Most Americans only come into contact with the Jones Act when they wonder why their cruise ship stopped off at a foreign port. This maritime legislation from a bygone era (1920) is nearly a century old. The Jones Act increases costs for US coastal shipping. That constraint has restricted the availability of waterborne options to alleviate recent US energy supply bottlenecks. Today we look at the impact of the legislation in energy markets.
The US American Phoenix, a 339 MBbl oil tanker built in Mobile, AL was launched earlier this year on June 21, 2012 (see picture below). The American Phoenix is the only US built tanker to be launched so far in 2012. On her maiden voyage in August the American Phoenix delivered a cargo of gasoline from Lake Charles, LA to Port Canaveral FL, two United States ports.
The American Phoenix is a Jones Act vessel. The Jones Act is actually the Merchant Marine Act of 1920, although it came to be known as the Jones Act after its sponsor Senator Wesley Jones. The Merchant Marine Act is a federal statute that regulates maritime commerce in U.S. waters and between U.S. ports. Section 27, better known as the Jones Act, deals with cabotage (coastal shipping) and requires that all goods transported by water between U.S. ports have to be carried in U.S.-flag ships, constructed in the United States, owned by U.S. citizens, and crewed by U.S. citizens and U.S. permanent residents. That’s why your cruise ship stops off at a foreign port – to keep staff costs down by avoiding the Jones Act. There’s a reason that buffet is bottomless.
Also regulated by the Jones Act is the repair or refurbishment of ships at overseas shipyards. The provision limits foreign repair work on the hull and superstructure of a U.S.-flagged vessel. That means once a US flagged vessel is built you can’t go and get cheap repairs at some body shop down in the islands. Although interested parties get very animated either way defending or criticizing the Jones Act, its original intention was admirable - to ensure the existence of a strong US merchant marine as part of national security.
Several other regulations since the Jones Act also impact the operation of US flag vessels. The Oil Pollution Act of 1990 requires double hulling of U.S. coastal tank vessel fleets by 2015. The Maritime Security Act of 1996 created the Maritime Security Program (MSP). The MSP provides a fixed retainer payment to U.S.-flag vessel owners in exchange for providing the Department of Defense with assured access to their vessels and related transportation services and infrastructure during times of war, national emergency, or when otherwise deemed necessary by the Secretary of Defense. In October of 2011 the MSP paid participating owners about $8,500 /day. That subsidy can be viewed as compensation for Jones Act restrictions.
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in domestic waters from East coast to Gulf coast.
Congress approves shale-gas tankers for Sunoco operationNovember 19, 2011|By Andrew Maykuth, Inquirer Staff Writer Share on emailShare on printShare on redditMore Sharing Services Under the legislation, promoted by Sen. Pat Toomey and Rep. Pat Meehan, the three tankers… (Tokyo Gas Co. via Bloomberg…)The U.S. Congress approved delayed legislation on Friday that will allow Sunoco Inc. to transport ethane, a form of liquefied natural gas (LNG), from the Philadelphia area to the Gulf Coast.
By unanimous consent, the House on Friday approved a bill that permits three LNG tankers to participate in "coastwise" trade - carrying cargo between U.S. ports. The Senate approved the legislation on Thursday.
The Mariner Project, a joint venture between Sunoco Logistics Partners L.P. and MarkWest Energy Partners L.P., would transport ethane produced from the Marcellus Shale by pipeline to Marcus Hook and then by sea to the Gulf Coast, where ethane is used to make plastics.
http://articles.philly.com/2011-11-19/business/30419597_1_lng-tankers-vessels
Sen. Toomey’s Job-Creating Bill Passes Senate With Unanimous ConsentThursday, Nov 3WASHINGTON, D.C. - Bipartisan legislation, sponsored by Senators Pat Toomey (R-Pa.) and Diane Feinstein (D-Calif.), passed the U.S. Senate tonight with unanimous support.
The America's Cup Act (S. 1759) included an amendment by Sen. Toomey to help create hundreds of jobs in Pennsylvania's Delaware County by granting waivers to three American-made ships that will allow them to travel from Pennsylvania to the Gulf Coast region.
