Thomas Grennes’ most recent anti-Jones Act paper (1), published by the Mercatus Center, is wrong on virtually every count. Like his previous “studies,” it is an error-filled, one-sided advocacy document that ignores key facts that contradict its premise.
The main premise of Grennes’ paper is that EL FARO’s sinking demonstrates that the Jones Act makes the American maritime industry less safe. The Coast Guard and National Transportation Safety Board findings do not support this proposition.
Grennes’ contends that the Jones Act makes the American maritime industry less safe and cites the sinking of EL FARO in 2015 as an example. He never mentions, however, that the U.S. Coast Guard (Coast Guard) and National Transportation Safety Board (NTSB)—which conducted exhaustive studies of the cause of that sinking—directly contradict his premise. Not a single finding from either of those government investigative reports found that the Jones Act contributed to the accident or is in need of change as a result of the incident.
EL FARO tragically sank in Category 4 hurricane winds off the coast of the Bahamas. After one of the most comprehensive maritime investigations in U.S. history, the Coast Guard and NTSB investigators found that the loss of the vessel was due to a confluence of factors, including operational mistakes, design and operational vulnerabilities, weather forecasting errors, human error, and regulatory provisions that were, in their view, in need of reform. Together, the NTSB and Coast Guard investigators issued more than 45 separate recommendations to amend or update various laws and regulations. The Jones Act was not cited as a cause or in need of change to address the accident.
In fact, at a public event recently, Coast Guard Capt. Jason D. Neubauer, Chairman of the Marine Board of Investigation for the EL FARO incident, was specifically asked about the impact of the Jones Act on the vessel sinking. Capt. Neubauer made clear that the Jones Act was not a cause of the incident, a statement consistent with all findings and recommendations in the Coast Guard and NTSB reports.
Grennes’ paper was released after the NTSB and Coast Guard had issued their findings and recommendations. He even cited the NTSB and Coast Guard findings, but never mentioned that these agencies investigating EL FARO had issued causal findings and numerous recommendations for policy and statutory changes. Neither agency cited to or criticized the Jones Act in any way. Grennes’ decision to omit these material facts undermines his “analysis,” making the document more of an advocacy piece than any serious analytical work. (2)
Grennes misstates the comparison of the age of the domestic fleet with the world fleet.
Grennes “cherry picks” data to make his point. In 2015, the average age of both the Jones Act fleet and the international-flag world fleet was 21 years (3). The average age of the Jones Act fleet has declined since 2015, as new ships were delivered and older vessels were retired. For example, 17 new tankers have entered the Jones Act fleet in the past three years (4). The data shows the Jones Act fleet is on par with the world fleet, suggesting that the Jones Act is not a factor in the age of vessels.
The average age of the Jones Act containership fleet in 2015 was 31 years, which was older than the world average at the time (5). In his piece, Grennes’ attempts to conflate some version of this statistic with the average age of the Jones Act fleet as a whole, saying “the average age of ships in the US fleet (33 years) is greater than the average age of ships in the foreign-flag fleet.” Notably, Grennes has no citation for this fact.
Moreover, the age of the Jones Act containership fleet has substantially declined over the last three years, a fact also not mentioned by Grennes. Since 2015, eight new containerships have entered or will enter the U.S.-flag fleet within the next year (6). The Puerto Rico trade specifically has the youngest containership fleet in the country. Both TOTE and Crowley have invested in two LNG-powered containerships each for the Puerto Rico trade, two of which have entered the market already and two of which are expected to enter the market in 2018. These containerships are the first LNG-powered containerships in the world – i.e., innovative – and represent a significant investment in the future of the U.S.-flag fleet (7). Matson has also ordered four new containerships for the Hawaii trade. Two of these containerships will be the largest container vessels ever built for the Jones Act trade, with deliveries scheduled for 2018 and 2019. All of these technologically sophisticated Jones Act sea going tankers and containerships, and many other smaller domestic ships, were built in U.S. shipyards using the most up-to-date technology, despite Grennes’ assertion that the Jones Act fleet is “virtually obsolete.”
Grennes says that both NTSB and Coast Guard “identified factors related to the age of the ship” to suggest that was a factor in the sinking. But the reality is that age of the vessel was not identified in either report as a contributing factor to the EL FARO sinking. Nor did either agency’s report suggest that the Jones Act contributed to the loss of the vessel.
Grennes makes a very basic mistake by confusing the domestic (i.e., Jones Act) fleet with the U.S. flag international fleet.
