Jones Act And Shipping

I came across this video on YouTube that I thought was interesting. I personally don’t know much about the Jones Act and these issues, but I know several other members are well-versed. So, if anybody wants to watch the video and post their opinion, it might make for an interesting discussion.

I had never heard of the Jones Act:

The Jones Act is a law in the United States that requires Americans to make, own, and operate any ship moving goods between U.S. ports. This law is meant to help the American shipping industry, keep jobs for U.S. sailors, and ensure the U.S. has good ships for defense. But some people think it makes shipping more expensive and limits choices, especially in places like Puerto Rico and Hawaii.

So, the ships must be American-made, American-owned, and captained by an American captain.

The guy in this video is Peter Zeihan, an intellectual. I've listened to this guy quite a few times. Intellectuals are fun because they do nothing but observe the world from the safety and comfort of their classroom and try to determine who is running the world, what their plans are, and where it's all going.

Guys like this are almost always wrong about everything because they've never actually done anything but watch and listen. Most of these types have never run a company, been a major player in an industry, or run a community of any size, let alone a country. In fact, they're not even invited into the conversations taking place between the people who actually run things. They are simply outside observers digging for clues as to what is happening, and why.

In this case, I find his take "interesting," as always. He says:

"We should have thousands of tiny ships carrying a handful of containers here and there throughout the system, making our own multi-modal manufacturing system that is the world's most efficient. Instead, we move half of our cargo by truck (it's actually over 70%)...and then other stuff by rail."

- Peter Zeihan

He left out planes entirely, but they obviously matter a lot and play a huge role in all this.

He goes on to say the waterways around the Midwest and Northeast, including the Great Lakes, should be the busiest in the world, but instead are barely used. He thinks the Jones Act is the "single biggest reason" that American manufacturing has declined and the steel belt has become the rust belt.

This is one of the most naïve takes I've heard on macroeconomics in my life.

First of all, how is it better having thousands of tiny ships carrying small amounts of cargo instead of thousands of tiny trucks carrying small amounts of cargo?

Second, how will all this cargo get from the manufacturing plants to the warehouses and stores without trucks? I guess every manufacturing plant, warehouse, and store would have to be built along the waterways, which means all the people must live along the waterways, as well.

Third, think about capacity. Imagine running the ports along the inland riverways. Look at how congested it is when moving freight into and out of the ports today. You simply don't have enough room to put all the docks needed to handle that volume. If you keep trying to increase the ships' size, you must also deepen and widen the waterways. How do you widen the waterways when you've built all the factories, warehouses, stores, and communities along the shores?

Fourth, what about the efficiencies we've gained through just-in-time freight? You've eliminated vast amounts of unnecessary warehouse capacity and inventory throughout the system by delivering only the parts needed to keep factories moving and only enough final product to keep store shelves full. Can you imagine running a just-in-time operation based mostly on the waterways?

Fifth, what about natural disasters? By focusing on roadways, we can easily reroute freight around weather issues, including massive ones.

Sixth, what about storage? I don't think many people understand how much freight is sitting in truck trailers around the country at any given time. This is often much cheaper than building additional warehouse space, especially when you only need it as 'overflow' during exceptionally busy times. It's not feasible to leave large amounts of freight sitting idly on an expensive ship parked in everyone's way. You can offload the containers, but again, you don't have the space near the docks for storing freight when you're trying to move that much through the limited dock space.

So this guy's take is that American manufacturing is so expensive that we can't afford to have US-built ships carrying cargo along the waterways. Remember, the Jones Act doesn't say you can't transport goods along the waterways. It just says you must do it in American-made ships run by an American captain.

If transporting goods by ship is so much more efficient, wouldn't that makeup for the higher initial cost of building a ship? After all, you only build the ship once and then use it for 30 years. Surely you would recoup the higher cost of building the ship over the course of 30 years, correct?

He's trying to say we don't use ships the way we should because shipbuilding is too expensive in the US, so instead we use trucks, which are far more expensive to operate than using ships? Help that make sense.

He also says that the Jones Act ruined the US steel industry. But the US steel industry would have built all of the US ships being used for transporting goods. Wouldn't it have saved the US steel industry by building all those super-economic ships? Wouldn't the US steel industry have been more than happy to build these ships if that was the most economically viable way to transport goods and the economic demand was there?