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Jones Act: protectionist policy in the twenty-first century

Abstract

The Jones Act is a protectionist policy intended to address cabotage, seamen’s rights, and US maritime interests. This study estimates the economic impact of the Jones Act and coastwise restrictions from multiple economic points of view for 2006–2017. The building cost differential between domestic and foreign produced vessels represents a welfare loss to US consumers ranging from $5.2 billion to $6.6 billion, or $59.0 million to $74.6 million per Jones Act vessel. Average daily crew costs make up around 68% of the overall operating costs for domestic ships, compared to 35% for foreign-flagged vessels, and generate an additional per-vessel annual crew cost of $4.1 million, or an estimated annual loss of approximately $383 million for the Jones Act fleet. Differences between domestic and foreign-flagged ship operating costs (which include crew) average $923 million each year, with a total deficit for the entire period of $11.1 billion. Distributing that deficit across state-level imports finds that Texas accounts for $2 billion of the total, followed by Louisiana ($1.8 billion) and California ($1 billion). On a per capita basis, Louisiana is highest at $384, followed by Hawaii ($100). An analysis out of all domestic shipping reveals that Louisiana is again disproportionately disadvantaged. Breaking down the deficit by commodities finds crude petroleum and petroleum products most heavily affected.

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Notes

  1. 1.

    In 1789, the US Congress imposed duties on goods transported on foreign vessels. Under the Navigation Acts of 1817, foreign vessels were first restricted from domestic commerce (as in the Jones Act), and those restrictions were extended to passenger vessels in 1886. US build requirements were first legislated in 1905. See U.S. Maritime Administration (n.d. a).

  2. 2.

    As suggested above, it may be the case that South Korean ships are subsidized by the government.

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Appendix 1: Construction, daily crew and operating cost calculations

Appendix 1: Construction, daily crew and operating cost calculations

Construction cost calculations

Construction costs are calculated as follows. To the best of our knowledge the only detailed construction cost data comes from a report by the Office of Technology Assessment (1983), where a table is cited by the U.S. Maritime Administration, Office of Shipbuilding Costs, “Construction Cost Estimates for United States and Foreign-Flag Vessels”.

figurea

Source Office of Technology Assessment (1983)

Construction Costs in 1982 are provided for Tanker and Dry-Bulk vessels depending on 25,000, 70,000, 120,000 and 265,000 dead weight tons for domestic and foreign produced vessels. The analysis accounts for a lower bound inflation of 1% and an upper bound of 2% for year-on-year price changes. Construction costs are then matched to each ship by the type of ship, year of construction and the size of the ship, based on dead weight tons. For containerships, Ro–Ro, and general cargo ships, an average of the Tanker and Dry-bulk prices is applied.

$${\text{Build}}\;{\text{price}}\;{\text{as}}\;{\text{a}}\;{\text{percentage}} \;{\text{of}}\;{\text{foreign}}\;{\text{built}}\;{\text{ships}} = \frac{{{\text{United}}\;{\text{States}}\;{\text{build}}\;{\text{price}}}}{{{\text{Foreign}}\;{\text{build}}\;{\text{price}}}}$$

US constructed vessels are found to be 268–285% more costly to build as a percentage of vessels built in foreign shipyards.

Our analysis calculates the total monetary cost to construct the Jones Act fleet in US shipyards, relative to a counterfactual scenario whereby Jones Act ships would be constructed in foreign shipyards. The total number of Jones Act ships in the fleet is 89.

$${\text{Total}}\;{\text{construction}}\;{\text{cost}}_{\text{Domestic}} = 89*{\text{average}}\;{\text{construction}}\;{\text{cost}}_{\text{Domestic}}$$
$${\text{Total}}\;{\text{construction}}\;{\text{cost}}_{\text{Foreign}} = 89*{\text{Average}}\;{\text{construction}}\;{\text{cost}}_{\text{Foreign}}$$

Daily crew cost calculations

The daily crew cost calculations are as follows. Using Fig. 2 from the U.S. Maritime Administration (2011), the average daily crew costs are applied to each ship based, on the vessel type either and as an all American crew or under a scenario of a foreign crew cost structure. The differential for daily crew costs as a percentage is then calculated throughout the fleet.

The following formula specifies how the average differential in daily crew costs per type of vessel is calculated. An average of the daily crew costs demonstrates the average cost differential of maintaining the origins of crew requirement instead of allowing shipowners to employ foreign crew members.

$${\text{Differential}}\;{\text{in}}\;{\text{crew}}\;{\text{costs}} = \frac{{{\text{Average}}\;{\text{daily}}\;{\text{crew}}\;{\text{costs}}_{{{\text{United}}\;{\text{States}}}} }}{{{\text{Average}}\;{\text{daily}}\;{\text{crew}}\;{\text{costs}}_{\text{Foreign}} }}$$

Daily operating cost calculations

Average daily operating costs from Fig. 4 are first applied to each ship in the dataset and then multiplied by 365 to arrive at yearly operating costs.

Subsequently, the yearly operating cost differential is calculated by taking the difference between United States vessels and a counterfactual whereby Jones Act vessels are capable of operating at a foreign operating cost structure.

$${\text{Cost}}\;{\text{differential}} = {\text{Average}}\;{\text{yearly}}\;{\text{operating}}\;{\text{cost}}_{{{\text{United}}\;{\text{States}}}} - {\text{Average}}\;{\text{yearly}}\;{\text{operating}}\;{\text{cost}}_{\text{Foreign}}$$
Table 8 Average annual and cumulative deficit (2006–2017)
Table 9 Deficit per person (2006–2017)
Table 10 Domestic and foreign shipping by state of destination (measured in millions of tons)
Table 11 Commodity analysis

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Pagel, J., Brannon, I. & Kashian, R. Jones Act: protectionist policy in the twenty-first century. Marit Econ Logist 21, 439–463 (2019). https://doi.org/10.1057/s41278-019-00123-9

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Keywords

  • Jones Act
  • Maritime policy
  • Protectionism
  • Cost–benefit analysis (CBA)