Grennes’ blames the Jones Act and its U.S. build requirement for “the virtual elimination of U.S. shipping from all trade routes open to foreign competition” and for the U.S. Merchant Marine’s “near disappearance.” In doing so, he conflates U.S.-flag international shipping with domestic shipping, a serious error since neither the Jones Act nor the domestic build requirement apply to U.S.-flag international shipping. If the U.S.-flag international fleet has declined, it has nothing to do with the Jones Act. Rather the American domestic fleet, which is subject to the Jones Act and the U.S. build requirement, is thriving with approximately 40,000 vessels, nearly 500,000 related jobs, and an economic impact of nearly $100 billion annually (8). In fact, the industry has experienced significant recapitalization in many trades recently, including in the Puerto Rico and Hawaii trades.
Grennes’ argument that American shipyards are more expensive than foreign shipyards due to the U.S.-build requirement also misses a basic fact. Unlike foreign countries–such as China and South Korea–that are frequently cited as competitors for the U.S. shipbuilding industry, the American government does not provide massive subsidies to shipyards that construct Jones Act vessels. For example, China provides billions of dollars in subsidies to their domestic shipyards. Between 2006 and 2012, these subsidies reduced the cost of producing ships in Chinese shipyards by up to 20%. (9) The Korean government has also supported its shipbuilding industry to the tune of $22 billion. (10)
Grennes blames the Jones Act for reduced railroad safety and domestic waterborne commerce.
Grennes blames the Jones Act for railroad safety issues, saying the Jones Act forced crude to move by rail when it could have moved by water. Let’s start with the fact that Bakken crude is produced in a land-locked state. That crude moved by rail because there was no water access for transportation and no pipelines to transport that crude. Movement of Bakken from North Dakota by tankers and barges could only occur after take-away from the source – in this case by rail. And obviously the Jones Act has no application whatsoever to the railroad industry; this argument may be one of the most far-fetched ever against the Jones Act.
Moreover, he says the Jones Act has “contributed to a decline in domestic water transportation.” There are no facts supporting this assertion. In fact, U.S. Army Corps of Engineers’ data on domestic waterborne commerce shows cargo volumes have remained steady since the financial collapse in 2008. (11) While there are many factors affecting the volumes of domestic cargo, the application of the Jones Act to those movements is simply not one of them.
Conclusion: The Jones Act does not harm safety
Despite Grennes’ protestations to the contrary, investigators who spent over a year studying the tragic EL FARO sinking did not identify the Jones Act as a contributing factor. In fact, vessels comprising the Jones Act fleet are on both the Paris and Tokyo Memorandum of Understanding on Port State Control “white list” of the safest fleets in the world. (12) If the U.S.-flag fleet was actually significantly older and unsafe, the fleet would not be among the very top flags in the world for safety performance. Grennes’ piece ignores any facts that impede his vision that the Jones Act should be repealed or reformed, and as a result, his paper relies on factual inaccuracies and omissions to support his argument.
- Thomas Grennes, Sacrificing Safety Is An Unintended Consequence of the Jones Act, Mercatus Center (March 2018).
- It is also worth noting that the paper’s disclaimer explicitly states, “Views and positions expressed in the Mercatus on Policy series are the authors’ and do not represent official views or positions of the Mercatus Center or George Mason University.”
- John Gallagher, US Jones Act Fleet Safety Called Into Question after El Faro, IHS Fairplay (Nov. 10, 2015).
- United States Flag Privately-Owned Merchant Fleet Report, Maritime Administration, U.S. Department of Transportation (data as of March 1, 2018).
- IHS Maritime & Trade data (2015).
- TOTE (2), Crowley (2), Matson (2), and Pasha (2).
- Mike Schuler, Introducing Isla Bella – World’s First LNG-Powered Containership Launched at NASSCO, GCaptain (April 19, 2015).
- Contributions of the Jones Act Shipping Industry to the U.S. Economy in 2011, PricewaterhouseCoopers for the Transportation Institute (January, 2014) (private study).
- Myrto Kalouptsidi, Detection and Impact of Industrial Subsidies: The Case of Chinese Shipbuilding, 85 The Review of Economic Studies 1111-1158 (Aug. 18, 2017).
- Nick Savvides, Japan complains over Korean shipyard subsidies, HIS Fairplay (Apr. 11, 2017).
- Final Waterborne Commerce Statistics for Calendar Year 2016, Waterborne Commerce Statistics Center, U.S. Army Corps of Engineers (2017).
- White List, Current Flag Performance, Paris MoU Annual Report (for period July 2017-June 2018); White List, New Inspection Regime, Tokyo MoU (for period July 2017-June 2018).