHIPPING INDUSTRY, 2011

  SHIPBUILDING and REPAIRING WATER TRANSPORTATION TOTAL DIRECT CONTRIBUTION
Employment 36,200 45,760 82,040
Labor Income ($ billions) $2.4 $4.8 $7.2
Value Added ($ billions) $3.0 $9.1 $12.1
Output ($ billions) $7.4 $26.9 $34.3
Taxes ($ billions) N.A N.A $2.6
Source: PricewaterhouseCoopers commissioned by the Transportation Institute
Total or gross output The sum of receipts (or sales) and other gross income generated by each sector. For wholesale and retail sectors, total output only reflects the wholesale or retail margin and not the value of the product sold.
Value added The total output of each sector less the associated value of intermediate inputs. The sum of value added across all sectors in the economy is gross domestic product (GDP).
Labor compensation

The wages, salaries and benefits paid to employees.

Tax payments

The taxes paid to federal, state, and local governments.

Employment

The number of full-time and part-time jobs, averaged over the year.

An American Tradition Worthy of Protection

Some have criticized the Jones Act, saying that it protects a more expensive mode of transportation that costs America more dollars. The reality is that the difference between U.S. and foreign costs for shipping can be explained entirely by the difference in costs related to taxation, regulation, labor costs, and working conditions.

Americans have a higher national standard of living, compensation, and working conditions. American workers and American companies have to meet national safety regulations. American employers have to adhere to strict U.S. laws. American companies, their employees, their vendors, and suppliers all have to pay American taxes. All of these costs directly impact shipping costs, and thus American shippers. No matter how streamlined and cost-effective their operations are, they will always be at a disadvantage when compared to foreign operators who do not have to play by comparable rules.

If the Jones Act was repealed, the U.S. would experience a devastating loss of maritime jobs -- a loss to the U.S. In addition to the economic damage that would result from the thousands of lost jobs, shipyards would stop investing in cost-efficient operations. Long-term shipping contracts would cease, thus the economy of scale built into those contracts would disappear. The current Jones Act fleet would begin to erode and defaults on federally-guaranteed mortgages would escalate dramatically, costing the federal government millions of dollars. Total exposure of the federal government and the owners of the vessels has been estimated to be over $1 billion, thus the government has a compelling financial incentive in seeing that the Jones Act fleet is not undermined and wiped out by foreign competition. 

By Necessity ... A Competitive and Innovative Industry

Jones Act marine transportation is fiercely competitive, with carriers competing for spot business and long term contracts. In some markets, such as the inland grain trade on the greater Mississippi River system, a futures market exists to forward fix, speculate, and hedge grain barging commitments.

Jones Act marine transportation rates are also naturally limited by competition from other modes of transportation. In virtually every market, rising maritime shipping rates trigger customers to shift cargoes to other modes of transportation. On the flip side of the coin, Jones Act trade must remain competitive and keep its costs low in order to capture cargo from competing modes of transportation, such as oil product pipelines connecting the U.S. Gulf to the Mid-Atlantic states and  western coal delivered to the Southeast by rail. Foreign sourcing and transportation also imposes powerful rate ceilings on many cargo movements, such as the shipping of petroleum products on the Atlantic Seaboard.

At the same time, innovative production techniques have resulted in lower construction costs. For example, barge prices are lower today than they were a decade ago. Innovative technologies and economies of scale have been developed in order to meet vigorous competition. All of this has occurred naturally within the industry, thus there is no requirement for the manipulation of outside forces in order to increase competition or innovation. It is already happening -- with very positive results for America and American taxpayers.

Buy American

The size and average 30-year life of the fleet used in Jones Act trade dictates that about 2,000 replacement vessels are required each year to maintain the fleet at its current capacity. With these 2,000+ Jones Act vessels being replaced each year, approximately 20,000 shipyard workers are employed through new vessel construction. In addition, 14,000 American jobs are created as a result of the maintenance and repair of existing vessels used in Jones Act trade. The "rule of thumb" for the Jones Act fleet is that new construction creates 10 shipyard jobs per "average" vessel.

Estimated Jones Act Vessel Construction Schedule
and Shipyard Employment
(annual averages in five year increments)

 

Source: Mercer Management Consulting,Inc.

