<The paper these articles were drafted from was original written Spring 2016 – it has not been updated for any modifications or new developments taking place since then.>
The practice of cabotage – defined by Merriam Webster as “trade or transport in coastal waters or airspace or between two points within a country” has been a key legal aspect of trade for centuries around the world. In the strictly maritime realm, this practice is often referenced using the term “short sea shipping” to refer to coastwise traffic and inland waterways, while “cabotage” is being utilized more frequently in reference to the associated regulatory policies.
Although there has historically been a potential for international conflict arising from government-imposed restrictions, the last century is notable for both the imposition and review of unwise or shortsighted economic policies that are arguably responsible for net economic losses in a country’s domestic population in spite of documented evidence.
The United States and the Jones Act (quick recap on themes referenced in previous articles)
Recognized worldwide simply by name, the Jones Act – formally The Merchant Marine Act of 1920 – has become synonymous some of the most with severe restrictions on trade emanating from a government-mandated cabotage policy. From a strictly legal background, Yost (2013) (excellent paper – HIGHLY recommended for anyone looking for more legal discussion) begins with a detailed review of the Jones Act – and examines the degree that legal decisions have deviated from the original stated intent of the legislation (big surprise?) in the aim of maintaining apparently protectionist stances that have generally been harmful to the overall economy. As a matter of perspective, the author is careful to note that the Jones Act by itself is not a formal tariff (technically-speaking – “the best kind of ‘speaking'”), but functions in a similar fashion as a barrier to entry, limiting competition and protecting the existing participants. (Yost, 62) The higher capital costs lead to higher costs for the customers across the board. While noting that Jones Act compliant shippers are not receiving formal federal subsidies in the way that Amtrak does (specific to the Jones Act alone, not considering additional federal retainer payments), Yost recognizes that the barriers to entry are so steep that the handful of companies providing shipping services to Alaska, Hawaii, and Puerto Rico are essentially operating as government-sponsored monopolies protected from competition. (Yost, 66) In an interesting comparison, the author demonstrates that the current protectionist aspects and legal restrictions are not dissimilar from that of the PRC or Japan and serve no positive purpose towards stimulating domestic economic growth, and in turn advocates transitioning towards a middle-ground policy between Australia’s licensed shipping cabotage policies and the trucking cabotage policies of the EU (Yost, 76).
Approaching the issues raised by the Jones Act with respect to their economic consequences, Lewis (2013) (referenced in previous articles – highly recommended again) relates a number of studies on various aspects of the Jones Act and related legislation. Through his own calculations, he determines that the net domestic gain through repeal would be between $578 million and $685 million annually. While there would be a significant loss of domestic mariner jobs initially, many of those would be replaced by a steep intake of port services jobs around the country. A clear distinction is recognized between the inland waterways shipping industry – in which a healthy domestic competition has developed, and the vastly more capital-intensive coastal and overseas routes, including Hawaii, Alaska and Puerto Rico in which a very small number of companies have developed near-monopolies due to the restrictions imposed by the Jones Act and associated legislation (Lewis, 83). Lewis is also quick to note that while the trucking and railroad industries both faced heavy regulations earlier in the 20th century, the loosened restrictions in the last several decades vastly increased market participation while simultaneously driving down costs to shippers and consumers and there is no reason to doubt a similar outcome from addressing the maritime regulatory environment (Lewis, 92).
<Although here again, we’ve recently seen how “re-regulating” the trucking industry is potentially going to lead to a loss of all those gains.>
Finally, Lewis, like Yost, points to the EU’s maritime deregulations regarding coastal commerce as an example to be considered in adjusting long-term policies – keeping in mind the government’s push to incentivize and increase short sea shipping as a counterpoint to increased road and rail traffic (Lewis, 101).
Perakis and Denisis (2008) provide a compelling summary of the benefits of short sea shipping as an alternative to road and rail transportation in the United States. The primary concern of the authors here is to present it as both economically and environmentally efficient – with a focus on the intermodal aspects of such transportation – shifting the containers arriving from overseas from the central coastal ports to more local shipping facilities. There are two types of short sea shipping considered – one involving direct loading of containers (TEU (20 Foot Equivalent Units) or FEU (40 Foot Equivalent Units)) onto barges or similar vessels to be transported for further distribution, and the other involving direct roll-on/roll-off movement of 53ft semi-trailers (Perakis, 593). In both cases, the end state is intended to significantly decrease traffic congestion both in the vicinities of the ports, but also on the feeder interstates associated with the ports. Further assumed benefits include decreased air and noise pollution, decreased expenses associated with infrastructure repair in addition to fuel cost savings in moving tonnage further by shipping than trucking or trains (Perakis, 605).
On the whole, this analysis appears to be largely predicated from the public policy perspective. The majority of the arguments appear to be focused on decreasing activities that affect public spending outlays negatively or that represent potential public backlash for local or state governments. The actual economic functions as they apply to individual companies potentially more concerned with costs or scheduling are largely relegated to shorter discussions at the end of the paper. Indeed, there is no mention of the Jones Act – much less any other current legislative barriers – aside from its inclusion in a listing of potential obstacles hindering short sea shipping (Perakis, 608). To their credit, the authors do recognize in their conclusion that “SSS needs customized solutions for every emerging transportation market in congested trade corridors. A ‘one-size-fits-all’ approach is unlikely to be effective.” (Perakis, 612).
Some links don’t work based on library links – base article information provided in case anyone else wants to look them up later: