Archive for the ‘shipping’ Tag

Can the Jones Act, Save Alaska   1 comment

Protectionism does damage to the economy. How do I know? I live in Alaska, where the Jones Act has been protecting the American Merchant Marine for nearly a century. I pay 30% more for my groceries than you do anywhere else in the United States. I paid $3.89 a gallon for gasoline yesterday. The rest of the country paid, on average $2.46. Some of our high prices are due to higher shipping costs (we are, afterall, 2000 miles from the mainland), but hidden in those costs is the cost of the Jones Act.

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For almost 100 years, the act has created monopolies for domestic shipping interests, undermined the U.S. shipping industry, and done long-term damage to local economies in Hawaii, Alaska and Puerto Rico. Like nearly all protectionist efforts, the law has, over time, undermined the very thing it was designed to support: national security during times of war through an unparalleled shipbuilding industry and U.S. Merchant Marine.

Under terms of the law, sea trade between any U.S. ports is required to be carried on U.S.-built ships that are also U.S.-owned and flagged and populated by crew composed of at least 75% U.S. citizens. These manufacturing and labor restrictions took effect when the German U-boat submarine — not offshoring — was the biggest risk to U.S. commerce. But research by the George Mason University’s Mercatus Center shows the law has contributed to making the U.S. shipbuilding industry largely uncompetitive over the past 60 years.

As the Mercatus study notes, there were 2,926 large ships in the U.S. commercial fleet in 1960, making up 16.9% of the world fleet. By 2016, that number had fallen to 169 ships, only 0.4% of the world fleet. U.S.-flagged ships carried 25% of U.S. international trade in 1955; by 2015, the share had dropped to 1% of total exports.

In any other industry, this sort of economic decline would have set off alarms and drawn a major political response. In a 1999 study, the U.S. International Trade Commission estimated the Jones Act cost U.S. consumers $1.32 billion annually, its requirements being the equivalent of a 65% tariff on shipping services.

So where’s the outrage? Both the Interstate Highway System and cheaper aviation have made massive inroads into interstate commerce over the past century. Meanwhile, U.S. export and import businesses simply use cheaper foreign-flagged vessels. It also helps that U.S. airlines aren’t prevented from purchasing aircraft from Europe, Canada, or Brazil nor U.S. truckers from buying German or Japanese-made big rigs. While no one would propose banning airlines or truckers from relying on these foreign industries, this is precisely what the Jones Act does for the U.S. shipping industry.

Itermodal transportation options have exploded throughout the contiguous United States, while the seafaring industry’s decline has largely been hidden from view, except for the non-contiguous states of Hawaii and Alaska and insular territories like Puerto Rico. In Puerto Rico’s case, the Jones Act is the structural foundation behind much of its current economic woes. It’s estimated that the cost of all non-U.S. goods imported into the commonwealth are 15 to 20% higher than on the mainland, with three or four Jacksonville-based shipping companies handling all Jones Act-related transport to Puerto Rico. Thanks to these shipping costs, cars cost roughly $6,000 more in Puerto Rico than on the mainland, and food is roughly twice as expensive as in Florida.

It’s easy to find similar examples of major trade distortions between West Coast ports and Alaska and Hawaii. Cattle ranchers from the Big Island have to charter a weekly 747 cargo jet to get their cattle to the mainland because it’s cheaper than Jones Act shipping. In the 1970s, it was cheaper for a Japanese-owned pulp mill in Southeast Alaska to send its products to Japan and then back to Seattle — 8,000 miles round-trip — than to ship the 700 miles directly to Seattle. There is no wood pulp industry left in Alaska today. While some would like to say it was a victim of environmentalism, the last company to operate here says the real culprit was the Jones Act and its insane costs. In the 21st century, such irrational shipping decisions would bear the additional worries about the excess carbon emissions they produce.

Of course, this has been allowed to continue because Alaska, Hawaii and Puerto Rico have tiny little voices in Congress, so they can’t be heard over the bellicose slogan shouting of the Longshoreman’s Union. Coincidentally, the shale oil and gas revolution is bringing attention to the Jones Act in parts of the country with more political clout. The December 2015 lifting of the 40-year ban on crude-oil exports has boosted oil exports to more than 500,000 barrels a day out of Texas and Louisiana ports. Yet according to the Congressional Research Service, refineries along the U.S. East Coast on average import more than 500,000 barrels of crude a day from Nigeria, Angola, and Iraq, rather than from the U.S. Gulf Coast — thanks, once again, to costs imposed by the Jones Act. Shipping from Texas to Northeast refineries costs roughly $5–6 per barrel using domestic shipping, while shipping even further up the Eastern Seaboard to refineries in eastern Canada (using international tankers and crews) costs just $2 a barrel. For a standard tanker carrying 300,000 tons deadweight, this amounts to cost savings of about $1 million per shipment.

