August 15, 1996
The Honorable Nick Smith
U.S. House of Representatives
Washington, DC 20515-2207
Dear Representative Smith:
Lake Carriers' Association represents 14 American corporations operating 59 U.S.-Flag vessels exclusively on the Great Lakes. During the past two navigation seasons, our members and other U.S.-Flag Great Lakes operators have carried more than 230 million tons of cargo on the Lakes. Iron ore, coal and stone are the primary commodities carried by U.S.-Flag vessels, but the Lakes fleet also moves significant quantities of cement, salt, sand, grain and various liquid-bulk products. The vast majority of these cargos move between U.S. ports, the so-called Jones Act trades.
Your state, Michigan, is the hub of Great Lakes shipping. As the enclosed brochure explains, Great Lakes shipping and Michigan truly are Partners in Commerce.
We have reviewed your bill H.R. 4006, The Coastal Shipping Competition Act of 1996, and must respectfully disagree with your perceived need to "reform" the Jones Act. We heartily endorse your finding that "efficient, competitive, broadly available waterborne cargo transportation service is an essential component of a national transportation system, and such services should be promoted by the United States." However, we strongly disagree with your conclusion that the Jones Act fleet is incapable of providing such services. We believe you would become supportive of the Jones Act if you had the opportunity to become more fully informed about the economics of domestic waterborne commerce. The remainder of this letter will address what has been alleged to be a lack of service and I trust convince you that your legislation is unnecessary.
First, let us evaluate the Lakes Jones Act fleet. Your finding that the Lakes Jones fleet totals only 59 vessels errs on the low side. There are 59 ships registered with LCA, but in total, the Lakes Jones Act fleet involved in the dry- and liquid-bulk trades numbers 65 self-propelled vessels and tug/barge units and upwards of 20 smaller tug/barge units in the liquid-bulk trade.
In terms of vessels, the Lakes Jones Act fleet is not large, but the tonnage total in my first paragraph makes clear we don't need a great number of ships because individual ship carrying capacity ranges from 10,000 to 70,000 tons per trip. To better illustrate this point, I enclose a graphic which I used when testifying about the Jones Act before the House Subcommittee on Transportation on June 12. Just one 1,000-footer (and there are 13 flying the U.S. flag on the Lakes) carries as much cargo as did 7 of the largest lakers in 1920, the year of the Jones Act's enactment. (A 635-foot-long ship in a unique short-run trade has carried as much as 4.5 million tons in one shipping season.)
It is my understanding that you have sponsored this legislation because some fellow Michigan farmers were unable to ship grain by vessel to a customer in the southeast. I will work on the assumption that this is the much-publicized but wholly erroneous Murphy Farm's complaint frequently cited by the Jones Act Reform Coalition.
It is an undeniable fact that no U.S.-Flag vessel currently trades on a regular basis between the Lakes and East Coast ports. Why? Simply because, until this instance, there was no known demand for regular service. When the Murphy Farm situation became known, several U.S.-Flag carriers attempted to discuss the trade, but their efforts were either outright rebuffed or they were not provided enough information to make a formal bid. At least one U.S.-Flag carrier has offered to convert or build a Jones Act-qualified vessel for this trade, but understandably has asked for a long-term haulage contract, or at least some level of commitment in return. That is not an unreasonable condition; even if the Jones Act were amended to allow building in a foreign shipyard, a Seaway-sized ship would still represent an investment of tens of millions of dollars. As a successful businessman, you surely cannot fault this carrier for seeking some assurances that his investment will be utilized.
The other supposed shortfall in vessel service on the Lakes is the salt trade. The Jones Act Reform Coalition claims there are no U.S.-Flag vessels available to move salt between U.S. Lakes ports. Suffice it to say our members carried nearly 10 million tons of salt on the Lakes during 1985-1995. Akzo Nobel cites a lack of ships to haul salt from Lake to East Coast ports. As in the case of grain, there is no existing service, but I'm sure there are U.S.-Flag carriers who would explore the trade. However, given the low cost of this commodity and the availability of Caribbean and South American salt, it is doubtful that this trade is viable enough to even seriously consider.
