| Print | Close Window | AMO Currents - Posted: May 3, 2012 |
Jones Act cannot be weakened if America is to fulfill its opportunities
Although support for the Jones Act remains deep and broad, misguided noise from the law's critics has recently increased to a dangerous pitch regarding potential short-term waivers and the price of gasoline.
These were the central subjects addressed by Overseas Shipholding Group President and Chief Executive Officer Morten Arntzen in a presentation delivered to the Marine Society of New York April 23. The Marine Society is a charitable and education organization with a regular membership composed entirely of seafarers, all of whom must be or have been officers aboard merchant vessels under the U.S. flag. Among the society's early honorary members was President George Washington.
"I am here to speak about America's seafarers, American maritime jobs and American ships - in short about the Jones Act," Arntzen said. "It's a good law that provides our nation with sound, stable, cost-effective transportation. The U.S. fleet today consists of 40,000 Jones Act vessels that generate half-a-million American jobs, more than $100 billion in economic output each year, with benefits felt in virtually every corner of our nation. Like most of you in the audience, I have never been more firm in my support for the Jones Act or in my belief in its value for America. At the same time, I have never been more concerned about the future of the Jones Act than I am today.
"We the American shipping industry must band together to protect the Jones Act," Arntzen said. "Our voices must be loud, our convictions strong and our message clear: the Jones Act cannot be weakened if America is to fulfill its opportunities. Short-term waivers of political convenience will have an enormous long-term negative impact on the industry."
The Jones Act "protects our industrial base, U.S. jobs and our national security," he said. "The U.S. Navy's position is crystal clear: repeal of the Jones Act would hamper America's ability to meet strategic sealift requirements and Navy shipbuilding."
In his presentation, Arntzen cited the Jones Act's clear statement allowing for waivers "only in cases of national emergency or when no American vessels are available." After Hurricane Katrina in 2005, the Jones Act was temporarily waived to allow foreign-flagged vessels to move oil products on the Gulf Coast. "Was this a national emergency? Yes it was. Did our industry protest this decision? No we did not," he said.
He continued by citing "perhaps the most misguided attack against the Jones Act," which followed the 2010 oil spill in the Gulf of Mexico. Critics then erroneously blamed the law for preventing the use of foreign-flagged skimming vessels in containment and clean-up operations.
"A number of media outlets and pundits bought into this story and criticized the unwillingness of the President to waive the Jones Act," Arntzen said. "With some, the accusation stuck. As Mark Twain is alleged to have said: 'A lie can travel halfway around the world while the truth is still putting on its boots.'
"Now the facts: the Jones Act only applies within the area three miles from shore, the territorial waters of the U.S., and the Deepwater Horizon rig was located 50 miles off shore. In other words, foreign skimmers could operate lawfully throughout the massive area around the well," he said.
"In addition, the Jones Act contains provisions allowing waivers for specialized foreign vessels if such were needed and no American vessel was available," he said. "On top of that, the Jones Act already allows for expedited waivers in oil spill emergencies. Then to add belt and suspenders to the waiver possibility, the Coast Guard even established special rules to expedite those waiver requests if necessary. The truth is there were no magical foreign ships ready to handle anything American-flag vessels couldn't already handle.
"Long after the well was finally capped, Admiral Thad Allen, who was the President's National Incident Commander for the Spill, was asked about the impact of the Jones Act on the cleanup. Not once, he told a Congressional committee, did the Jones Act inhibit any element of the cleanup. The Coast Guard said the same thing, as did the Department of Transportation and the Department of Interior. The fact is the Jones Act did not inhibit the cleanup in any way; to the contrary, it helped."
Arntzen pivoted to last summer's drawdowns from the Strategic Petroleum Reserve and the large number of Jones Act waivers needlessly issued for domestic oil transportation. "Was this a national emergency? No, this happened under the guise of reducing gasoline prices. And this we object to."
He tied these events to the present and the election-year politicking surrounding the price of gasoline. Arntzen pointed out both sides of the political spectrum have tried to float ruptured proposals for Jones Act waivers on product shipments to hold down the price of gas this summer.
"The premise for those advocating blanket summertime waivers of the Jones Act is that you can bring gasoline prices down by switching out Jones Act tankers with foreign-flag tankers. This is political math at its worst. We are talking about a few pennies of difference. And, because transportation costs are so insignificant in the pricing equation and Jones Act movements of gasoline and a relatively small part of the supply chain, it won't move the pricing needle for gasoline at all. At most it will put a penny or two of profits into an industry that is already more than adequately profitable.
"There is no mystery as to what determines the price of a gallon of gasoline," Arntzen said, providing the following cost break down: 75 percent for the crude oil, 15 percent in taxes and 10 percent in refining, transportation and distribution costs. "It costs 10 cents to move a gallon of gasoline from India to the East Coast and 5 to 7 cents per gallon to move a barrel of gasoline from the U.S. Gulf by Jones Act tonnage, roughly the same from Rotterdam to the East Coast in a foreign-flag product tanker," he added.
Arntzen also addressed the false conclusion put forth by the Energy Information Administration that there were not enough Jones Act product tankers to move "incremental barrels of gasoline from the Gulf to the Northeast" in the event of refinery closures. "The EIA reached this conclusion - which initially was taken as gospel - while neglecting to factor into their analysis the use of the articulated tug/barge fleet in the Gulf that is available to move products along the coast. I would compare that to Joe Girardi deciding to have the Yankees face the Red Sox without anyone playing in the outfield," he said.
"The oil transportation market is remarkably nimble, accurate and fast," Arntzen said. "Vessels will be repositioned. Perhaps tank barges will move to shorter Gulf-to-Florida runs, freeing up tankers for the longer runs. Jones Act vessels will become available via the spot market. Vessels on long-term charters will be sub-chartered for the Gulf-to-Northeast trade. The barrels will be moved - easily.
"Can the Jones Act function as intended if, every time gasoline prices spike or there is a national election, the President waives the Act in the name of cheaper gasoline? I think not," he said. "The effect of these political temporary waivers will be to reduce growth opportunities for Jones Act operators, reduce employment prospects for our seafarers and slam commercial shipbuilders in the USA."
Arntzen outlined OSG's recent investments in building a fleet of Jones Act product tankers and enhancing its fleet of oceangoing articulated tug/barges. He also cited similar investments in Jones Act tank vessels by other owner/operators.
"None of us would have made these large capital commitments totaling billions of dollars if we were planning for a U.S. shipping world of Jones Act waivers of political convenience," Arntzen said. "This is not the way to maintain a vibrant maritime industry in the USA.
"I ask all of you to take a few minutes over the coming weeks to contact your elected officials and tell them how you feel about upholding our country's maritime traditions and capabilities. Remind them of the hundreds of thousands of jobs it creates and the commerce it facilitates. Tell them our country needs the Jones Act to stay."
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