The Jones Act's Impact on Hawaii
Price of Paradise · Hawaii Public Radio · aired 1996-06-02
Guests: Charles Totto (State of Hawaii Consumer Advocate); Robert J. Murray (Manager of Marine Operations, Matson Navigation Co.); Philip M. Grill (Vice President, Matson Navigation Co.); Rob Quartel (former member, Federal Maritime Commission); Mike Hansen (Acting Executive Director, Hawaii Shippers' Council); Sumner Erdman (Maui rancher; President, Hawaii Cattlemen's Council)
Duration: 1:04:59

[00:00:00] Randall Roth: Aloha, this is Randy Roth, host of the Price of Paradise radio show. We're broadcast live each Sunday morning at 8:00 on KHPR 88.1 FM and KKUA 90.7 FM, and then rebroadcast Sunday evenings at 8:00 on KIFO 1380 AM. Everyone who works on this show is a volunteer. We do what we do because we enjoy it and because we believe in the importance of lively and informed public conversation. We're sponsored by the Hawaii Community Foundation. Today's topic is controversial, and the people who are directly involved with it or affected by it tend to feel strongly about their positions. We've got a number of voices that we're going to be hearing, and as usual, we want to hear questions and comments from our listeners.

[00:00:47] Randall Roth: What I'm going to do first is to give a brief introduction of the many voices that we have planned for you to hear this morning. Then I'm going to give an outrageously simplistic overview of this conflict that we're going to be discussing, and then we're going to go to some folks back in Washington, D.C. to give them just a couple of minutes to set the stage, to tell us just what their respective positions are and and the reasons for their positions. And then we're going to come to the folks in the studio and ask for questions and calls and and later on in the show, we'll go back to the people in Washington, D.C. to get their thoughts on what they've been listening to up until that point.

[00:01:22] Randall Roth: Our guests this morning, first of all, in Washington, D.C. by phone, we have Rob Quartel and uh Philip Grill. Rob Quartel is the president of the Jones Act coalition, which is a group of 80 companies and trade associations seeking reform in the nation's cabotage laws. In 1990 to 1992, he served as the US Federal Maritime Commissioner. Uh, his counterpart, or at least that's how I I view the arrangement, Philip Grill is also in Washington, D.C. He's vice president of Matson navigation and chairman of the Maritime cabotage task force, a coalition of more than 400 American maritime companies, labor unions, trade associations, pro defense groups and others. So Rob Quartel is on the side of this issue that feels reform to the Jones Act is needed, and Philip Grill is on the other side of the issue who feels that the Jones Act has has worked very nicely.

[00:02:19] Randall Roth: Also by phone, we have Sumner Erdman. Sumner is on Maui. He's a Kamaʻaina rancher who is currently president of the Hawaii Cattleman's Council. That's an organization that represents more than 100 ranches in Hawaii. In the studio with me, I have Mike Hansen, who's a Honolulu-based Maritime consultant and executive director of the Hawaii shippers council and it's a a member of this Jones Act coalition which uh is the group that feels the Jones Act is in great need of reform. Also in the studio is Captain Bob Murray. Uh Bob is a manager of maritime operations for Matson Navigation and he's a graduate of the US Merchant Marine Academy and a licensed ship master. Uh he joined Sea-Land back in 1969 and then moved over to Matson in 1980.

[00:03:09] Randall Roth: Well, there you have it, the five voices that you're going to hear for sure. If you've seen this morning's Honolulu Advertiser page B3 of the focus section, you know that there also is an article there by Charles Totto, who is the State of Hawaii consumer advocate. Uh Chuck was going to be with us today, but uh a member of his family is ill and so he's not going to be able to join in the conversation this morning. Well, that's the uh introductions of uh of the folks you're going to hear from. And now here's my very simple uh overview, which is just designed to give listeners a sense for what's to come, but I'm sure my guests are going to be able to uh to correct a number of of um over simplifications that I'm going to make.

[00:03:52] Randall Roth: I have here our topic today is multi-faceted and anything but simple. At or near its core, however, is a federal law that was passed 66 years ago. Most people call it the Jones Act. In a nutshell, it requires that ocean shipping from one US port to another can be done only with ships that are US built, US owned, and US manned. A major justification for this law is that it protects the US shipping industry, that without such protection, the US would lose its Merchant Marine and be left vulnerable in the event of war. Critics of the act, again according to my simplistic understanding, question its need and decry its cost. They argue that shipping costs would drop quickly and substantially as a result of increased competition, if only the Jones Act were repealed or greatly reformed.

[00:04:45] Randall Roth: A third position is that of Hawaii's consumer advocate. Simply stated, he isn't happy with the status quo. Like the reformers, he thinks ocean shipping prices are much too high, but unlike the reformers, he doubts that repeal of the Jones Act would itself result in lower prices. He's called for greater regulation of the ocean pricing industry, or ocean shipping industry. So there you have it, some folks believe things are fine as they are, others think the people of Hawaii would be better served by substantial reform. Some of them would want that reform to include less regulation, while others would want it to include more regulation. Well, first off the bat, we have Rob Quartel, back in Washington, D.C.

[00:05:29] Randall Roth: Uh Rob, again, is president of this Jones Act coalition, which represents 80 companies, trade associations, and others seeking reform in this area. Rob, can you hear me?

[00:05:40] Rob Quartel: I sure can.

[00:05:41] Randall Roth: Well, good morning.

[00:05:43] Rob Quartel: Good afternoon.

[00:05:44] Randall Roth: And right, and welcome back, I'm I've told you were on a hike with your son and some Boy Scouts.

[00:05:49] Rob Quartel: Well, I uh I'm the den mother for about uh 12 cub scouts and the whole family today and about 25 other people just got back from the uh from Maryland.

[00:05:58] Randall Roth: Okay. Well, I'm going to start my clock and give you about uh 2 and a half minutes, and I apologize for that, but we've got a a bunch of voices this morning, and what I'd like you to do is to more or less summarize your uh group's position and the reasons for that position, and then we're going to come back to you later on in the show and and get your thoughts on what you've heard by that point in the show.

