June 27, 1997

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 on the Great Lakes. Last year our members and other U.S.-Flag carriers moved more than 117 million tons of dry- and liquid-bulk cargo on the Great Lakes, the most in any single navigation season since the recession of the early and mid-1980s. Through May of this year, U.S.-Flag carriage is 16.5 percent ahead of 1996’s benchmark pace.

I am writing to once again try to convince you that your criticisms of the Jones Act are based on inaccurate information. If domestic shippers were in fact so poorly served by the Jones Act, the law would need the sweeping changes you suggest, but every criticism you level against Cabotage is either based on information that is outright wrong or a distortion of the facts. I assure you the Jones Act is not a detriment to commerce. You too will take that position if you consider the following information carefully.

Let’s begin with one of the "Jones Act Horror Stories" the JARC prepared for your signature, specifically "Jones Act Rubs Salt in the Buffalo’s Wounds." Whoever told you that "No Jones Act-qualified vessels are available [to] transport American produced salt from one U.S. Great Lakes port to another" should be dismissed for gross incompetence. The fact is there are currently nine Jones Act-qualified self-propelled vessels and tug/barge units representing four carriers competing for salt cargos on the Great Lakes. For the record, those ships and tug/barge units are:

PHILIP R. CLARKE	CASON J. CALLAWAY	ARTHUR M. ANDERSON
JOHN J. BOLAND	MYRON C. TAYLOR	GEORGE A. SLOAN
MCKEE SONS	JOSEPH H. THOMPSON	CALCITE II

These ships and tug/barge units have per-trip carrying capacities ranging between 12,450 - 25,300 gross tons. In 1996, U.S.-Flag salt cargos on the Lakes totaled 1,149,700 net tons. Since LCA began its survey of U.S.-Flag carriage in 1985, roughly 11 million tons of salt have moved on the Lakes in Jones Act-qualified vessels. [ The actual total is much higher, but 1996 is the first year in which the two tug/barge units participated in our cargo survey.]

The statement that the Jones Act forces Buffalo to buy Canadian salt does not withstand statistical analysis. According to the U.S. Army Corps of Engineers’ publication Waterborne Commerce of the United States, Buffalo gets the vast majority of its ship-delivered salt in U.S.-Flag vessels:

Source: Waterborne Commerce of the United States

To conclude the Buffalo story, the Retsof Mine in New York state closed not because of transportation problems, but simply because the roof collapsed and the mine flooded. Were it still operational, the mine could never ship salt to Buffalo by vessel; there’s no canal or river connecting the two cities. Retsof is 60 miles from Buffalo and 35 miles from Rochester. Inland salt mines more efficiently rely on rail and/or truck.

In your prepared remarks for your June 18 press conference, you state that "high domestic transportation costs on the Great Lakes and elsewhere have led many U.S. grain buyers to purchase grain from Canada where less expensive foreign ships can be used." The U.S. Chamber of Commerce handout adds: "Pork producers in North Carolina cannot buy and ship U.S.-grown grain out of the Great Lakes because of the shortage of Jones Act-qualified vessels available to do the job. Instead, they purchase Canadian grain."

It is true that a Canadian carrier moved one grain cargo from Thunder Bay, Ontario, to Wilmington, North Carolina, a few years ago, but a single shipment hardly represents a thriving trade. Furthermore, this experiment with vessel delivery was not entirely successful. The port of Wilmington lacks a grain-receiving facility, so the unload was lengthy and plagued by spillage. [ Another problem with a Lakes/North Carolina trade is the winter closure of the St. Lawrence Seaway. Any East Coast customer who initiates such service will still have to engage the railroads or trucklines for deliveries from late December until early April.] Vessel delivery primarily served as a negotiating ploy with the railroads, and North Carolina interests must be satisfied with all-rail delivery or they would not have signed a 3-year contract with CSX for transport of their annual requirements.

The "shortage" of qualified Jones Act vessels for this supposed Lakes/North Carolina trade reflects the shortage of cargos. As I have continually stressed, U.S.-Flag carriers did attempt to bid on this move when hog and turkey farmers expressed interest, but their solicitations were met with silence. One U.S.-Flag carrier went so far as to offer to retrofit a ship or build a new vessel for the trade if a long-term contract was signed. This carrier suggested a 5- or 10-year contract, hardly an unreasonable request. When cargos materialize, so will U.S.-Flag ships and tug/barge units.

I wish to once and for all refute the claim that President Bush "actually felt compelled to suspend the Jones Act to ensure that our transportation needs were met" (again your prepared comments of June 18). To quote from documents prepared for Maritime Administrator Adm. Herberger when he testified at the June 12, 1996, Congressional hearing on our nation’s Cabotage laws:

Question: Was the Jones Act suspended during the Persian Gulf conflict?