Under the Jones Act, these three tankers are prohibited from traveling from one U.S. port to another because they are foreign flagged. A new project at the Marcus Hook refinery in Delaware County has been held up for a year because there are no qualified U.S. flagged liquefied natural gas tankers available to transport natural gas from Pennsylvania to the Gulf region.
Granting these waivers will create significant new jobs in the Pennsylvania region. It will result in as many as 400 new construction jobs to build the necessary facilities in Marcus Hook and 25 long-term, full-time jobs to maintain the facilities. New construction jobs will also be needed in Washington and Westmoreland counties where a new pipeline will be built to connect to existing infrastructure. In addition, these ships have the potential to be serviced and maintained at the shipyard in Philadelphia, further bolstering Pennsylvania's economy.
"I am grateful to Sen. Feinstein and Commerce Committee Chairman Jay Rockefeller for their supporting this legislation," Sen. Toomey said. "In these challenging economic times, it is important that we do what we can to get this new project in Marcus Hook off the ground and get people back to work. I also appreciate Congressman Meehan's leadership on this issue in the House of Representatives and hope we can get this bill signed into law very soon."
http://www.toomey.senate.gov/?p=press_release&id=334
Wall Street Journal article several weeks ago said that the first cargo on this vessel was oil from Eagle Ford fields (shale) going up to Bayway, New Jersey. The above article mentions a gasoline cargo to Florida. Which is correct?
In reply to Jones Act, American Phoenix by Barry Parker
The American Phoenix maiden voyage carried gasoline from Lake Charles LA to Port Canaveral in FL see link below:
http://www.bunkerportsnews.com/News.aspx?ElementId=7ec5b92c-1c8a-453f-b236-42fc4a758576
The voyage to New Jersey reported in WSJ was in September 2012, I believe
Sandy Fielden
Dear Sandy,
I have read several of your articles and you do fabulous work. However, you are dead wrong on the Jones Act. Yes the Act does inhibit everything you are referring to but this is indicative of the entire US government’s failures. The inflated costs of hiring US employees, paying US wages, and Building US ships should not be blamed on the Jones Act. The Act does exactly what it was set out to do... ensure that the United States has an able body merchant marine for PEACE and WAR. If the Jones Act was repealed (off shore oil industry aside) there would be no US fleet left within a couple of years. The FACT is that the market demand is there to support the US wages and US employees... the biggest obstacle is the US build requirement. The cost of US built ships is inflated ridiculously due to the absurd Navy contracts. Oh and you failed to mentioned that China and South Korea subsidize their ship building...If the US fleet procure newer vessels the freight rates would drastically decrease and there would be added competition. You also failed to mention most countries have cabotage laws.
But essential what you are suggesting is OUTSOURCING... HOW HAS THAT WORKED? The economic logic behind outsourcing is that a company lowers its costs by gaining cheaper labor and therefore has more capital to expand its operations in its domestic country..... HAS THAT HAPPENED? NO! LOOK AT DETROIT!
In 2011 there were over 2.2 million jobs outsourced meanwhile 1.5 million created. Those jobs were created because the federal reserve is dumping BILLIONS of dollars into the economy.....
SO to summarize you want to outsource the shipping industry, so that we can BORROW more money to utilize cheaper shipping costs.
DO you have any idea the added costs to the US coast guard if we have foreign vessels partaking in US coastal and inland shipping?
Don’t get me wrong I am well aware of the failures of the Act as well as oligopolistic tactics of American shipping companies. This all needs to be resolved, but the Jones Act is vital to US national security and economy. Repealing is a quick fix that will have drastic consequences down the line.
The Jones Acts biggest weakness is the lackadaisical government support. IF it was supported whole heartedly the Fleet would be in much better conditions. However, every couple of years there are talks of repeal and companies are hesitant to invest in the fleet. That is the primary reason there isnt enough barges or tankers to meet the Gulfs petroleum production. Why would a company risk financing vessels when a foreign vessel may come in with 1/3 of the operating costs. The utilization of foreign vessels in the 2011 SPR draw down was pathetic.
Bottom Line, the US needs jobs to pay back the 17 trillion of debt it owes. Lets keep the Jones Act intact and attempt to resolve this country's issues because the quick fix usually results in more quantitative easing and higher taxes...
thanks again for your informative articles, but please take a different slant on the Jones Act