[00:06:22] Rob Quartel: Sure. Um, very simply, by the way, let me start from the very beginning which is, um, the other side of 400 companies, labor unions, etc. Our side is really almost 900,000 companies uh ranging from mining to forestry to agriculture to um cattleman, every facet of business in the United States is represented in this group, big companies, small companies, and others. And all share one thing in common which is that they all believe that competition in the maritime industry is as important as it is in other transportation and other sectors of the economy. And what we're really proposing is that um some of the provisions of the law, the build American provisions, um and the own American provision be changed across the board and that you loosen up um some of the other aspects.

[00:07:11] Rob Quartel: We would continue to require that you use American sailors and ships that operate on a regular basis in the US, although we would allow some foreign shipping in on an irregular basis. Um, one of the reasons that this this law costs the economy anywhere from 3 to 10 billion dollars a year, uh, you said in your introduction that it quote protects US shipping industry and it's necessary for the nation's defense. It doesn't do any of those things. It's a 75-year-old law which was passed when ships and wars were fought in a different way. Um during the Gulf War, only a single Jones Act ship actually went to the war. The the law itself was suspended for the Gulf War as an impediment to the movement of petroleum supplies.

[00:07:54] Rob Quartel: Um, we have lost 60 shipyards while the Jones Act protected it. Uh we have dropped nearly 80% in terms of manpower, so it doesn't protect ships, um the shipyards that build Jones Act ships which are really barges don't build navy ships and vice versa. But that is the justification, it's sort of the ultimate flag waving, and you know what they say about people who wrap themselves in the flag, fools or scoundrels, and I think that's probably the case here. Hawaii loses substantially uh of all of the jurisdiction in in the country probably loses the most and the gain of course goes to two companies, Matson navigation which has 68% market share or $600 million and Sea-Land which has 32% or 300 plus million dollars worth of business because of it.

[00:08:43] Rob Quartel: Uh there are five foreign lines that call on Hawaii. You probably could have the lowest shipping prices in the world, you actually have among the highest, and uh you can go case by case by case and look at at uh just about anything you ship. Uh it is more often than not cheaper to ship something all the way to Asia and back than to ship it to Hawaii.

[00:09:03] Randall Roth: Okay, Rob, that's two and a half minutes and I really do apologize, and we'll come back to you later in the show. But as I understand it, bottom line is you're saying, we don't have much competition because of this Jones Act, if we got rid of it, we'd have a lot more competition and competition would be good for a variety of reasons, but especially for the consumers in Hawaii.

[00:09:22] Rob Quartel: That's correct.

[00:09:23] Randall Roth: Okay, thank you very much. We go also in Washington, D.C. this time to Philip Grill. And again, Philip is with Matson Navigation and is the Chairman of the Maritime Cabotage Task Force, which is a coalition of more than 400 American maritime companies, labor unions, trade associations, pro-defense groups and others, and they are supportive of this thing called the Jones Act. Philip, are you there?

[00:09:47] Philip M. Grill: Yes, I am.

[00:09:48] Randall Roth: Good morning.

[00:09:49] Philip M. Grill: Uh good morning, and thank you for including me in the conversation this morning.

[00:09:53] Randall Roth: Well, that's our pleasure, and you've got uh 2 and a half minutes yourself to to lay out your position and tell us just generally why that's your position.

[00:10:02] Philip M. Grill: Okay. I feel like uh I'd like to say at the outset that Jones Act makes sense today, as it has for the past 200 years that it has been a fundamental part of American maritime policy. If you are going to move cargo domestically in this country, you must do so on a ship, as you mentioned, that is US-built, US-owned and US-registered. It is the US registration requirement that's key here, because that is the requirement that says that you will be subject to the full reach of American law. You will employ American citizens, you will pay American taxes, and be subject to other all the other laws of of this country, be it the National Labor Relations Act, the Fair Labor Standards Act, the Coast Guard requirements, environmental requirements and so on.

[00:10:50] Philip M. Grill: Foreign ships are subject to the laws of the country whose flag they fly. This may be Taiwan, Singapore, China, and that means that they will employ third world crews and they will enjoy a variety of tax and other advantages that are not available to American carriers. It would be grossly unfair and totally unprecedented to allow these foreign vessels into our own domestic economy when they are not subject to the same laws that we are. Remember that when Congress deregulated the air industry, the trucking industry, and the railroad industry as they did a few years ago, they were dealing with issues such as tariff filing, rate of return, regulation, antitrust immunity and so on. Nowhere was it even contemplated that we would, for example, allow foreign air carriers into this country to uh to uh provide transportation for our domestic uh passengers or domestic uh cargo movements.

[00:11:51] Philip M. Grill: Similarly, under the open skies agreements and under NAFTA, which we've heard heard so much about lately, they deal with international cargo movements only and do not affect this fundamental premise that American companies subject to American law carry America's domestic commerce. And I think it is important for consumers in Hawaii not to be taken in by a lot of unrealistic and misleading self-serving serving claims of foreign ship representatives. Hawaii has enjoyed one of the most efficient, reliable, timely, and safest ocean transportation systems anywhere in the world, and it per we provide that service at rates that are reasonable, they are highly competitive, and they typically make up less than 5% of the retail price of goods.

[00:12:46] Randall Roth: Philip, that's uh that's your time, but I do want to ask you a question. As I understand it, the heart of of your argument that you've made thus far is that to change the Jones Act would introduce a very unfair form of competition. Um, but just in in a matter of seconds, what about this this argument of national defense? Do defenders of the Jones Act argue that it's important for national defense or or not? And again, just in a few seconds.

[00:13:10] Philip M. Grill: Yes, we, yes, absolutely. And we are working extensively with the US Transportation Command, the military Sealift Command, uh along those lines, and are trying to uh develop a system in connection in in conjunction with the military to facilitate the movement of military goods using the commercial maritime uh system that's available today.

