Home' Baird Maritime : November 2011 Contents Cabotage: The needs of the
few outweigh the needs of the many
David Wignall* on the latest port developments
As an avid reader of The Economist it should surprise no-one
that I am an ardent defender of the free market -- a position or
prejudice occasionally stoked by those defending that most
favoured of protectionist policies, cabotage.
In the last two years alone we have seen the impact of this
most pernicious of policies at close hand on four occasions.
We've seen how small cabals of ship-owners, unions and other
stakeholders encourage and defend cabotage till it becomes a
significant factor in deciding the price of shipping services, and
hence the structure of a country's logistics network. We've
watched as cabotage raises shipping costs for everyone in the
country, with consequences for that country's economy. Then,
as an epilogue, we've catalogued the impact as cabotage -- a
policy intended to defend or promote a country's domestic
shipping sector -- strangle that self-same industry, reducing it
from world beating to irrelevancy.
It may not be the granddaddy of them all, but The Jones Act,
the attempt by the US Congress to protect and defend the US
shipping sector through a tight form of cabotage, is perhaps the
most spectacular policy failure with which to start. The Act
requires your ship to be built in the US and crewed by US citizens,
as well as being US-flagged; protection for most elements of the
industry. As so often seems the case in the US, the Jones Act (or
more correctly The Merchant Marine Act 1920) was indeed passed
on the grounds of national security. The drive of the underlying
policy is set out in the preamble to the Act:
"It is necessary for the national defense and for the proper
growth of its foreign and domestic commerce that the United
States shall have a merchant marine of the best equipped and most
suitable types of vessels sufficient to carry the greater portion of its
commerce and serve as a naval or military auxiliary in time of war
or national emergency."
In 1920 the US fleet represented 27 percent of the world fleet
by tonnage; the country's share of world trade by tonnage was
about 15 percent. US-flagged ships could carry "the greater
portion of" of its imports and exports. In 2008 the US-flagged
fleet represents two percent of the world's fleet by tonnage and a
fraction of one percent of the container fleet by TEU capacity.
The trades to and around the US represented 24 percent of TEU
carryings worldwide. Looking at tankers in 2007, the CIA, a body
tasked with assisting the defence of the US, identified 59
US-flagged tankers over 1,000DWT in a world fleet of 4,295 --
less than two percent of the ships and, given the size of the US
tankers, a fraction of one percent of the cargo-carrying capacity.
Nearly ninety years is a fair timeframe to judge a policy, so
take your own decision on whether the Jones Act has been a
success. It is easy to conclude that the US fleet today is capable
of carrying only a fraction of its "commerce". The Act has
effectively destroyed the US fleet and its international presence.
When the US military requires commercial vessels to support
military expeditions, non-US entities and investors get much of
To be fair I know of one shipping company executive
operating ships complying with the Jones Act run by someone
who would like to see it repealed. However his background is not
shipping at all -- he can just see a way to grow his business
quickly if it were repealed!
Keeping up with the Jones Act
Railing against the Jones Act has left me short of words again;
hardly enough to talk about Malaysia, where the Ministry of
Transport seems so sensitive to any suggestion that cabotage has
not worked and is one of the causes of high consumer goods
prices in Sabah and Sarawak. Or even Australia, a "Green"
country at war with itself over how to save the planet through
taxes, but incapable of moving trucks off the road and on to sea
because of cabotage. But no, let us go to one of my favourite
places, Indonesia, where shipping policy seems to have
developed a split personality!
In Indonesia, after years of progress to liberalisation, the
introduction of cabotage restrictions has been pushed to full steam
ahead. At the same time they are committed to ASEAN-led free
trade in services, which requires liberalisation of the shipping
sector. The policy intent is to encourage the growth of an efficient
and effective coastal shipping sector; something sorely needed. The
impact of the new restrictions will be quite the opposite.
It is unfortunate that the new restrictions have coincided
with a sea change in the international market forces that
inhibited growth from being stimulated by liberalisation,
the restricted supply of ships, and the associated high cost of
ships. The last eighteen months have seen this change very
quickly. With ships available at good prices, liberalisation would
now bring far cheaper shipping to the more underdeveloped
parts of Indonesia.
Does cabotage as an idea not represent a perversion of Spock's
dying words in the Star Trek films, that the needs of local shipping
owners and operators triumph over the needs of the rest of their
own countrymen? Competition in shipping reduces transport
costs, and in doing so improves the competitive positions of a
country's exports and the cost of imports to consumers. Perhaps
Indonesia's split personality is evidence of their very own Dr
McCoy, an unknowing attempt to save a friend.
For those who don't understand this, go and watch "Star Trek:
The Search for Spock". Australia, Malaysia and even the land of the
free and the home of the brave could do with taking note!
*David Wignall has worked in ports for 25 years. He founded his own
company, David Wignall Associates, to develop ports and help managers
get the best out of their terminals.
November 2011 BAIRD MARITIME
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