Labor costs are the most significant difference. A unionized U.S. sailor is 5.5 times more expensive than one on a foreign-flag vessel, and such vessels are usually populated with sailors from many nations, especially the Philippines and China. A separate 1915 U.S. statute, written when ships were run by steam boilers, adds to the cost by mandating larger crews to keep watch over the boilers 24 hours a day. The statute is still in effect, even though U.S. ships are now powered by much safer diesel motors or, increasingly, by natural gas turbines.

Jones Act defenders argue loudly that the Act must be preserved because “national security” is at stake. But few commercial ships are useable by a 21st century Navy. There have been thousands of foreign-flagged commercial vessels docked in US ports every year since 2001 without a single terrorist incident tied to them. How would traffic between U.S. ports by these ships somehow increase the terrorism threat?

The 97-year-old law is many decades past due for serious amendment and perhaps even complete repeal. The upcoming centennial, in 2020, presents an ideal opportunity to highlight the Jones Act’s mercantilist history — and to bid it a final un-fond farewell.

Peril of Perfectionism   4 comments

Don’t let the perfect get in the way of the good. That’s an old saying that has never been truer than today.

Environmental activists tend to be perfectionists. They want air quality to be completely free of all pollutants. That sounds like a worthy goal until you realize that it is unachievable.

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Seriously. If we want to have warm homes, be able to travel and make things for consumption, we have to burn fossil fuels to power things. Currently, renewables make up less than 10% of the energy available and that’s with massive government investment well above the return on the dollar. Fossil fuels may be replaced someday by nuclear electric powering hydrogen fuel cells, but we’re nowhere near that dream right now.

And, then there are the forest fires. I woke up to completely natural air quality contamination on Sunday morning, but that’s another topic for another day.

While some activists want to eliminate all fossil fuels use in the name of air quality, it is not possible without major disruption to our quality of life, jobs and economy. That’s the “perfect” getting in the way of the good.

The United States has made major environmental improvements over the last 40 years. That’s a net good for all Americans and we certainly don’t want to backslide now, but many environmentalists refuse to see the good that has already been done and to recognize that clearing the air completely is not possible.

Consider this example of positive change. Totem Ocean Trailer Express (TOTE) hauls more than 35% of all goods consumed in Alaska. That makes them a vital part of the Alaska economy. When they lost a barge in a storm last winter, our grocery store shelves looked pretty barren for the next month while they strove to replace the lost stock. If they failed to sail at all, Alaskans would go hungry.

In 2012, TOTE announced plans to convert its maritime fleet to operate on cleaner-burning liquefied natural gas (LNG). The fuel switch on its East Coast ships operating in the Caribbean is complete. Now, TOTE Alaska Maritime is focusing on the transition of its vessels operating between Tacoma and Anchorage.

In 2014, TOTE inked an agreement with Puget Sound Energy (PSE), Washington’s largest supplier of electricity and natural gas, to furnish LNG for its ships, but now its LNG conversion has hit a roadblock.

Activists are attempting to block construction of PSE’s $300 million LNG plant on Tacoma’s Tide Flats. If they succeed, they will put Washington’s ports at a competitive disadvantage with Los Angeles and Vancouver, B.C., ports which are currently adding LNG facilities.

“By switching from diesel to LNG, maritime vessels at the port will reduce their greenhouse gas emissions into Tacoma’s air by more than 30 percent and dangerous particulate (smoke) emissions by more than 90 percent,” Puget Sound Energy Vice President Andy Wappler pointed out in The News Tribune in Tacoma.

The Environmental Protection Agency calculated there are 23 million people with port-related jobs and seaports account for 26% of the U.S. economy. There are an additional 39 million Americans who live in proximity to ports.

LNG processing reduces greenhouses gases and eliminates other air contaminants. During conversion from natural gas to LNG, CO2 and other pollutants are removed. LNG is simply the same natural gas many Americans use in our homes and businesses, only purified and refrigerated to minus 260 degrees, where it turns into a liquid. It is not explosive or even particularly flammable in its liquid state.

