Jones Act Critics Hyperbole Exposed

Nothing like hard actual numbers to deflate the hot air balloon certain Jones Act critics have been energetically blowing up over the past few years. The recent Jones Act waiver resulting from the shutdown of the Colonial pipeline provided just such tangible facts. Before getting to that, let’s set the stage on the claims the critics have been making about the relative rate impact to shipping customers from the Jones Act.

One think tank likes to focus on differences in ship construction costs, initially saying it was 6–8 times more to build a ship in the U.S. When the source for that was retracted, their new refrain became 4–5 times, even though that was still above the 3.7x ratio from recent actual examples. The larger misleading aspect of course of their constant harping on construction costs is the implication that resulting total shipping costs have a similar geometric multiple. At another think tank, a professor took a 2.7x ratio from a government report that a modicum of genuine research would have shown related to crewing costs and represented that to be the difference in overall shipping rates. What both of these examples have in common is the conflation of individual cost components with the prices paid by customers of shipping companies. Vessel construction and crewing costs are a minority of total costs borne by the ship owner, particularly in the container sector where the large majority of costs are unaffected by the Jones Act.

Whether its incompetence or guile matters less, as some people will accept what these ‘thinkers’ say. Unfortunately, claims assumed to come from real academic research actually come from carrying water for entities seeking to progress their own business interests. That some of the funding for such ‘research’ comes from foreign entities makes these efforts even more pernicious. In any case, by cherry picking selective differences that they then exaggerate, these Jones Act critics want to convey that rates paid are 3x, 4x and 5x higher than what they would be if foreign flag ships were allowed for domestic movements. We now have some hard numbers that showcase the absurdity of such hyperbolic and geometrically inaccurate claims that these critics have been peddling.

S&P Global is one of the largest business information providers in the world. Its Platts division is considered one of the most credible providers of information on the energy sector and that extends to detailed information on shipments of crude oil and petroleum products worldwide.

In a May 12, 2021 article, S&P Global Platts reported on an actual foreign-flag tanker booked under a Jones Act waiver. They named the ship (Agioi Fanendes) and said it was fixed at a rate of lump sum $900,000. That ship is a 2019 built, 49996 DWT, Malta flagged product tanker, similar to all of the Jones Act medium range tankers. The article said that rate for the USGC-USAC voyage was slightly lower than other spot rates talked the day before when prices were reported in the lump sum $1 million range for a foreign-flag tanker. It noted that Jones Act ships had a cost above foreign flag ships and referenced $50,000 per day as the spot rate on May 12 for a Jones Act medium range tanker on the USGG-New York route. In comparison, foreign-flag product tankers reported earnings in the $30,000 per day range on short haul voyages as the spot rate for May 12. The article went on to say that the USGC-Caribbean route also last traded at lump sum $900,000 for a five day voyage at 13 knots based on load at Houston and discharge at Pozos Colorados, Columbia. Because that active foreign-flag product tanker lane involved a slightly shorter voyage than the six days from Houston to New York referred to in article, that underscores that the $900,000 waiver related lump sum didn’t involve any unusual profiteering during the short term waiver. As such, the $900,000 lump sum can be used as the actual benchmark for what foreign-flag movements would cost if there were no Jones Act.

With this set of hard facts from a credible source like S&P Global Platts, we can develop what the precise Jones Act lump sum rate would have been on May 12 and how that compares to the actual $900,000 foreign flag lump sum. As spot rates represent the amount that customers pay, we know that the spot rate differential on May 12 was $50,000 less $30,000, or $20,000. Six day voyage from Houston to New York means it is twelve roundtrip sea days and adding two port days translates into a total fourteen day voyage. At the $20,000 spot rate market differential, that results in an additional $280,000, or a total of $1,180,000 lump sum for a Jones Act vessel to make the same voyage at the same time. In other words, the apples to apples Jones Act cost is 31% above the foreign flag cost. The total differential on that fixture extends out to a whopping 0.66% of the retail price of gasoline in New York on that date. Will await the ‘analysis’ of critics on how much that difference impedes gasoline moving by water from Houston to New York.

The 3x, 4x and 5x differences touted by the Jones Act critics is 10 times, 13 times and 16 times larger than this actual 31% difference involving a tanker movement. With the higher percent of non-ship related costs with container movements, my own analysis shows the actual difference in the container segment is less than half that and circles in the 15% range. In that larger Jones Act segment, the spread between the hyperbole of the critics and the actual difference ranges from 20 to 33 times. Conveniently, the critics ignore the cost and transit time increases in the container backhaul lanes that will accompany any repeal as well as cost increases for foreign flag ships consistently engaged in domestic commerce. These critics are just shoveling balderdash with their geometrically inaccurate and misleading claims.

So what explains the extraordinary gap between what the critics are claiming and the factual reality? Ignorance of shipping industry costs/terminology, a weakness in math/analysis skills and outright duplicity all play roles. We live in a time where people can be swayed just by the repeated utterance of something that is devoid of any real factual backup. The misleading claims from think tanks come from people who certainly aren’t dummies. Cloaked in scholarly titles at well-regarded institutions, they convey the impression that their claims result from serious academic research. In reality, they are more like carnival barkers, trumpeting numbers they know are bogus with the sole goal of advancing the business interests of the entities who are funding their efforts with serious money.

Recognize that these critics are really lobbyists in academic research clothing, with opinions bought and paid for by special interests. They engage in their hyperbole because they know that the relatively modest actual differences in overall shipping costs wouldn’t have chance of swaying the view of reasonable people who recognize the clear national security benefits of the Jones Act. Understanding their actions, however, doesn’t in my view make their hyperbole and duplicity any less reprehensible.