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The Jones Act

Last month Senator John McCain had his bid to amend the Jones Act quashed, after his proposal was tagged on the end of a separate bill concerning the Keystone pipeline. Apparently his bill was not even discussed in the house, but it did lead to much debate outside of it, with those for and against filling internet forums and column pages with their views.

As an Englishman, the Jones Act was initially something I struggled to understand. For my compatriots, the Jones Act is an American law meaning that the trade of goods within the US must be on American built ships, sailed by American crew, sailing under the American flag. As such, foreign built/crewed/flagged vessels are not permitted to domestically trade within the states. This is the polar opposite to Europe, where the EU is free and open in trade, and very much open to foreign competition. Why the big difference?

As I learnt more, the benefits of the Jones Act became clearer. Firstly, it guarantees work to a large number of Americans within the shipping industry, but also those in related fields. As long as ships have to be built in US shipyards, those shipyards need people to build those ships. Secondly, it is argued that the Jones Act stimulates the US economy, by keeping investment within the states, keeping skilled workers in the states, and keeping those people employed. Thirdly, it ensures a healthy maritime industry ready to support the defense of the US when it is necessary.

What brilliant benefits, I thought! Guaranteed jobs, strong economy and a strong naval defense system. What could be the downside?

The major impact is lack of foreign competition leads to inflated prices. US shipyards are some of the most expensive in the world, which leads to higher operating costs for these ships. They cannot compete with the cheaper yards elsewhere, particularly those in Asia. These higher building and operating costs are passed on in the form of freight rates, which can lead to the seemingly bizarre situation of it being cheaper to import goods from somewhere further away, with a foreign vessel. This would seem against the very ethos of the Jones Act. Fundamentally it is argued that with no Jones Act, the cost of energy transportation becomes cheaper, and these cost savings are passed on to the American consumer.

Is it time for change then? With the US now more reliant on domestic shale gas rather than imports, does it matter? With this being a matter very dear to many in the American maritime community, I am very interested to hear your thoughts.

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This blog was written by Matthew Holman, pictured right, a Technical Consultant for the Americas. You can tweet Matthew @SG_MatthewH

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