01 February 2012

U.S. territories, Hawaii seek exemption to U.S. Maritime Laws

U.S. Virgin Islands only dependency exempt from onerous shipping restrictions

Marianas Variety

Guam, Hawaii, Alaska and Puerto Rico are facing a dilemma of aging deep draft ships that are on average more than 28 years old, because federal maritime laws require vessels engaged in the noncontiguous trades to be built in the United States, where costs are very high, Michael N. Hansen, president of the Hawaii Shippers Council, stated in a position paper obtained by Variety.

Because of this U.S. mandate, “the prohibitively high cost of construction at the major shipbuilding yards on the United States mainland nearly precludes all new ship orders,” he wrote.

This situation has resulted in an aging non-contiguous trade fleet of oceangoing deep draft ships, making ship replacement a critical economic issue for the noncontiguous jurisdictions.

The Variety contacted Guam Delegate Madeleine Z. Bordallo for a comment. She said: “There is a broad coalition of interests that support an American Maritime fleet that is American-flagged and American-crewed. This coalition includes labor unions, such as the seafarers and longshoremen, as well as national security groups who argue that an American merchant fleet is important to national security. This is the environment that we must consider in any effort to repeal the Jones Act, or more realistically, to carve out an exception for Guam. We are always watching for an opportunity to raise this issue in legislation. Further, many of our friends in Congress who share our interest in promoting a strong defense posture in the Pacific would oppose our efforts to exempt Guam from the Jones Act. The dynamic has not been conducive to a Jones Act exemption, as there is a greater emphasis in this current economic climate on protecting American jobs, as opposed to outsourcing jobs to foreigners. We are always mindful of efforts by stakeholders or the other territories that may give us an opening for changes to current law.” 

Jones Act

The navigation laws of the U.S., popularly known as the Jones Act, require that vessels transporting cargo and passengers between domestic points must be U.S.-flagged, U.S.-crewed, U.S.-owned, and U.S.-built. These requirements pertain to all the domestic noncontiguous jurisdictions with the single exception of the application of the U.S.-build requirement to Guam, Hansen said.

Although exempt from the U.S.-build requirement, Guam obtains very little advantage from this more liberal provision of the law. This is primarily because the westbound domestic container trade to Guam depends on its linkage with Hawaii, which requires U.S.-built ships.

The Jones Act requirements most acutely affect the domestic noncontiguous jurisdictions because they have no surface transportation alternatives to ocean shipping, Hansen wrote.

In comparison, on the contiguous United States, railroad, inland barge, pipeline and road truck carriages are readily available. The high cost of domestic ship construction coupled with the availability of these alternatives has resulted in a limited number of oceangoing ships (as opposed to tugs and barges) engaged in the domestic coastal and inter-coastal trades. 

“The ability to access new ships at a reasonable cost profoundly affects the capacity of ship operators to provide shipping services. Clearly, the acquisition cost of a ship is a key component of any shipping company’s capital structure. However, it is also essential for operators to regularly replace their fleets at realistic intervals with technically modern ships at internationally competitive prices,” Hansen argued.

In the future, if it becomes necessary to substantially replace the oceangoing noncontiguous fleet within the current restrictions of the Jones Act, much higher freight rates would be required to justify constructing the ships in the U.S., Hansen warned.