When warmed, it’s the same fuel folks use in their stoves and furnaces, and requires the same safety precautions. LNG storage tanks are not pressurized, so cannot blow up if there is a breach.

The tank PSE plans to install in Tacoma is “designed to withstand a once-in-every-2,450-year earthquake (compared to our highway bridges, which are designed to a 1,000-year-earthquake standard),” Wappler contends.

PSE’s new facility doesn’t just benefit TOTE and other shippers. Wappler figures it will save its natural gas customers between $50 million and $100 million over 10 years compared to the cost of increasing pipeline capacity into the region.

There is one other environmental benefit. TOTE’s relationship with Alaskans for Litter Prevention and Recycling brings tons of recycled material to Tacoma for processing.

Grace Greene, TOTE’s Alaska general manager, told Alaska Business Monthly magazine there are other partners who contribute to the project, “but we’re probably one of the top three contributors, to the tune of more than $1 million every year.” Recycling has never really taken off in Alasaka because of the cost of shipping refuse to the Lower 48 for processing. TOTE is improving that situation and perhaps reducing the amount of trash Alaskan landfills collect.

As with everything humans do or build there are associated risks, but total risk avoidance is impossible. Why strive for the perfect and reject the good getting better?

Congress Scores One for a Change!   Leave a comment

This is the way the government should operate. This fund has been underutilized for years, allowing it to have a large balance which apparently has not been raided. Now, they’re looking at spending that surplus on a massive port expansion that it necessary to adapt to the enlarged Panama Canal.

YES! Congress scores one for a change!

http://www.governing.com/blogs/fedwatch/gov-senate-water-bill-boon-ports.html

Senate Water Bill Could Be a Boon for Ports

With the expansion of the Panama Canal, U.S. ports are scrambling to make much-needed upgrades in preparation for bigger ships. A key piece of newly introduced legislation may offer some relief.

Last week, the Senate Environment and Public Works (EPW) Committee introduced and approved the Water Resources Development Act. The legislation addresses a bevy of issues, including flood protection, inland waterways and environmental restoration. But ports may be among the biggest winners.

For years, port officials and shipping companies have complained that the Harbor Maintenance Trust Fund is being underutilized. The fund gets its money from a tax on cargo, but it’s been allowed to build up a big balance even though it was designed to pay for maintenance and needed improvements. Lawmakers — especially those from coastal states — are angry that the money is allowed to accumulate in order to offset congressional spending and reduce the deficit.

Brian Pallasch, a lobbyist for the American Society of Civil Engineers, says the trust fund typically collects about $1.6 billon to $1.8 billion in revenue per year, with only about $800 million actually spent on harbor maintenance. A 2011 study by the Joint Committee on Taxation projected the fund’s end-of-year balance to be $6.4 billion and estimated it would rise to more than $22 billion by the end of 2021. Senate EPW Committee leaders, like Republican Ranking Member David Vitter of Louisiana, say the bill for the new Water Resources Development Act (WRDA) contains provisions to ensure “the money industry pays for dredging is actually used for dredging.” The bill was approved unanimously by the committee, and Democratic Chairman Barbara Boxer of California says Senate Majority Leader Harry Reid has agreed to have the full Senate take up WRDA in April or May.

Infrastructure advocates and the Government Accountability Office say that despite big, growing balances in the fund, there’s a backlog of harbor maintenance projects that could mean costly delays and dangerous conditions if they’re not addressed. Mainly, if a harbor isn’t dredged to its proper depth shipping can be slowed because vessels may have to wait for high tide in order to access the port without scraping the sea floor. In other cases, ships may skip a port altogether if conditions are poor and it’s faster to just continue on. Shipping companies also may load a vessel at less than full capacity in order to keep it from floating too deep in a channel that hasn’t been adequately dredged; that raises shipping costs since it requires more vessels to move each batch of goods. In the worst case scenario, if a channel isn’t properly maintained, ships can run aground.

With the widening of the Panama Canal, the issue is all the more salient: U.S. ports will have to take steps to accommodate the larger “post-Panamax” if they want to put themselves in the best strategic position.

The House Transportation and Infrastructure Committee hasn’t revealed it own WRDA bill yet, but Republican Chairman Bill Shuster of Pennsylvania says WRDA will be one of the committee’s first tasks. Since Congress hasn’t passed a WRDA bill since 2007, new members won’t be familiar with the legislation. Educating them about it, Shuster said, will be key to ensuring its success.

The fund was created with the passing of the 1986 Water Resources Development Act (WRDA).

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