History & Purpose of US Cabotage Laws - A Brief Overview

The intent and purpose of the Jones Act has been codified in the preamble of the Act itself:
It is necessary for the national defense and for the proper growth of its foreign and domestic commerce that the United States shall have a merchant marine of the best equipped and most suitable types of vessels sufficient to carry the greater portion of its commerce and serve as a naval or military auxiliary in time of war or national emergency, ultimately to be owned and operated privately by citizens of the United States; and it is declared to be the policy of the United States to do whatever may be necessary to develop and encourage the maintenance of such a merchant marine…(1800JonesAct, 2008)

The history of the Jones Act must be evaluated in its historical context. At the turn of the century the United States was completing a process of development after overcoming the turmoil of the Civil War. It was at this time that strong and viable merchant fleet became a political priority. The British, known for a strong merchant fleet, were looked upon as a model because of their ascension to a position of dominant world power. This was attributed to having a strong naval fleet. Sir Walter Raleigh stated, "Whosoever commands the sea commands trade; whosoever commands the trade of the world commands the riches of the world, and consequently the world itself” (McClintock, 2004).

Another development was the need for American military forces to have a dependable sea lift capability in time of defense. This was realized during World War I. The infant U.S. Navy did not possess the capability of performing this function, and thus relied on the civilian sector for the transport of military cargo to overseas destinations.

The volume of cargo and international trade for the U.S. merchant fleet had drastically decreased due to the economic decline and global turmoil caused by World War I. Further complicating the ability of the U.S. merchant fleet to compete in international commerce were higher construction and operation costs. For example, in 1926 the comparative monthly crew costs for ships of equal size were: $3,270 for the United States; $1,308 for Great Britain; and $777 for Japan. Historically, the United States curbed the impact of such issues through cabotage laws, which are government measures used to protect or foster a domestic shipping industry by reserving all or a portion of international sea commerce to ships which fly the national flag (McClintock, 2004).

Cabotage laws were first introduced with the Shipping Act of 1916. The Shipping Act stated that only citizens of the United States, or companies in which a controlling interest was held by a citizen of the United States, could own a U.S. vessel. Additionally, the secretary of transportation had strict control over the transfer and chartering of U.S. vessels to foreign companies, and it provided for the regulation of rate agreements to avoid rate wars. Subsequently, Congress passed the Merchant Marine Act of 1920, which was arguably the nation's most influential cabotage law (McClintock, 2004).

Proponent Argument

In addition to national defense, proponents argue that the Jones Act provides additional benefits to the United States. Among these include job protection due to unfair competition by from other nations.

Job Protection

Phillip Grill (1996) says that job protected by the Jones Act is 124,000 (as cited in The Hidden Costs, 1996). Grill further says that these jobs must be protected in order to prevent the loss of jobs to foreign competitors, who charge less than fair wages for similar work done by U.S. workers. This is a claim to unfair competition. Indeed the wages of a merchant marine are incredibly high compared to their counterparts. A U.S. longshoreman or marine clerk can earn upwards of $100,000 to $137,000 per year (Longshoremen, 2002). Indeed this is a much greater salary found in such places as China.

National Defense

In the wars of this century, commercial shipping has been critically important. The relevant question is not whether future threats might require that fleets of commercial-type ships be available. The question is whether present programs provide such a capability effectively and efficiently. If the U.S. flagged fleet is fully employed during peacetime serving commercially important domestic and international trades, it is neither an entirely reliable nor a low-cost military reserve. This was verified during the Gulf War (Ferguson, n.d.).

Some security justification for transporting war material in peacetime exclusively on U.S. flagged ships is valid. The fact that a large fraction of military preference cargo consists of household goods and private automobiles dilutes any such basis for incurring the high costs of cargo preferences. Further, cargo preference does not buy much reserve military capability; the cargo preference largely supports bulk carriers and container ships that are of limited military use (Ferguson, n.d.).

The higher than competitive prices that are permitted under the antitrust exemption for conference ratemaking may be important, given present regulatory constraints, in sustaining the U.S. flag fleet. However, more than 80 percent of traffic in American international liner commerce is carried by foreign companies. Therefore, whatever military gain is achieved through conference price fixing accrues predominantly to foreign governments (Ferguson, n.d.).