If foreign-flag ships were permitted to transport merchandise between two points in the United States, the foreign-flag operators would be able to avoid paying U.S. taxes. They would employ foreign citizens, not Americans. They would be subject to foreign construction and safety rules, not stringent American guidelines. Amending the Jones Act would result in the removal of a portion of the U.S. gross national product, adversely affecting the U.S. balance of payments.

The ripple effect on the U.S. economy would extend far beyond the waterfront. Shipyards, their suppliers, their insurers, their employees, and the employees of their suppliers would suffer. Land transportation systems that now efficiently connect and coordinate with water transportation systems would encounter more complex problems in maintaining the smooth flow of domestic cargoes, which would, in turn, increase shipping costs. Terminating the Jones Act amounts to a shortsighted and "penny wise, pound foolish" decision if it comes to pass.

Foreign trade ministers oppose the Jones Act for very obvious economic reasons. They want to build ships in their own (often subsidized) shipyards that would be used to transport the domestic commerce of the United States. Meanwhile, they do not offer to terminate their own cabotage laws in exchange. Even if they did, the deal would not be equitable since America's domestic trade is far greater in size than the domestic markets of our foreign competitors.

"...Maintaining the American merchant fleet is vital to our economy and national security. I would oppose any move to undermine this (Jones) Act."

            -- Senator Barack Obama, September, 2007.

Our Nation's Security Depends on the Jones Act

An undeniably vital aspect of the Jones Act is the range of national security benefits it affords the United States. First, the Jones Act fleet plays a vital role in maintaining the nation's economic security by ensuring the United States controls its essential transportation assets and the related infrastructure in both peacetime and wartime. American-owned and American-manned ships ensure the safe transport of grain down the Mississippi, ore across the Great Lakes, coal from America's heartland, and more. Without the Jones Act, America's internal network of waterways would be vulnerable to foreign shippers who don't play by the same set of safety rules or adhere to important environmental standards. America's economy relies on an efficient system of shipping, thus with foreign vessel operators playing a role, our natural resources and goods, and citizens are subject to the whims of ship operators who have a lot less at stake.

Because of the Jones Act trade, American shipyards and repair yards efficiently operate during times of peace. As a result, when war places demands on these resources, they can be mobilized to repair, convert, and construct vessels for military use -- quickly and efficiently. At the same time, with the Jones Act in place, equipment manufacturers that supply the military are in business and ready to serve the nation when they are called upon to use their expertise to produce vital equipment for military needs.

 In addition, the actual Jones Act vessels and Jones Act crews form a ready team of professionals who play a central role in meeting U.S defense needs when they emerge -- sometimes at a moment's notice. Without this ready fleet of ships and people, the U.S. taxpayer would bear the burden of building these ships and maintaining these highly technical capabilities over many years. It has been estimated that the Department of Defense would have to spend $800 million annually to maintain these resources.

For example, the SS NORTHERN LIGHTS, a Jones Act trailer-ship, typically engaged in the Alaska coastwise domestic trade, made 25 voyages and 49 port calls to the Iraqi war zone during Operation Iraqi Freedom following the Pentagon’s request and need for a fast and shallow draft vessel to move military vehicles and hardware to the conflict area.  Furthermore, according to the Military Sealift Command, U.S. merchant mariners moved 90 percent of the combat cargo and supplies used by the military in the Iraq war.  Jones Act vessels, whether operating on ocean lanes or inland waterways, provide training for U.S. citizens and create a ready labor pool the military can draw from when needed. These vessels provide an estimated 87 percent of the employment opportunities for the U.S.-flag fleet.

With the military budget under continued assault to streamline staffing and ship requirements, it is easy to see the importance of keeping the current cost-effective manning and shipping system intact through the Jones Act. The Jones Act fleet serves as an important adjunct to government-owned defense resources, without any burden of cost to the government and the American taxpayer. Real world demonstrations such as the Gulf War, Bosnian conflict, and Operation Iraqi Freedom confirm the importance of Jones Act vessels in the mobilization of U.S. allies and in meeting logistics requirements.