[00:13:34] Randall Roth: Okay, thank you very much. And and again, we'll come back to you later in the hour. Uh we were going to go to Sumner Erdman next, who is the president of the Hawaii Cattleman's Council, but we're having a little bit of trouble hooking up with him. Uh we expect to be talking to him later in the show, but uh let's skip over and and talk to Mike Hansen. Mike is here in the studio, and he's a Honolulu-based maritime consultant and the executive director of an organization called the Hawaii Shippers Council, which is a member of the Jones Act coalition. This again are the group of of folks who would like to see the Jones Act greatly reformed.

[00:14:09] Randall Roth: Good morning, Mike.

[00:14:10] Mike Hansen: Uh good morning. Uh thank you for inviting us to uh this program this morning. Uh our organization, the Hawaii Shippers Council, is uh has been formed to promote more competition in the Hawaii trade, uh both on the liner or container shipping side, which involves uh companies such as Matson and Sea-Land, and also uh on the non-scheduled or commodities side, uh which involves specialized vessels for the transportation of such things as uh live cattle on livestock carriers, uh bulk cargos on bulk carriers, tankers, etc. So there's two really two separate markets, uh the regularly scheduled liner shipping sector and the non-scheduled or tramp shipping sector as it's sometimes referred to. In terms of uh competition, uh and uh on the uh liner side and the kind of service that's being provided today by Matson and Sea-Land.

[00:15:06] Mike Hansen: Certainly, uh there is uh addi- there is a uh a good level of service being provided by Matson and Sea-Land with a high frequency of arrivals uh and on their container vessels. However, that's only one part of the shipping market. In fact, uh Hawaii is quite disadvantaged in terms of uh availability of ships in the other sectors. Uh the cattleman situation is a prime example. Most of the world uses what's known as livestock carriers, ships that are designed and built expressly for the carriage of of live uh animals. However, none of those vessels are available under the US flag and they're denied and the cattleman are denied access to those vessels uh by the Jones Act in terms of shipping to the United States.

[00:15:58] Mike Hansen: The cattleman, the Hawaii Cattleman have used those vessels to ship to Canada, but of course they can't use it to ship into their primary markets. Um and this is this has become a real problem for many of Hawaii's businesses.

[00:16:11] Randall Roth: Mike, let me ask you a question in in your article which you co-authored with Rob Quartel in this morning's newspaper, uh you say that you estimate that the added cost to the people Hawaii because of of the Jones Act, the added cost each year is $200 million and that's a direct out-of-pocket added cost, but then for a variety of reasons you say when you consider the the indirect costs and the lost opportunities that it's more on on the level of a a billion dollars, which is $1,000 per man, woman, child in the state of Hawaii. Um how solid are those numbers? Is that based on empirica- empirical data or or anything else other than kind of a back of an envelope sort of calculation?

[00:16:58] Mike Hansen: Uh our numbers are getting uh firmer all the time as we develop new information, as new information sources become available to us. Uh in respect of the estimate of $200 million in the liner sector alone, i.e., Matson and Sea-Land, uh those numbers are pretty good. They're based upon uh filings with the Department of US Department of Transportation, and also a DOD study which was done to estimate what preference uh was costing the federal government in terms of the movement of military cargos.

[00:17:35] Randall Roth: DOD is Department of Defense.

[00:17:37] Mike Hansen: The top Department of Defense.

[00:17:38] Randall Roth: And and again, we're not talking about the cost of shipping to Hawaii here, we're talking about the added cost because of the Jones Act.

[00:17:44] Mike Hansen: Right, there's a what we're calling the the the the ocean freight penalty is a direct cost of about $200 million a year. And then when you take that direct in the liner sh in the liner sector alone, when you multiply that times the economic multiplier, then you get of 2.5 calculated by D-Bed, that's when you get up to the $500 million figure, just on the liner sector alone. In addition to that, you've got the tramp trades and also lost opportunity cost, such as I can't ship my cattle to the West Coast.

[00:18:15] Randall Roth: Okay, and just so listeners understand, uh if we were in in a state like Kansas, uh we really wouldn't have a a direct cost I guess of the Jones Act. But being in Hawaii where 80% of our goods come by sea, uh obviously there there is a greater concern than there would be in a lot of other states, and um uh I'm curious Bob Murray, who is uh with with Matson, the manager of Marine Operations, um, I I want to hear a number of of thoughts you have about different things, but I'm especially interested in these numbers. What's your reaction to the numbers you're hearing from Mike Hansen?

[00:18:52] Robert J. Murray: Uh as far as the numbers that uh Mike is coming up with, he's talking about total cost. Uh, we know on on a uh uh for the consumer, you're talking about four to 5% of the cost of goods is is attributable probably to ocean shipping. Uh if there was unleashed uh foreign competition in here they might reduce it by 1%.

[00:19:13] Mike Hansen: And you're talking about the cost of shipping as opposed to this added cost or or what Mike was calling the shipping penalty.

[00:19:19] Robert J. Murray: Uh that's correct. I'm talking about the cost itself. I'm not I'm not quite clear on his shipping penalty. He he seems to imply that there are goods that that need to move into or out of Hawaii that we're not able to capable we're not capable of handling and that they cannot have handled in another manner.

[00:19:37] Mike Hansen: As I read your piece in this morning's paper, the piece you wrote with Philip Grill, um you would I think say that there is little if any shipping penalty, that that there isn't much additional cost as a result of the Jones Act.

[00:19:50] Robert J. Murray: That is correct. That is correct. Uh, what additional cost there might be would be somewhat attributable to the fact that we live in the United States of America. Our wages are higher, our standard of living of higher, uh our uh our protection of our people through environmental laws are higher. We meet all of those standards. We pay taxes in the United States. Those uh would contribute something to the additional cost.

[00:20:13] Mike Hansen: Okay. And I guess, um, I was talking to somebody the other day about this, a a person who who isn't uh a guest today. But he was commenting that Matson and Sea Land, the two companies here in in Hawaii, the only two companies, the companies that Chuck Tatto, our consumer advocate, has called a a duopoly, I guess suggesting that the two of you can can work in concert and and um manipulate the market the way a a monopoly could. Um, that uh, uh, you know, you've got just these these two companies in Hawaii. Uh, what's your reaction to that?