Answer: No, it was not suspended. A limited national defense waiver of the Jones Act was granted during the Persian Gulf conflict for a short period for the transportation of crude oil withdrawn from the Strategic Petroleum Reserve (SPR). The Jones Act was waived by Executive Order of the President on January 16, 1991.

This was a preemptive action to assure the availability of sufficient petroleum for the U.S. and allied civil economies. The entire drawdown accounted for less than half of one day’s U.S. domestic consumption. A total of 12 foreign-flag tankers carried 7 million barrels of SPR crude oil... (emphasis added).

I should stress that the Maritime Administration later determined that even this brief waiver was unnecessary, that sufficient U.S.-Flag tanker capacity was available at all times.

I will leave most of the non-Lakes items to colleagues in those trades, but will briefly address some of the JARC’s other distortions. Concerning steel to Puerto Rico ("Puerto Rican industries can buy steel more cheaply from Venezuela than from Bethlehem Steel, the outlet of which sits directly on the dock in the Port of Baltimore, MD"), we need to consider the length of the voyage. A voyage from Baltimore to San Juan stretches 1,378 nautical miles; the trip from Puerto Ordaz to San Juan covers 872 miles. The vast difference in length of voyages is the major factor in higher freight rate out of Baltimore, not the Jones Act.

The United States is once again in a situation where steel imports are capturing a significant portion of our market (nearly 25 percent for the first four months of this year), but the problem is not Cabotage, but dumping. According to the American Iron and Steel Institute, "steel imports are surging from Russia and other nonmarket economies, with year-to-date imports from Russia up 501.8 percent." [ AISI News release of June 19, 1997] The American steel industry is filing trade complaints against subsidized foreign steel, not the Jones Act.

The problem of the North Carolina steel mill which cannot ship product to its West Coast operations is one of logistics, not Cabotage. A cargo originating in North Carolina must travel down to and through the Panama Canal, and then back up to West Coast ports. The length of the voyage long ago made waterborne transport non-competitive with trains and trucks that dash across the country in a matter of days.

That is not to say that steel and water don’t mix. There is a growing trade in scrap steel and finished products on the East and Gulf Coasts and it is served by several U.S.-Flag carriers. A quick survey of just three U.S.-Flag carriers shows that nearly 900,000 tons of scrap have moved in U.S. bottoms in the past 12 months. Nucor receives New England scrap in U.S.-Flag barges considered to be the largest single-hold ocean barges in the world. Given the global demand for scrap, the United States does indeed export this "raw material," but that’s a supply and demand equation, not a failing of the Jones Act.

Concerning finished steel, Georgetown Steel is using a U.S.-Flag carrier to move finished products between Charlestown, South Carolina, and New Haven, Connecticut.

In your new legislation, H. R. 1991, you state that "American mariners and water carriers are dedicated to providing the high-quality service that their customers deserve..." We appreciate that compliment. The way to ensure that owners of U.S.-registered vessels continue to provide that service is respect for the principles of Cabotage, not their abandonment. Each year our members invest millions of dollars in their ships to keep the vessels as efficient as would be new builds. They could never obtain financing for these projects and the next generation of lakers (when demand warrants) if they were forced to compete with foreign-owned, -built and -crewed ships. I know you will counter that U.S. and foreign ships in regular service will be treated the same, but there remains a loophole as big as the Poe Lock — the six annual trips by vessels in irregular service. These ships are largely unregulated, are exempt from taxes by treaty, and will underbid all other carriers. The result will be that irregular service will become regular service on the Lakes and elsewhere. Many shipowners set up single ship corporations for liability reasons and then have the vessel chartered to an operator, so there already is a mechanism to get around the 18-trip limit for a vessel owner. Unregulated ships will quickly control U.S. waters. That dominance will have a negative impact on the safety of life, property and the environment (including Michigan, a state with 3,288 miles of shoreline).

This debate has gone on long enough that I need not here reiterate the rationale behind and the benefits derived from the Jones Act. I will close with again inviting you to visit a U.S.-Flag laker working cargo in a Michigan port, and there we can further discuss ways to improve U.S.-Flag service. Some U.S. regulations are too stringent; others are duplicative. Improving the regulatory climate in which Jones Act carriers operate will increase the competitive position of U.S.-Flag carriers in the transportation scene and then those who want to Buy American can continue to Ship American no matter which mode of transportation they select.

Sincerely,

George J. Ryan

President

ggn@lcaships.com