 "The Gulf War was a staggering logistical accomplishment... We moved more than 95 percent of all the equipment, supplies, and fuel by sea. And U.S.-flagged ships carried 80 percent of the ocean-going cargo. We did it in record time and with a near-perfect safety record. We tapped the U.S. maritime industry and thousands of merchant mariners to help augment the government's strategic sealift forces."
VADM Francis R. Donovan,
USN Commander, Military Sealift Command, August 1992

Critical To Our Environment And To Our Safety

 The regulations issued and enforced by the U.S. Coast Guard are the most effective in the world. Employing U.S. citizens and resident crews while navigating the coasts and rivers of America involves the reliance on people whose orientation is to obey the law, work hard, and have a personal stake in the environmental and economic well-being of the United States. Thus, communities from sea to shining sea are safer for having U.S. operators and U.S. merchant mariners serve the nation's maritime transportation needs. Thus, the Jones Act is vital to the environmental security of our nation.  

The U.S. merchant marine must meet the stringent requirements of federal, state, and local laws that protect America's precious waterways and tidal areas. The U.S. merchant marine is required to meet stringent oversight inspections that have the highest standards in the world. Plus, because Jones Act carriers are liable for failures in performance by law, through insurance premiums, and through the pressure of demanding charterers, U.S. operators cannot cut corners or run a slipshod operation using untrained mariners. The introduction of foreign-flag ship operators into the American system invites disaster. Some foreign ships do not have the burden of following national guidelines that guarantee a well-maintained vessel that is constructed for superior safety. Foreign crews are often paid extremely low wages, receive few benefits, and work inhumane schedules. Many do not have the superior level of training or professionalism that characterizes the U.S. merchant marine. Thus, if the Jones Act is repealed, America's waterways will be heavily traveled by vessels and crews that do not perform to American standards -- nor will they have the incentive to do so.

If the Jones Act were to be terminated, the number of foreign-flag vessels carrying hazardous cargoes along our environmentally sensitive coastlines and within the harbors and waterways would increase beyond the already unacceptable level. Our nation's precious environment would be even more vulnerable to those whose operating systems are not up to our standards or within our control.

Vital To America's Future

The Jones Act has been integral to the economic and national security of our nation since it began. Today, the Jones Act offers a clear way to preserve the millions of dollars of tax income gained from Jones Act trade and fleets. The Jones Act employs thousands of Americans through shipping and shipping support activities across the nation. The Jones Act fleet is a competitive and innovative industry that continues to provide America with high quality and cost-effective services from coast to coast. The Jones Act ensures a ship building and ship repair resource that can be mobilized quickly in times of war. The Jones Act guarantees a professional and ready force of merchant mariners who are vital to America's ability to supply our military forces -- bringing food, equipment, and ammunition needed to sustain a conflict in distant lands. The Jones Act ensures that our nation's waterways are traveled by well-built ships that meet American safety and environmental standards. The Jones Act facilitates America's complex and streamlined system of transportation of goods that is invaluable to a strong economy.

The Jones Act fleet provides extra capacity and manpower that the military can call upon during deployments. Rather than maintaining a fleet of vessels that sits dormant until a period of deployment, the military can call on the Jones Act fleet on a temporary basis. For example, the SS Northern Lights, a Jones Act trailership, made 25 voyages and 49 port calls to the Iraqi war zone. The Jones Act fleet and its crews can be drawn upon quickly to support U.S. military operations.

America cannot afford to lose control of the movement of crude oil in coastal tankers from Alaska to California ... grain via inland river barge from the Midwest to the Gulf Coast ... metallic ores from Minnesota and Michigan on Great Lakes vessels to Ohio ... coal by barge from Appalachia ... and goods to and from Alaska, Hawaii, and Puerto Rico. American citizens residing across the vast reaches of this nation expect and deserve the broad-reaching benefits of our nation's current high standard of shipping and professionalism that is guaranteed by the Jones Act.

The Jones Act is an American tradition founded on common sense; an American tradition that protects economic superiority and national security through quality shipping and unparalleled professionalism. Cabotage laws have enabled America to become the economic force of the world while securing the safety of our vast national network of inland waterways and coastwise trade. The Jones Act has served America well during the better part of this century, fostering a superior and streamlined system of transportation that is so critical to our nation's economic health and fostering the professionalism of a team of merchant mariners second to none. The Jones Act has had a dramatic impact on America's past. It has brought us to a position of strength today. It will continue to serve America well in its future.

For further information about the Jones Act, please visit the Maritime Cabotage Task Force.