[00:20:46] Robert J. Murray: Well, there are a couple of things. Uh we also have uh barges, barge service that brings in uh goods from the West Coast and they they compete and they bring in frequently at a lower cost because their cost of operations is lower. But, uh aside from that, um as far as competition is concerned, there is keen competition between Matson and Sea Land, as there are between any American companies who are competing against one another in in the same business in the same area. There is there is competition. Uh as far as the duopoly is concerned, in reading uh Charles Tatto's column with regard to the fact that when there was a rate increase, the one follows the other. That's pretty much standard when we see the airlines, if they'll somebody will come through with a rate cut, they all go with the rate cut.

[00:21:32] Robert J. Murray: Uh when they go with a rate increase, they either all go with a rate increase or they reduce that.

[00:21:37] Mike Hansen: So you're saying that's what competition is all about. If somebody comes down, you've got to meet the competition or or you lose business?

[00:21:42] Robert J. Murray: That's correct, and as far as rate increases are concerned, your costs increase. You have to increase rates.

[00:21:48] Mike Hansen: Okay. Well, I want to remind listeners that this is the Price of Paradise radio show. Uh we're talking about the Jones Act, which is this law that requires um uh cargo coming to Hawaii and going from Hawaii when another US port is involved, to be on ships that are US built and US owned and and under a US flag and subject to US laws, all that sort of thing. On the one side of the issue, people say this dramatically increased the cost of living here in Hawaii. On the other side, we have folks who say it hasn't done that at all and in fact there are a variety of benefits that are provided by it.

[00:22:22] Mike Hansen: We'd like to hear from you. Please give us a call at 955-8821 if you have a question or if you'd like to make a brief comment. Also those of you tuned in late, if you'd like to catch the replay, it'll be on tonight at 8:00 on KIFO. That's 1380 AM. If you're on a neighbor Island, just call 1-800-955-8821. Well, um, Bob Murray, we were just talking to you a moment ago, um something that that this person said and I lost my train of thought earlier, was that Matson and Sea Land had invested something like a billion dollars uh in their infrastructure here in Hawaii. And what he was saying is that if the Jones Act were repealed and if foreign competitors could could come in, that that would somehow be unfair to these companies that have been quote, played by the rules all these years. What's your reaction to that?

[00:23:16] Robert J. Murray: Well, that is correct. Uh we would be we would have the high cost of of everything that we have here. Uh Matson and Sea Land have put up their own cranes. Uh we provided we spent the money on the ships, the barges and and uh there would be you can get foreign ships at a lesser rate. Um we would we would have to bear, we would have to try to compete with them. We'd not be able to get a return on the investment that we have made, perhaps sufficient enough to even pay for them.

[00:23:45] Mike Hansen: Okay. Mike Hansen, what's your reaction to that or anything else that you've heard from from Bob Murray? Uh, yeah, there's uh certain things I'd like to respond to. Uh first of all, when we start talking about the investment that Matson and Sea Land have made in the Hawaii trade, uh one thing that we need to bear in mind is that both Matson and Sea Land have been very active lobbyists in Washington for many years. And they, many of the rules that they say that they're now saddled with, of course, they were great promoters of. So, it's uh a situation where, uh, you know, they've created this uh this bed that they're laying in. Uh, in addition to that, um, the cost of the cranes and the other port facilities would be the same for Matson as they would be for any foreign carrier. There's no real difference there.

[00:24:34] Mike Hansen: Uh the major capital difference uh that we're discussing here is the cost of US-built ships. For example, the most recent addition to the US to the uh uh Matson fleet was the RJ Pfeiffer, the first container ship or the last container ship that's been built in the United States. Um, and the US yards actually build very few commercial vessels every year, uh because they're so uncompetitive. That vessel cost over $165 million. Uh similar ships could have been built in Germany or in Japan, where actual per-hour shipyard rates per man are higher than they are in the United States for substantially less money. People uh say that the same ship could have been built for say $65 million, and this creates would create a much different capital base in terms of how they're calculating their rate of return.

[00:25:27] Mike Hansen: Uh so there's some real um, this is one of the real problems of the Jones Act is that it's uh created a situation where uh both the shipyards and the shipping companies themselves are not competitive, uh and uh they don't provide the kinds of services that are that are needed by Hawaii's industries. Okay. Well we've got some people on the line. We have a couple lines that are open and invite others to call in. But let's first go to David in Honolulu. Good morning, David.

[00:25:54] Charles Totto: Uh, morning. Uh I was listening to your station and I was reading the paper this morning about the Jones Act. And uh I am an importer of staff from Southeast Asia and uh the freight charges from Southeast Asia to Honolulu is about almost doubled the freight charges to mainland USA. And if they if they abolish the Jones Act, I think there will be more competition and that would help to reduce the cost of freight to uh Honolulu, and at the same time, it will help to lower the prices of my merchandise to my my my customers.

[00:26:31] Mike Hansen: Okay. We appreciate your comment and I'm going to let uh Bob Murray respond to that before we go to our next caller. Thank you, David.

[00:26:38] Robert J. Murray: All right, I I hear him say that the costs are double. I don't know the route that he's taking to move the goods. There are routes, he can even bring them in here by foreign flag if he's coming from Singapore, if they find a vessel to come in here. We do not prohibit, and this the Jones law does not prohibit foreign ships coming into this port, just between United States ports. He's shipping from the Far East. He's not shipping direct to Hawaii. Maybe it's because there's no service to Hawaii from the Far East.

[00:27:02] Mike Hansen: Okay. Let me ask Mike Hansen, a foreign vessel, does it have trouble getting pier space or unloading uh facilities or anything like that or or can it use all of that uh apparatus that's been installed by Matson and Sea Land? Do you know, Mike? Uh yeah, I can respond to that. Uh there are some foreign flag carriers such as Columbus Lines and the Blue Star Line which do use Matson terminals uh for loading and discharging at Honolulu under special agreements uh so that they have access to the cranes. Uh if they're what's known as geared vessels, I.E. they have their own cranes and gear, then they can discharge themselves at uh at other facilities such as Peer One.

