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The Jones Act Is Protecting U.S. Shipyards to Death

April 25, 2019 in Economics

By Colin Grabow

Colin Grabow


Fresh reports
have emerged that the Philly Shipyard, the
recipient of multiple government
bailouts and largesse
, is once again on the brink of shutting
down. The shipyard’s looming failure isn’t just an indictment of
the corporate welfare that has been shoveled in its direction by
politicians, but also a little-known, nearly 100-year-old law
called the Jones Act.

Passed in 1920, the Jones Act mandates that vessels transporting
goods between two points in the United States meet four conditions:
they must be U.S.-registered, at least 75 percent U.S.-owned, at
least 75 percent U.S.-crewed, and U.S.-built. The logic behind the
law was that restrictions on foreign competition would, among other
things, encourage the development of a strong U.S. shipbuilding
sector.

It hasn’t worked out that way.

Rather than prospering, U.S. shipyards have been in a decline
for decades, and there are only a mere handful that build
oceangoing commercial ships. That may seem a headscratcher to some
given the Jones Act’s U.S.-build requirement, but it makes more
sense when one considers that these ships cost up to
five times more
than equivalent vessels built in foreign
shipyards.

The most recent vessel christened at the Philly Shipyard, the
Kaimana Hila, is a case in point. Built for transporting goods from
the West Coast to Hawaii, the ship offers a cargo capacity of 3,600
TEUs (20-foot equivalent units) for the whopping price
tag of
$209 million
. For comparison, the world’s largest container
ship, the 21,413 TEU capacity OOCL Hong Kong, was built in South
Korea for
$158 million.
That’s over six times the cargo capacity at a $51
million discount.

Faced with such high
prices shipping companies have delayed replacing their vessels and
instead keep them years — and sometimes even decades —
past their typical useful life.

Amazingly, despite the Kaimana Hila’s sky-high price the Philly
Shipyard is actually said to have
lost money
on the deal to build the ship.

Faced with such high prices shipping companies have delayed
replacing their vessels and instead keep them years — and
sometimes even decades — past their typical useful life.
Expensive ships make for expensive shipping, contributing to a
domestic
decline
in this form of transport in recent decades despite a
growing economy. Indeed, Jones Act shipping can be so expensive
that ranchers in Hawaii sometimes opt to place their cattle on
airplanes
for transport to the West Coast instead of ships.

Declining demand, meanwhile, has made it a struggle for U.S.
shipbuilders such as the Philly Shipyard to
achieve scale
or invest in the technology needed to bring their
costs down. They’re caught in a vicious cycle …read more

Source: OP-EDS

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