Domestic Shipping

The domestic segment of the American merchant marine operating on the Great Lakes, the inland waterways, and in the coastwise, intercoastal, and domestic offshore trades carries a combined total of over one billion short tons of cargo each year. The major products moving in the domestic trade are crude petroleum, raw materials, coal, chemicals, and farm products. Traditional liner cargoes and manufactured products move between the contiguous 48 states and Alaska, Hawaii, Puerto Rico and Guam. In order to maintain market share, the domestic fleet must compete successfully with alternative modes of inland transportation, including railroads, trucking, and occasionally, airfreight. It is a vital component of the overall transportation network serving our country.

In 2010, the domestic fleet comprised more than 41,071 vessels and associated equipment, including approximately 5,466 tugs and 31,380 barges, needed to carry this cargo and 80 million passengers annually. These vessels range from the largest of containerships and tankers to small, dry cargo barges including tankers, dredging vessels, passenger ships, etc.

 The Jones Act fleet is strong and continues to grow. The fleet is being continuously upgraded and renewed and has become increasingly productive through innovation, composition, and the introduction of new ships. The business opportunities provided by the Jones Act have encouraged large investments in vessels, shipyard modernization and other marine transportation assets. In fact, another 21 vessels were delivered between 2009 and 2011 and entered the Jones Act fleet.

Overall, the Jones Act/Made in America components represents throughout the economy an aggregate of over 500,000 jobs, $100 billion in total economic output and contributes $11.4 billion in U.S. tax revenues and $29.1 billion in labor compensation, in 2009 dollars.

Directly, approximately 74,000 U.S. jobs in the commercial shipbuilding and domestic waterborne transportation industries are estimated to be attributable to the Jones Act fleet. In 2009 dollars, these jobs directly resulted in $36.4 billion in U.S. economic output, and $6.5 billion in U.S. labor compensation. In addition, Jones Act businesses and their employees paid an estimated $2.5 billion in taxes at the federal, state and local levels.

The Jones Act is the backbone of America’s merchant marine and a solid foundation upon which to build and expand the U.S. merchant marine into the future. The U.S.-flag domestic fleet plays a vital role in sustaining the national maritime infrastructure that supports U.S. maritime and naval power. For example, roughly 87 percent of all U.S.-flagged shipboard employment opportunities are found in the U.S. privately owned, domestic fleet; that fleet provides over 70 percent of the new construction opportunity for U.S. shipbuilders; and 97 percent of all cargo moving on U.S.-flag vessels moves on vessels operating under the coastwise laws.

Further, domestic waterborne services offer the Nation a number of benefits:

U.S.-Flag Privately-Owned Vessel Fleet (2013)

Tankers (over 1,000 GT) 44
Tankers (under 1,000 GT) 63*
Dry Bulk (over 1,000 GT) 7
Dry Bulk, Passenger, Offshore Support 2,938*
Containerships (over 1,000 GT) 25
Roll On/Roll Off (over 1,000 GT) 10
General Cargo (over 1,000 GT) 22
Tank Barges 4,502*
Dry Cargo Barges 26,971*
Railroad Car Floats 25*
Tugs/Towboats 5,458*
Dredges 462
Oceangoing Cruise Ship 1
Vehicular and Rail Ferries 564*
TOTAL 41,094
* Calendar Year 2011 - Latest Available Statistics
Sources: U.S. Maritime Administration
U.S. Army Corps of Engineers
World Dredging and Mining Construction Annual Report

Dredging Trade

The marine construction and dredging industry is a specialty construction trade characterized by equipment that is housed on floating platforms. The largest purchaser of marine dredging services is the federal government through the U.S. Army Corps of Engineers. The demand for dredging stems from four primary factors:

As of 2013, the privately and state-owned U.S.-flag dredging fleet totaled 462 dredges, and was comprised of the following:

The state of New York maintains a 16 dredge fleet of 4 pipeline and 12 mechanical dredges, and the state of Ohio manages a 22 dredge fleet of 11 pipeline and 11 mechanical dredges. In addition to the aforementioned, the U.S. Army Corps of Engineers maintains a 12 dredge fleet consisting of 7 pipeline dredges and 4 hopper dredges.

Source: World Dredging & Mining Construction Annual Report

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