[00:27:41] Mike Hansen: In response to David's question, uh I believe he's absolutely right. Uh if the Hawaii trade were open to more competition, uh we'd have more ships coming through here and potentially, um many more areas of service at lower cost would be offered as a result of that. Okay. Bob Murray, the reason that I had asked Mike that question is Chuck Tatto's piece in the paper this morning, suggesting that even if the Jones Act were repealed, so more foreign ships could come in, uh that there was a problem in terms of space and facilities and that there really wouldn't be uh more competition. What's your reaction to that as a uh an official and officer at Matson?

[00:28:19] Robert J. Murray: Uh, there is some element of truth in Charles Tatto's question in in the fact that there is not unlimited space and it's not always available at all times. We are tight. Nevertheless, there is space. We do have ships coming in here from from uh from foreign countries.

[00:28:35] Mike Hansen: Okay. Let's go to uh Andy in IA. Good morning, Andy.

[00:28:41] Randall Roth: Morning, Randy. Um, I have just a couple questions uh um, would you have Mike Hansen or Mr. Quartrell identify uh who their um backing and where their source of income is coming from. And then the other question of Mr. Murray, I wondering what role uh that the Jones Act ships plays in the defense uh of the of the United States?

[00:29:07] Mike Hansen: Okay. Well, let's start with with Mike Hansen, uh the backing of of your organization and if you know the backing of Rob Cortel's organization, and and this is the side now, Mike Hansen is on the side that's opposed the to the Jones Act. Uh, where's your backing coming from? Yeah, I wouldn't say we're opposed uh fundamentally to the Jones Act, but we are seeking reform of it. Um, while I shouldn't be speaking for Rob's organization, I can say that both organizations are membership based organizations, and uh, we uh derive our support from uh basically shippers, people who are uh shipping uh goods on board vessels, uh as opposed to the carriers whom uh Bob and uh and and Phil are representing this morning.

[00:29:54] Mike Hansen: I would assume that that that that foreign uh carriers also would would support your movement. Uh, that may well be, but I don't have any support from foreign carriers. So that would be a a bit of a canard to Okay. to use. And Bob Murray from Matson uh uh Andy had a question for you having to do with national defense.

[00:38:00] Randall Roth: time, the Consumer Price Index in Hawaii rose 59% over the same period of time, across the board in the United States, that Consumer Price Index rose 42%. During that period of time, Matson raised their rates 23%. So what we have what we have done, there's no reason to go come down if you don't go up too much.

[00:38:20] Sumner Erdman: Yeah, but there's no reason to go down because there's no competition. That's the problem. You alluded to the fact that when one raises, the other raises, but they never go down. Would competition give us a tremendous amount of competition, so that it will go down?

[00:38:33] Randall Roth: Joe, thank you for your call. You've made your point very well. I appreciate it. Bob, real quick response and then we'll move on. Yes, uh, the fact is if you bring in un just uh just open it wide open to competition, uh there are rates what might come down on certain goods. There is absolutely no assurance that this rate decrease, if you will, or this this benefit, would pass down to the consumer. And there's a whole host of uh things that would come out of Pandora's box. Okay. Well, I want to remind listeners that this is the Price of Paradise radio show. We sometimes call it Pop Radio. Our topic today is the Jones Act. We have a number of people who are here talking about it in the studio.

[00:39:13] Randall Roth: I have Mike Hansen, who's the executive director of the Hawaii Shippers Council, and also Bob Murray, who is the manager of marine operations for Matson. Uh, by phone, and we're going to go to them in just a minute or two and get some additional thoughts from them. Back in Washington, D.C., we have the two people who are are the point people on opposite sides of this issue on a national basis. On the side that is is advocating for reform of the Jones Act, we have Rob Cortel, who's the president of a group called the Jones Act Coalition. And on the side that's defending, um, the Jones Act, we have Philip Grill, who's a vice president with Matson, and I guess, um, you might call him Matson's in-house lobbyist.

[00:39:53] Randall Roth: And so Rob and and Philip are are working on this issue on a daily basis, and it is a federal issue. We are talking about a federal law. Locally on normally on this show, we focus on local issues, but as mentioned before, because we're an island in the middle of Pacific, because 80% of our goods arrive by by ocean carrier, uh we are much more affected by the Jones Act than is the typical state. And that's why we decided to cover this topic today. Well, we've got a couple of people on the line, but we've got uh three lines open and so if you would like to get in line to ask a question or make a brief comment, just call us at 955-8821.

[00:40:32] Randall Roth: If you're on a neighbor Island, just add a 1-800 to that, so it's 1-800-955-8821. Well, let's uh go back to Washington, D.C. Uh, first let's go to Philip Grill, who's with Matson back there. Philip, are you still on?

[00:40:48] Speaker 1: Philip Grill. Are you there?

[00:40:51] Randall Roth: Uh, Philip Grill, right.

[00:40:53] Speaker 1: All right. Uh, oh, lost you for a second.

[00:40:55] Randall Roth: Thank you. That That's an error on our side. Uh have you been listening to the whole show?

[00:40:59] Speaker 1: Yes, I have. I'm sure you've got some added thoughts. Go to it. There are a number. Uh first of all, on the last question, um, I have a chart in front of me that shows the per revenue ton mile rates that have been supplied by the American Trucking Association and the Association of American Railroads. And those rates over a 10-year period from 1985 to 1995 have come down for the trucking industry and they have come down for the rail industry. And in the same and right along the same lines of uh declining uh rates are the uh revenue per container, per container in the West Coast Hawaii trade. So what we see here is that the revenue per container in the West Coast Hawaii trade has come down in the same uh in the same proportions as the truck and rail rates have in these other industries that are normally thought of as very highly competitive uh deregulated industries.

[00:42:04] Speaker 1: So that would be uh point number one. Let me give you a couple of uh examples of ocean rates between the West Coast and Hawaii.

[00:42:13] Randall Roth: Okay, and just one more one more minute, then I'll come to you at the end of the show too, but one more minute now.

