Hacker News Reader

Comment by leeoniya | Hacker News Reader

"The Northeast also can’t receive gas from other U.S. states by ship because of a 1920 law that prohibits foreign-flagged vessels from moving between American ports."

wat?

View on HN

The Jones Act says that a ship has to stop at a non-US port in between US ports, UNLESS THAT SHIP IS US FLAGGED (meaning it complies with all US labor, environmental, etc. regulations)[1]. These days, very few merchant ships are US flagged: essentially you have to be specialized in the business of moving between US ports (most prominently shipping to Puerto Rico) versus shipping between countries.

It would not make economic sense for an LNG carrier to be US flagged year round to serve a market that exists for two months (New England in January and February), so no LNG tanker is US flagged. Therefore no LNG can be carried between Louisiana and Boston, and they have to come from Russia or Trinidad.

[1]: It is slightly more complicated then that. There are further regulations to prevent the obvious work-arounds you are presently thinking of, person who never heard of this law before but thinks he can outsmart it.

Disclaimer: my experience is in containerized cargo, not in bulk like LNG.

I take issue with your first paragraph. While it's true that many American flagged carriers run a mainland to island business (PR, Hawaii) I wouldn't call them specialized. Matson and APL are both very large US flagged carriers that have significant trans-pacific volume (i.e. the most significant, mainstream global tradelane). In fact, Matson (US flagged) has a reputation for being a premium transpac carrier because they operate their own dedicated terminals and can turn around cargo much faster than others.

None of this is to say that the Jones Act isn't a protectionist piece of garbage, but the situation isn't as dire as you lay out.

The Jones Act isn't really protectionist. We don't allow foreign registered trucks to carry cargo between American cities so why should the rule be any different for ships?

The Jones Act is highly protectionist, both in original intent and in actual effect. [0] The act grants a virtual monopoly on domestic island freight to the few US flagged carriers. You may have heard that things in Hawaii are expensive because "they have to ship everything there." That's true, but misleading. A gigantic share of US consumer goods are also shipped from China, but you don't hear similar complaints about the cost of goods in Tennessee . That's because the US carriers can literally charge anything they want [1].

Your analogy isn't accurate. The accurate analogy would be "We don't allow trucks manufactured outside the United States, owned and operated by non-US companies, and driven by non-citizens to carry cargo between American cities.

[0] https://www.economist.com/finance-and-economics/2017/10/05/h... [1] https://en.wikipedia.org/wiki/Monopoly_price

> A gigantic share of US consumer goods are also shipped from China, but you don't hear similar complaints about the cost of goods in Tennessee .

While I'm certain you are infinitely more knowledgeable on this than I am, this doesn't seem to be a fair comparison. Doesn't the scale difference (Hawaii vs the continental US) have an important impact on efficiencies and costs?

As a mere reader, if non-US-flagged ships aren't allowed to stop at two consecutive US ports, then it seems likely they'd head to California instead of Hawaii, since it is the larger market, leaving Hawaii, which would otherwise receive cheap cargo on a mid-way stop, instead having to them import it from the mainland, so paying shipping for both the initial foreign-to-mainland trip and then a low-competition and more expensive US-flagged mainland-to-Hawaii trip.

If they could stop at Hawaii before and then after mainland, then they could drop off containers when passing each way, lowering Hawaii's costs.

Is that true? A Canadian truck wouldn’t be allowed to haul cargo between Detroit and Buffalo, for example?

Yes, carbotage laws apply to road and air traffic as well, albeit not as strict as the Jones Act.

A Canadian truck based in Windsor (driven by a driver with valid work visa) is allowed to pick up goods in Detroit before going to Buffalo, because this leg of the trip is considered incidental to an internatonal route. However if the truck were to make multiple return trips between Detroit and Buffalo it would not be legal

Interesting. Is there something that would stop them from making a sham delivery in Windsor each time through to skirt the law?

It certainly is; note that in the EU the single market rules allow trucks from any country to ship between and within other EU countries with a single permit.

The post Brexit arrangements for this remain unclear, which is why people are starting to stockpile.

It's actually worse than that:

Ships that transport goods or passengers between US ports must be US-registered, owned by US citizens, built in the US, and operated by US residents. It's a bit of exceptionally protectionist legislation passed a hundred years ago that continues to hang on mostly because nobody uses boats to move things between US ports anyway.

It's a mess for the cruise industry thought. Cruise ships are never built in the US, so they have to drop off passengers at the same port they picked them up at, or it's a $778 fine per passenger, even in a medical emergency. The cruise company will make the passenger pay the fine, of course.