Your bill seeks to alleviate "significant commercial transportation inefficiencies" by "increasing competition in domestic deepwater shipping", but such inefficiencies in operation and deficiencies in competition are difficult to identify on the Lakes. Although an association cannot be involved in the setting, collecting or coordinating of freight rates, I can tell you that according to published rates, a 1,000-footer carries a ton of iron ore the 800-plus miles from Duluth/Superior to a Lake Erie steel mill for roughly $6 a ton. In the shorthaul trades, say Rogers City to Detroit, a ton of limestone moves for about the price of a gallon of milk.
One of the reasons freight rates are so low is that virtually all Lakes Jones Act vessels are self-unloaders. Our members' ships are so equipped that they can discharge as much as 70,000 tons of cargo in 10 hours or less without any need or shoreside personnel or equipment. The self-unloading vessel was pioneered and perfected by Lakes Jones Act carriers but, to date, only one other nation, Canada, has embraced this technology to any great degree.
The complaint that has generated this debate about the Jones Act and Cabotage has a lot more to do with railroads than ships. Southeast Atlantic Coast customers are dissatisfied with rail service and rising rates, a situation that can be remedied without changing the Jones Act. All North Carolina farmers need do is enter into serious discussions with U.S.-Flag carriers and other railroads serving East Coast Ports, and their current providers will face the competition that will force them to review their freight rates and service. The farmers will win, and our transportation system will remain a level playing field.
I am at a loss as to what national good your legislation will accomplish in the long run. Allowing foreign-built ships into the market will merely give new entrants into the trade an unfair advantage. Being from a Great Lakes state, you surely remember that unfair competition nearly broke our nation's steel industry, including the mills in Detroit and the iron ore mines in the Upper Peninsula.
The substantial destruction of the commercial ship building base in the United States - which could result from passage of your bill - will be a serious blow to the defense of the United States. The American Security Council, a pro-Defense group, expressed concern that the changes proposed by the Jones Act Reform Coalition and Senator Helms overlooked the national security implications of the Jones Act. The NSC cited a letter to Senator Helms signed by 71 retired Navy Admirals emphasizing the importance of the U.S.-Flag fleet to military sealift.
Your proposal that all U.S. laws and regulations apply to foreign ships is an admirable attempt to at least somewhat level the playing field, but it could be accomplished only if the Federal government increased funding for the Coast Guard (who would have to inspect the large number of unsafe "ships of shame" which would come into our waters) and other interested Federal agencies. (As I'm sure you know, the Coast Guard is in the process of trimming 4,000 personnel from its ranks, not adding staff.)
The provision for vessels making a limited number of calls is seemingly an effort to serve the spot market but, to my way of thinking, it merely would encourage tramping on the Lakes. I don't use that word negatively; tramping is an accepted practice on the oceans in the foreign trades, but domestically, it would be similar to allowing foreign-owned and -operated trucks or airplanes to operate for short periods of time between U.S. points, an idea which has been roundly rejected in NAFTA. My overriding concern is that this maritime loophole will become the norm and legally exempt most ships from hiring U.S. mariners and complying with U.S. laws and regulations adhered to by U.S.-Flag operators. No level playing field will result.
I would very much like to discuss the Jones Act with you in person and answer any and all questions. Further, I would like to suggest that this meeting take place during Congress's recess aboard a U.S.-Flag laker working cargo in Detroit or some other Michigan port. Not only could you see how efficient these unsubsidized vessels are, it is quite likely that many crewmembers will be residents of Michigan, perhaps even the 7th District.
In closing, I note that your speech introducing your bill emphasized your desire to "Buy American." I'm certain that a full explanation of the Jones Act and its benefits will have you saying "Ship American" too!
Sincerely,
George J. Ryan
President