By: Annalee Gunderson
On October 1 of this year, dockworkers up and down the East and Gulf Coasts of the United States walked out and went on strike. This action shut down shipping ports throughout the United States and halted nearly half of the maritime shipping. While these employees were striking and bargaining for better pay and job security because of port automation, these workers’ actions were estimated to threaten jobs, cost the economy billions of dollars a day, and increase inflation. These consequences show just how important the maritime shipping industry, and every single player within it, is to the United States and even the world economy.
One important aspect of the maritime shipping industry is the prevalence of cabotage laws. Cabotage laws govern the transportation of cargo or passengers between two domestic ports that favor domestic ships by placing regulations on foreign-flagged vessels operating in a country’s domestic waters. Cabotage laws vary based on the country and contain diverse policy objectives, including maintaining national security, fostering competition, and protecting domestic industries.
The U.S. imposed cabotage laws through the Merchant Marine Act of 1920, also known as the Jones Act. The Jones Act requires that all goods or cargo transported between U.S. ports be carried on ships that are built, flagged, owned, and operated in the U.S. and by U.S. citizens (46 U.S.C. § 55102(b)). These heavy restrictions essentially prohibit foreign vessels from operating on domestic routes and increase the costs of shipping, especially for islands and non-continental U.S. territories, such as Hawaii, Alaska, and Puerto Rico, that rely on imports.
Interestingly enough, cabotage laws impact the cruise industry as well, which is one of South Florida’s top markets. The 1886 Passenger Vessel Services Act restricts foreign vessels from transporting passengers directly between two U.S. ports. Foreign-flagged cruise ships must dock at a foreign port if the itinerary begins and ends in the U.S. to comply with the law.
Cabotage laws in other countries tend not to be as restrictive as those in the U.S. In the European Union, Council Regulation No 3577/92 applying the principle of freedom to provide services to maritime transport within Member States allows vessels, owned by Member State nationals or companies that are registered in and flying the flag of a Member State, the freedom to provide maritime transport services within the Union.
Unlike the U.S., EU legislation does not require vessels to be built in an EU Member State or operated by citizens of a Member State. One can assume these more lenient requirements can decrease costs of maritime shipping, increase competition since the number of ships that comply with the legislation will increase, and ultimately reduce costs for the consumer. In situations like a port strike, the flexibility of allowing a variety of different countries’ vessels to ship goods and cargo can help efficiently redirect products to other nearby ports and potentially limit the consequential economic effects that a strike can have.
In Australia, coastal shipping is allowed to be done by foreign vessels, as long as they procure a license to do so, governed by the Coastal Trading (Revitalizing Australian Shipping) Act 2012. The Coastal Trading Licensing System accepts applications for these licenses and imposes certain reporting requirements. The licenses regulate all domestic movement of goods, cargo, or passengers, and tax incentives are offered to Australian shipowners who are registered in the Australian International Shipping Register (AISR).
New Zealand, on the other hand, has a more liberalized approach to cabotage laws, restricting access to coastal trade only to New Zealand ships, foreign ships on demise charter to a New Zealand-based operator, and foreign ships that are passing through New Zealand waters while on a continuous journey from a foreign port to another foreign port, and are stopping in New Zealand to load or unload international cargo.
Japan has the most similar cabotage laws to the U.S., restricting foreign vessels from conducting cargo or passenger shipping between Japanese ports. There are a few exceptions, though. For example, in Japan, it is permitted to avoid capture or a marine accident, if it is otherwise provided by a treaty, or if the foreign vessel has obtained a permit from the Ministry of Land, Instructure, Transport and Tourism. While in the U.S., the Jones Act provides waivers in case of emergencies so foreign vessels can help provide relief, these waivers are restricted to instances where it is deemed “necessary in the interest of national defense,” a more stringent restriction than the Japanese exceptions.
While the Jones Act may not be a direct cause of the recent port strike, the intense restrictions it places on the domestic shipping market compared to other countries could be a reason why these labor strikes are more prominent in the U.S. market. For domestic maritime shipping companies, practically eliminating all foreign vessels can restrict competition and competitors in the market. With a lack of competition, domestic companies can easily raise prices, leading to higher profit margins, which does not always result in higher pay for those working to make the industry run, including dock workers.
The U.S. might want to think about other ways to regulate the maritime shipping industry, including looking at other countries across the pond for examples. While the geography and territories of the U.S. are unique, a regulation that negatively impacts any part of our country should be reviewed, in this case, Hawaii, Alaska, and island territories. In times of crisis for the industry, like the recent port strike, companies look for more efficient and timely ways to import their products, which becomes increasingly difficult with the heavy restrictions of the Jones Act. It makes you think if the Jones Act was amended, domestic shipping companies would not have a monopoly on the U.S. market, and the economic threat of a strike would not as big if it would eliminate a lot of reasons for dock workers strikes altogether.