The defense-related rationale for present policies presupposes that, despite the enormous capacity available on the open market, only U.S.-flag service could be relied on in an emergency. In contrast, the Military SealiftCommand made extensive use of foreign ships and crews in the Gulf War, and representatives of the Department of Defense have recently declared that there is no need to rely on the U.S.-flag commercial fleet in any foreseeable wars (Ferguson, n.d.).

The Pros of the Jones Act as viewed by the Maritime Cabotage Task Force

1. Creates jobs for Americans by contributing 87% of entire seafarer employment and 70% of projected US ship building

2. 40,000 vessels contributed $15 billion to US economy, representing an investment of $26 billion in vessel construction

3. Cargo shipment annually 1.1 billion tons valued at $222 billion, plus $3 billion from tourism
124,000 jobs in the US including 20,000 workers in shipbuilding and 14,000 in maintenance
$1.41 billion in income taxes
$322 million in state taxes

4. Foreign built vessels would lead to unfair competition - they are not subject to US laws, taxes, regulations - i.e. labor laws, minimum wage, tax liabilities, health and safety protections, and environmental standards

Statements of Support

The Jones Act has long been supported by the Executive Branch, Congress and military leaders.
Presidential Support:

“America needs a strong and vibrant U.S.-Flag Merchant Marine. That is why you … can continue to count on me to support the Jones Act (which also includes the Passenger Vessel Services Act) and the continued exclusion of maritime services in international trade agreements.” Barack Obama, August 28, 2008

“The United States needs a maritime policy tailored to 21st century needs. Programs that have contributed to the growth of our domestic fleet, such as the Jones Act ... should be maintained.”
President George W. Bush, 2004

“My Administration ... continues to support the Jones Act as essential to the maintenance of the nation's commercial and defense maritime interests.”
President William J. Clinton, 1997

“Sealift is essential to both executing this country’s forward defense strategy and to maintaining a wartime economy... . [T]he U.S.-owned commercial ocean carrier industry ... will be relied upon to provide sealift in peace, crisis and war.”
President George Bush, 1989

“I can assure you that a Reagan Administration will not support legislation that would jeopardize this long-standing policy ... embodied in the Jones Act ... or the jobs dependent on it.”
President Ronald Reagan, 1980

Congressional leaders from both parties are likewise staunch advocates:
“The Jones Act is a cornerstone statute of the United States maritime industry... The American maritime industry also provides a critical commercial and military service to our country.”
Rep. James L. Oberstar (D-MN), 2005

“We must preserve the Jones Act. The Jones Act ensures the United States that it will always have a safe,reliable, and economically efficient domestic transportation system -- providing America the vital waterborne commerce it needs and deserves.”
Sen. Trent Lott (R-MS), 1997

“Rest assured that I will continue to support the men and women who contribute to the Jones Act’s continued success.”
Rep. Don Young (R-AK), 2000

America’s military leaders and establishment recognize the value of the Jones Act:
“The [Jones Act trailership] SS NORTHERN LIGHTS made 25 voyages and 49 port calls [to the Iraqi war zone]. She carried 12,200 pieces of military gear totaling 81,000 short tons and covering over 2 million square feet. Those statistics clearly demonstrate the value that the U.S.-flag shipping industry brings to the Defense Transportation System.”
General Norton A. Schwartz, USAF, Commander in Chief, U. S. Transportation Command, 2005

“I have no doubt that as long as America maintains the Jones Act as the foundation of our maritime policy, U.S.-flag vessel operations will meet the needs of waterborne commerce. And it will sustain the maritime infrastructure - the builders, the owners, the mariners - whose labors always have and always will ensure our security. USTRANSCOM, Military Sealift Command, The Surface Deployment and Distribution Command, and MARAD support the maintenance of a viable U.S.-flagged fleet and U.S. mariner pool. We can't do business without either.”
Lt. General Gary Hughey, USMC, 2004

“The Jones Act is one of the original foundation blocks of our nation’s maritime security.”
Admiral James Loy, Deputy Secretary,Department of Homeland Security, 2003
“First the Jones Act... My bottom line is: The Jones Act is a proven performer that supports both our nation's military security and its economic soundness. I can't put it any simpler than that.” General Charles T. Robertson, USAF, Commander in Chief,U.S. Transportation Command, 1999

Source: Various Sources