Where a ship is built is irrelevant. Foreign built ships can be US flagged. The owners just don't want to pay for it.

I think you're mistaken:

> The Jones Act requires goods shipped between U.S. ports to be transported on ships that are built, owned and operated by United States citizens or permanent residents.

https://www.investopedia.com/terms/j/jonesact.asp

You are correct. In fact, one cruise line did attempt to build a ship in the USA during the early 2000s for the purpose of running cruises in Hawaii. The project was a disaster. Norwegian Cruise Lines bought the ship's carcass, towed it to Germany, and had it turned into an actual passenger vessel. They were given special dispensation to run the cruises anyway when it was finished.

https://en.wikipedia.org/wiki/Pride_of_America

You are both sort of correct. A foreign built ship can be us flagged, it just isn’t eligible for Jones act trade. I am a US Merchant Mariner who has worked on a US flagged, Australian built ship in Asia. There aware other considerations besides just cabotage laws about where one might want to flag one’s vessel.

The one thing I never understood was why everyone gets bent out of shape over shipping rules but don’t consider or care about airline cabotage.

The Jones Act prohibits using a foreign vessel to ship things from one US port to another. You can import or export on a foreign vessel, but you can't use a (say) Panama-flagged ship to move stuff from New York to Boston.

Ships are subject to their country's rule and regulations; if a down-on-their-luck country wants to look the other way on environmental hazards or lax operating procedures on a ship, that ship can be run for cheaper than an American ship.

If we didn't have the Jones Act, we'd be hard-pressed to justify having any sort of merchant marine shipping at all -- foreign-flagged ships could undercut even moving stuff up and down the coasts or waterways.

Still, it does come up often, especially during emergencies. For example, when Puerto Rico had trouble getting goods shipped in after Hurricane Maria because there weren't enough US cargo vessels on hand to move cargo from Florida to Puerto Rico. The president at the time was criticized for not rapidly suspending the Jones Act to allow foreign ships to move critical goods.

https://www.nytimes.com/2017/09/28/us/jones-act-waived.html

https://www.brookings.edu/blog/up-front/2017/10/25/what-ever...

Is it not possible for us to regulate the behavior of foreign-flagged ships as a condition for allowing them to dock at US ports? This would seem to have better implications than banning them entirely.

Indeed it is. See for example Paris MOU:

https://www.parismou.org/

https://en.wikipedia.org/wiki/Port_State_Control

It's not just a foreign flagged vessel but a foreign made vessel.

This is why you also (annoyingly) can't go on a cruise between solely American ports (IE, Hawaii island tour; California->Hawaii; Washington->Alaska; eastern/southern/western seaboard tour) without stopping someplace else. Typically, they use Canada for western/eastern cruises.

Here's a Planet Money episode on the Jones Act

https://www.npr.org/sections/money/2017/09/27/553990861/epis...

I had the same question. Why would they be foreign-flagged if the are from another state?

Correct. Just like how most countries don’t allow foreign companies to operate domestic trucking or domestic flights.

It does mean places like Puerto Rico can buy things more cheaply internationally than nationally.

Similar to how Amazon (used to) enable sales tax savings by making it easy to buy from out-of-state instead of in-state.

The difference is that it's really rare to have restrictions on the vehicles themselves. An American company can register trucks (that have been homologated) or airplanes regardless of where they were manufactured; a Jones Act-compliant vessel must also be built in the US, which is a Catch-22.

Larger vessels are usually foreign-flagged for regulatory (avoidance) reasons.

Yep. The Jones Act

Well, natural gas can be shipped between states, it just has to by US flagged vessels. (There May not be any US-flagged LNG ships).

“Can’t” isn’t true.

It’s like saying “Walmart can’t ship goods between its US warehouses and US stores because foreign truckers aren’t allowed to ship interstate”.

Well, duh.

The Jones Act also bans registering a vessel in the US if it wasn't built there. US shipbuilders are happy serving the captive market, so if you want one to build an LNG carrier it'll cost at least four times what Samsung charges.

If the US had an open registry, there would be US-built LNG ships; there's no shortage of competitive American shipbuilders that make vessels small enough to be exempt. But the Jones Act pissed that away, as protectionist laws invariably do.

This is sort of incorrect, it is possible to flag a foreign built ship under the American flag, it just isn’t eligible for Jones Act trade. There are a few reasons why a company might want to do this but for the most part, companies will choose a flag of connivence over American flag if they can sail between US ports anyways.

If there are no qualifying LNG tankers then “can’t” is completely true.

Reply on news.ycombinator.com