[00:42:17] Speaker 1: Okay, one more minute. All right, a box of laundry detergent in Los Angeles, California costs $16.16. The same box in Honolulu costs $20.49. That is an increase of $4.33 from Los Angeles relative to Honolulu. The ocean transportation rate was 79 cents. So in other words, somebody is going to look at that increase of $4.33 and say, geez, it must be the cost of shipping. But it is not. The only 79 cents of the total $20.49 item is attributable to the cost of shipping.

[00:42:57] Randall Roth: And I guess you would say only a small portion of the cost of the shipping is attributable to the Jones Act.

[00:43:03] Speaker 1: Absolutely. Absolutely. And finally, I would say that in respect to uh cattle, there was a statement that Matson is not a able to move cattle. Matson moved 34,000 head of cattle in 1995 eastbound from Hawaii to the uh Pacific coast of the United States. So there is service provided.

[00:43:26] Randall Roth: Okay. Well, we'll come back to you for a closing uh statement or some closing thoughts in just a bit. Uh right now, we move on to Rob Cortel, who's on the opposite side of the issue, he's the president of the Jones Act Coalition. He's in Washington, D.C. Rob, are you there?

[00:43:40] Speaker 2: I'm here.

[00:43:41] Randall Roth: You've got a couple minutes to add to what you were saying earlier.

[00:43:43] Speaker 2: Well, first, uh next time I come to Hawaii, I hope you invite me out there. It's incredible how much misleading information has come out of the other side. Let me give you a couple quick examples. They like to imply they were a bunch of nasty foreign owners. What we are are 900,000 Americans, American companies that pay American taxes, hire American workers, obey EPA and OSHA. And unfortunately, when we compete in the United States to sell our hogs or our steel or our grain or whatever we're selling, we're competing against foreign companies that use foreign labor and have uh don't pay US taxes and don't obey EPA or OSHA or anything else. The only people in this country who don't have to compete in their own backyard against everyone else in the entire world are Matson and Sealand, any of the Jones Act companies and it shows.

[00:44:31] Speaker 2: Uh Phil, for example, just uh talked about the rate for truck and rail has gone down and then compared it to the revenue per container. That is absolutely apples and oranges and the reason he compared it to revenue per container is that while rates have gone down and trucking and rail since they uh since the deregulation and aviation, rate have gone up uh in the Jones Act trade and they've gone up, uh uh he says only 29%, everywhere else they've gone down in the other mode. So, it's an incredible amount of misleading information. The Jones Act was not passed uh the mythology aside, to pass the United States fleet or build a big fleet. Um 97% of everything carried to and from the Continental United States and other points, um, including Hawaii, is on foreign flag ships. We have no laws that prevent that.

[00:45:23] Speaker 2: Um in fact, the Jones Act was passed in 1920 in order to protect a railroad monopoly from Seattle, Washington, to the colony of Alaska, to protect it from competition from ships from Japan and and uh Canada. And uh Alaska has hated the Jones Act ever since it was passed because of course it was passed to penalize them and now it penalizes Hawaii. Four times in the last 10 years uh Alaska has voted to direct its its Congressional delegation to go for repeal of the Jones Act or something else.

[00:45:57] Randall Roth: Rob, Rob, in order to keep this playing field level, I'm going to have to to move on, but we're going to come back to you and Philip a little bit later and get some closing statements. Thanks a lot. We appreciate your putting up with this. I hate to be rude but but I got to keep this uh this playing field as level.

[00:46:11] Speaker 2: Come back more frequently.

[00:46:12] Randall Roth: Okay. Okay. Um, well, let's go to some callers and we'll try to move through them fairly quickly. First, we have Margaret from Honolulu. Good morning, Margaret.

[00:46:21] Speaker 3: Oh, hi. Good morning. Okay, my question is to Mr. Murray. Mr. Murray earlier on you say that uh there is competition as far as um ships calling in Hawaii. I don't think so. Uh, American president lines, it's an American registered company but cannot call Hawaii. Why is that? Uh, Matson has fought for a long time, so ABL cannot call in Hawaii.

[00:46:47] Randall Roth: Okay, and answering is Bob Murray, who's the manager of marine operations at Matson. Bob? Hey yes, a good morning, Margaret. Uh, the answer to that question is is very easy. American President Lines uh gets a considerable subsidy from the United States government. They claimed on the one hand that they could put it in one pocket and they wouldn't touch it with regard to the Hawaiian service, but it's all in the same household. That is the reason that they were not permitted to do that because they are subsidized. Sealand is not. Matson is not. Okay, Margaret, thank you for your call. Oh thank you. Uh, we go to Neil from Mililani. Good morning, Neil.

[00:47:21] Speaker 4: Yeah, I it at the best case at the best case of what Mr. Hanson and Mr. Cortel are talking about that consumers would reap this huge benefit by turning over our our shipping industry to foreigners. First place, I if I'm on the mainland, I can't catch a foreign train between uh Chicago and St. Louis. I can't take a foreign bus between uh Denver and Oklahoma City. I can't take a foreign plane from uh Dallas to uh New York City. But they're proposing that we can take foreign ships between two ports, two points in the US. No other transportation mode is given away to foreign interest. We don't give away our infrastructure to the control of foreigners. Okay, we just don't do it. But I want to know if best case scenario, they got rid of all the American companies that are involved in ocean transportation and and cons and there was this huge drop in shipping prices, can they guarantee that that windfall drop will be passed on to those of us who buy who are consumers who buy things and that it won't just find its way into uh somebody's pocket?

[00:48:33] Randall Roth: Okay, well I'll take that as a comment because obviously they can't guarantee that, but I appreciate well, why couldn't they guarantee it legislatively? Well, Mike Mike Hanson can't guarantee it, but uh I think you've made a couple of real good points with your comments, I appreciate it and we're going to move on to Peter and I just says merchant seaman. Peter, good morning.

[00:48:51] Speaker 5: Good morning.

[00:48:53] Randall Roth: What do you have for our guest this morning? Well, I I'm a merchant seaman and I support the Jones Act.

