In response to the November 2010 MarineLog opinion piece: Jones Act Build American Provision Strikes Again, by William

O. Gray. Mr. Grays opinion piece, titled Jones Act Build American provision strikes again, asserts the claim that short sea shipping will not become a reality until the US-build requirement of the Jones Act is abolished. He does so, however, by misrepresenting the facts and purposefully neglecting the economic and national security implications of his proposal. In addition, he fails to mention that the Jones Act, the long established US maritime law, is no more preferential to domestic manufacturing capacity than the foreign government shipbuilding subsidies in Asia and Europe, to which Mr. Gray would like to see American jobs outsourced. Since the end of World War II, America has allowed its shipbuilding capacity to decline into insignificance. In the 65 year period since 1945, the US has delivered less than a third of the vessels delivered between 1941 and 1945. More recently, since 1980 and the end of federal government subsidies, the US has delivered XXX oceangoing commercial vessels an average of XX per year. This stands in stark contrast to the rest of the heavily subsidized shipbuilding world where deliveries in 2010 alone exceed US deliveries since 1980 by a factor of X. This debate, however, cannot focus on government subsidies as the answer to affordable ships. Such a position is untenable indeed, US shipbuilders have survived without subsidies for more than a generation. The debate must focus on the role of a relevant transportation policy, including sustaining the Jones Act, as a national economic and strategic imperative. Lets begin by establishing a few facts. As a result of the Jones Act, over 500,000 people are employed each day in the United States. Of that figure, approximately 100,000 are shipyard workers. For every shipyard job it is estimated that 4 more jobs are created down the supply chain. Overall, thats $29.1 billion in labor compensation, $100.3 billion in economic output, $45.9 billion in value added and $11.4 billion in taxes. At its core, the Jones Act ensures a skilled workforce to design, build, repair, maintain and sail Americas domestic fleet while providing the nation a strategic sealift capability during time of conflict or national emergency. Gray asserts, via proxy quoting Ernst Frankel, that productivity lags due to ineffective workplace organization and management. Although unfortunately, the US industry is replete with recent examples, it ignores the strong performance of General Dynamics NASSCO (the only shipyard of the six majors building commercial ships). Since 2006, NASSCO has consistently delivered high quality ships for use in the US Jones Act and to the Government with learning rates that are unsurpassed. This can certainly be attributed, in part, to a committed team of shipbuilders focused on improving their craft but must also acknowledge the impact a steady production run has on any yards ability to reduce cost, improve processes, and increase the skill set of its workers. It is volume that represents the key to affordable shipbuilding something the worlds leading shipbuilding nations have enjoyed for decades.

Asian and European countries heavily subsidize their shipbuilding operations, in some cases up to 30% of construction costs. Foreign shipbuilders have leveraged statesponsored subsidies for facility expansion, modernization, R&D, and customer financing. This has enabled foreign yards to offer substantially lower prices while gobbling up huge portions of the worlds shipbuilding order book. That volume, in turn, has enabled these same yards to improve processes and efficiencies consistent with the US shipbuilding boom of the 1940s. Absent that same support, the foreign shipbuilding industry has found it difficult to compete in a free market economy: Prior to August 2007, Indian shipbuilders were given 30% subsidy on all ship sales to foreign firms and on ocean-going merchant vessels more than 80 meters to domestic clients. The abolition of the subsidy scheme, according to Shipyard Association of India, has adversely affected new orders, as Indian vessels are now pitched unfavorably against those from Korea, Japan and China, where subsidies are as high as 40% (JHA, Ambrish. Shipbuilding-India Aspires to Emerge as a Leading Player. 01 April 2009). Now add in a lack of compliance costs with, in most cases, a lack of uniform safety and environmental standards and only then can one fairly assess the playing field US shipbuilding competes on. How can American shipbuilders expect to offer competitive pricing when foreign states are footing a third of the bill and sustaining volumes that dwarf the entire US shipbuilding enterprise? Unfortunately, Mr. Gray offers little, other than capitulation, by ceding the US market and outsourcing hundreds of thousands of jobs to these foreign interests. Once ceded, what then of the high cost of US labor and ownership? Perhaps lower cost, foreign sailors could further reduce the cost of US ocean transport, thereby unilaterally disarming to the detriment of economic and strategic common sense. So, what must be done to enable short sea shipping in the US? Mr. Gray simplistically argues that it is the capital cost of ships that prevent an American Marine Highway from taking root. Its not that simple. A 2006 DOT study determined that the capital and operating costs of ships represent a mere 14% of the total cost of a shipped container. The vast majority of costs 86 percent are constants, regardless of where the vessel is built, such as marine terminal operations, inland transportation, sales and general administrative overhead and fuel, cost of insurance, computer tracking systems and vessel loading and discharge. U.S. Department of Transportation, Maritime Administration,
Competition in the Noncontiguous Domestic Trades, Washington, DC (May, 2006)

The solution lies in a comprehensive transportation policy that balances transport modes including road, rail and ocean. Without it, the largest contributors to short-sea ocean transport cost remain unsolved with predictable and all-too-familiar results. A comprehensive policy must address port and supporting infrastructure to provide the means to get trucks off the roads and onto the marine highway, must enable the development of highly producible designs that can be built in sufficient numbers to reduce recurring costs, and must enable affordable access to capital money for owners and operators. The objective of such a policy should be to incentivize owners/operators

and state and local authorities to invest in ocean transport while eliminating disincentives, such as port taxes, from the equation. The Jones Act is a central part of a comprehensive transportation policy because .. it majority of Marine Highway costs prevent According to Mr. Gray its because of one simple reason. He states that Large ship shipyards in this country cannot build ships at reasonable prices comparable to Asia and Europe that would make it economically possible to compete with road and rail traffic along our often crowded coastal highways. There are many reasons why US-built ships may appear to cost more than foreign-built ships, but they have little to do with the US build requirement of the Jones Act. Despite all of these disadvantages, the US shipbuilding industry is highly efficient and there remains healthy competition among the large shipyards in the US to build the short sea shipping fleets. In fact, the cost of US construction of a large cargo vessel is a fraction of the total lifecycle costs of the vessel. A 2006 report from the Department of Transportation provided that costs associated with the Jones Act labor and construction costs are a small portion, roughly 14 percent, of the overall operating costs of a vessel. These costs will remain under short sea shipping, the only thing that will be achieved by Mr. Grays short sighted proposal are well paying jobs will be outsourced to countries like China and a potential new shipbuilding market for large US shipyards will be lost forever. At a time when our economy needs greater manufacturing and a skilled work force, we should not be advocating for vessels to built overseas, instead we should build the next generation of environmentally sound, fuel efficient vessels here in the United States.