Every so often we receive an email or telephone call from someone asking why cruise ships can’t sail from one U.S. port to another.
The reason is because there is a Federal law which prohibits foreign flagged ships from coastwise trade between U.S. ports. Only U.S. flagged ship can do that. The thought at one time was that such a law would promote U.S. shipping by providing preferential treatment of US vessels over "foreign" vessels.
The law in question is the Passenger Vessel Services Act of 1886 which applies to passengers. The Merchant Marine Act of 1920 applies to goods. This is a U.S. Federal statute which regulates maritime commerce in U.S. waters and between U.S. ports. Section 27, known as the Jones Act, deals with the concept of "cabotage" (coastal shipping). The law requires that all goods transported by water between U.S. ports be carried in U.S.-flagged ships, constructed in the United States, owned by U.S. citizens, and crewed by U.S. citizens.
This is why you don’t see a cruise ship sailing from New Orleans to Galveston and letting off passengers (for example). The reality today of course is that virtually all cruise ships are foreign flagged in order to avoid US taxes and occupational laws. So the entire US based cruise fleet can’t sail from one US port to another.
Critics of the law argue that the law increases the costs of shipping good between U.S. ports. U.S. shipbuilders are also substantially higher than vessels constructed overseas. As a result, U.S. shipyards now build only 1 percent of the world’s large commercial vessels.
There is now a bill which has been introduced to amend the law to allow foreign-flag cruise ships to operate in the coastwise trade of the United States. It was introduced by Representative Blake Farenthold (R-TX) and co-sponsored by Ron Paul. Representative Farenthold believes that opening up coastal trade to all cruise ships will result in more cruise ships sailing from one US port to another and the US and Texas would benefit economically.
However, U.S. shipbuilders and companies engaged in coastwise trade are opposed to amending the law. A recent controversy regarding shipping crude oil from the Strategic Petroleum Reserve reveals that the new bills will face strong opposition.
The Boston Herald published an article discussing the Obama administration’s decision to waive the requirements of the Jones Act against foreign flagged ships regarding the transportation of oil from one U.S. port to another. The Jones Act cabotage requirements prohibit shipments from reserve holdings on the Louisiana and Texas coasts to East Coast refineries.
Buyers of the oil wanted to use large tankers to transport the 30 million barrels being sold, because they are larger and cheaper than most U.S. coastwise vessels and barges. However, there are only nine large tankers flying the U.S. flag, all of which sail from Alaska to California. The administration let the buyers use foreign ships for 46 out of 47 shipments.
This caused American shipping companies to become "understandably furious," according to the Boston Herald which calls from the repeal of the Jones Act. "The Jones Act is a smelly piece of protectionism that should have been repealed 50 years ago," says the Herald.
My prediction is that the bill will not make it out of committee.
Even changing the Jones Act will not significantly affect the cruise industry, which will continue to buy foreign ships, fly foreign flags, and hire foreign employees to save money.