[00:48:59] Speaker 5: By repealing the Jones Act uh we would be out of business and the merchant seaman has been around all these years supporting the government during the first World War, second war, and all of a sudden now, the NAFTA which was passed, this says the workers wouldn't lose any jobs and it it didn't work out that way. Uh if the Jones Act was repealed, I would be unemployed because there won't be any American companies in business. And I support the Jones Act because it put bread and water on the table for my family, I sent my kids to college all through the merch marine and I'm a whole hardly against repealing the Jones Act because the merchant seaman would be out of business.

[00:49:45] Randall Roth: Okay. Well, Peter, I appreciate your call. Okay. Um we're down now to about 13 minutes of the show and uh what I'm going to do is is go back for the last time to our our two guys in Washington, D.C., and give them each a couple of minutes to uh make any closing comments that they would like to make at this time. Uh let's go first to Rob Cortel, who's the president of the Jones Act Coalition, seeking reform of the Jones Act. Rob, you're on.

[00:50:12] Speaker 2: Yeah, one real quick point. A couple of your listeners are flat out wrong about what they asserted. In fact, you can take an a foreign-owned bus, truck, or train anywhere from one point in the US to another. There's no law that prevents a foreign company from owning any of those modes of transportation. No law that says you can't buy a foreign-built plane, truck, rail, whatever and in fact we do buy them all over all overseas. One of the reasons um I think Phil uh someone said that the companies have made the bed the lie and I think he's right. You know, Matson and C land didn't pay for those warps and they didn't pay for all the rest of it, the consumer paid for it in Hawaii and what happened is when when they spend $10 million on a crane um they go to they went to the government, they got a they have a monopoly essentially in pricing, the government guarantees them the full cost of that from the consumer in rates plus eight and a half percent.

[00:51:07] Speaker 2: 10 years ago Matson was the the whole world of shipping companies was surveyed and Matson was found to be the most profitable on an absolute basis of any company in the entire world, even as small as it is. It got 15% return on equity in 1994, which is probably twice what Cealand got by the way, and it's all because it has an immense rake-off and it's all off the Hawaiian consumer and that's true of the Jones Act wherever it is. Those are the most profitable line and of course it makes sense from a common sense standpoint. Um I guess uh if this is my closing point here, um the the key thing you need to bear in mind in all this is for whom is shipping run?

[00:51:49] Speaker 2: Uh to the consumers and the shippers exist out here uh in order to provide jobs to the to the Matson's or Cealands or are they supposed to be in business to to provide services to us? I think the latter, I think most American companies think it's the latter that of course is why they've all joined us.

[00:52:07] Randall Roth: Okay. Um let me ask you one question before we leave you, Robin. And we have a a caller from couple who, who uh if we have time, we'll we'll get to him, but I can see from the note in the window that that he wants to ask about the status of the Act. Oh, what's going on there? What are the chances that the Jones Act will be repealed or substantially reformed?

[00:52:24] Speaker 2: Well, um the coalition is actually proposing reform and most of the reforms actually will help the companies, um you know, get cheaper ships and things like that. Right, but what's the status? In fact they also, by the way for that seaman preserve his job. Right. Um on ships operating here, we will actually end up creating more jobs because they're trying to get more US ships. 15 seconds. Uh the bill has been introduced in the Senate, the bill's been introduced in the Senate, uh it will probably shortly be introduced in the House. We have hearing scheduled for the House uh on the 12th uh and you will hear some of the stories from American shippers who are harmed by it when that happens.

[00:52:56] Randall Roth: Okay, well we'll we'll be watching uh to see what develops in Washington, D.C. Rob, thanks a lot. We really appreciate your joining us this morning.

[00:53:02] Speaker 2: Thank you.

[00:53:03] Randall Roth: We go to to Rob's counterpart on the other side of this issue, Philip Grill, who's a vice president for Matson Navigation, and he's the chairman of an organization that uh represents uh many many many folks uh who are supporting the Jones Act. Um, Philip, are you there?

[00:53:18] Speaker 1: Yes I am.

[00:53:19] Randall Roth: You've got uh your two minutes. Go for it.

[00:53:22] Speaker 1: Okay. I'd like to say that uh first of all, there is a great deal of political support for the Jones Act as there should be in Washington and um the bill there has has been a bill introduced in the Senate. It's taken over a year uh for Rob to get anyone to even touch that legislation and I think that speaks to the merits of what he is proposing. Um I believe there is a great deal of misinformation, although I would not characterize it as coming from this side. Let me say on the issue of competition, um Matson's rates are subject to regulation or have been subject to regulation, and on the 3.8% rate increase that we took that went into a into effect in January of this year, the Federal Maritime Commission concluded that we would have an allowable rate of They would allow us to make in effect a 15% rate of return on our uh invested capital. But projected that we would only make 10.29% on uh our our uh on our rate of return. In other words, we're only going to make 10% rate of return and they would allow us a 15% rate of return.

[00:54:31] Speaker 1: So there is something other than the strong arm of government regulation that is holding rates down in the Hawaii trade. Um and that is competition between Matson and Sealand. Finally, I would say that the Jones Act was not passed, it it was passed in 1920, but the principles of cabotage that are embodied in the Jones Act have been in American law since 1789. And the reason is the reason that I stated at the outset. It's a matter of fundamental fairness. There are no foreign airlines or foreign companies that are carrying domestic cargo or passengers in this country that are not subject to the full reach of American law, and that is the point here. Okay. We are so we pay taxes in this country and employ Americans and foreign ships will not. That is the whole point of Mr. Cortel's effort. Uh if they had if they had to comply with American law, they would not be able to even allege these uh advantages that they say they're going to bring to the Hawaii trade.

[00:55:42] Randall Roth: Okay. Philip, I really appreciate your joining us this morning. Thank you very much.

[00:55:46] Speaker 1: Thank you.

[00:55:47] Randall Roth: Uh, we're down now to about seven or eight minutes, and what I'm going to do is we've got a couple of people who have been waiting patiently on the on the phone. We're going to go to them and quickly respond to their question or comment and then I'm going to give my guests in the studio, a minute or so to sum up their thoughts. First, we go to Jack in Hawaii Kai. Good morning, Jack.

[00:56:04] Speaker 6: Good morning and thanks for taking the call. I work in the industry. I'm with Cland as a matter of fact and uh couldn't help but make a a couple of comments here. Uh Mr. Cortel is a master at uh deceit and uh misleading information as well, so let's uh let's talk about some of the truths. Cabotage laws first of all are are you know worldwide, there's 47 countries with cabotage laws. A Sealand ship can't trade between two ports in Japan or two ports in Korea or two ports in Spain or anything else. The only major developed country that's done away with their cabotage laws for the most part is the United Kingdom. They wanted to send troops in the Bosnian action, but they couldn't because they had no UK ship available. In fact, it was an American ship that took them.

[00:56:49] Speaker 6: There's one uh huge point that doesn't seem to come up in this conversation and that's neighbor islands. You said uh over 80% uh of everything coming into Hawaii. And

[00:57:00] Speaker 7: to come by ship. And that's true, but 25% of everything that comes into these islands goes to the neighbor islands. Mason and Seland service all of the neighbor islands at no additional cost. No foreign flight carrier is going to come into Hawaii and even make those calls out there.

[00:57:15] Randall Roth: So, this is what some people would call good corporate citizenship?

[00:57:19] Speaker 7: I think it's a thing called commitment. One of the things that Hawaii receives as a benefit from the Jones Act is the fact that carriers have made the investment, made the commitment and provide that kind of service. Hawaii is a consumption market. There's no warehousing to speak of. Everything is just in time in the pipeline within our systems going to, going to the retailers.

[00:57:43] Randall Roth: Jack, you know, I'm going to have to to move on. I appreciate your call, and if you've got something to add in just 10 seconds go go for it, but I have to move on.

[00:57:51] Speaker 7: No, that's fine. Thank you.

[00:57:53] Randall Roth: Thank you. We appreciate your call. We're down to the last five minutes, and I want to save a couple of minutes for our guest in the studio. So very quickly we go to Cavica on the waterfront. Cavica, good morning.

[00:58:02] Speaker 8: Aloha and good morning to both Mike and Bob Murray there. Bob did touch on subsidies when he was mentioning APL and the point that I just like to bring out is that it's really important to remember that a lot of these foreign carriers that would like to be coming into Hawaii are very heavily subsidized by their respective governments. Mason and Seland and other Jones Act carriers are not subsidized. And so by allowing these carriers in, what we're doing is basically what the whole Merchant Marine, the US Merchant Marine, what little is left of it is doing right now. Private companies have to compete against foreign governments, and it just ain't right.

[00:58:49] Randall Roth: Okay. Cavica, thank you. We appreciate your call. Last person who's been waiting patiently on the line, we'll go to him quickly, is Robert Bart from Captain Cook, Hawaii, on the big island. Good morning, Robert.

[00:58:59] Speaker 9: Yeah, good morning. I'd like to also add that my family has been working with A and B, Mason navigation for many years. And I'd like to say that A and B has been a very good family provider, not to mention that they've been around for many years and in Hawaii, that is taken to the heart. Thank you very much.

[00:59:20] Randall Roth: Okay, and we can hear your family in the background. Thanks for your call, Robert. Well, folks, as I told you at the beginning of the hour, this is a controversial topic. It's anything but simple. It's national in scope, and so it's not something that after an hour of conversation, anyone like me who's starting out at ground zero is is really going to be able to get his or her arms completely around. But hopefully all of this conversation is is helping you to get some ideas to just what the issue is and what it is that we as a community ought to be thinking about and asking about and all that sort of thing. We're down to the last couple minutes, and I want to start first with Mike Hansen, who's on the side opposed to the Jones Act.

[01:00:03] Randall Roth: One minute, Mike. Final thoughts.

[01:00:06] Speaker 7: All right. As far as what Rob Cortel and myself and other people are advocating, it's not repeal of the Jones Act, it's reform. And one of the, I think, one of Bob Murray's comments regarding how the fleet has declined over the declined prior to World War I. And then I think you need to contrast that to how it's continued to decline after World War II. And all that decline has taken place while enormous protection, some people call it super cabotage, has been in place and while there has been enormous amounts of subsidy provided by the US government, both in construction differential subsidies, operating differential subsidies, construction, capital construction funds, and other mechanisms to the shipping industry.

[01:00:56] Speaker 7: And that is exactly what we're trying to address with our reform is that we have very few ships left, we have very few seamen. There are almost no commercial ship, deep draft ship building left in the United States, and that is what the industry needs to address. And we believe that the reform that's being proposed will address that and will eventually make a stronger maritime industry in the United States, but it's going to have to do that with competition.

[01:01:25] Randall Roth: Okay. Bob Murray from Mason, you've got one minute to sum up.

[01:01:28] Speaker 9: Okay, I just like to make a comment in response to Mike's earlier, uh, mention of the fact that it costs quite a bit of money to build the RJ 5 for in American yards, we could have built it cheaper in foreign yards. Germany subsidizes the construction of ships for anybody in their, in their country at 40%, and Korea, uh, provides a construction subsidy. Japan, uh, subsidizes their shipyards. So anybody who builds ships there gets the benefit. We do not do that in this United States. The shipping building industry, the fact of the matter is that there is considerable ship building going on, and it's on the growth in many of the yards. Some of the bigger yards have closed, some of the smaller yards building ships are even building them for foreign governments and in foreign, foreign enterprises.

[01:02:20] Speaker 9: So the ship building industry is alive and well in the United States.

[01:02:23] Randall Roth: Okay. Well, thank you very much. I want to thank all of my guests, Rob Cortel and Philip Grill from Washington, DC, Mike Hansen and Bob Murray in the studio. We also had participation by writing articles for the newspaper, Sumner Erdman, who's the head of the cattleman's council here in Hawaii, and Chuck Tato, who is the State of Hawaii consumer advocate. Uh, if you'd like to catch the show in its entirety tonight at eight on KIFO, 1380 AM, you can do that. Our producer is Suzy Roth, uh, filling in for our subst or substituting for Suzy this morning is Jenny Tanji. Jeff I is director of operations. Listen next week when we talk about Quest. You've been listening to Pop Radio.

[01:03:02] Randall Roth: Aloha.