More Jonesing
The Jones Act often comes up in conversations with businesspeople in Hawaii. See yesterday’s post for some of the history and economics, but let’s focus on pragmatic business consequences today.
I asked a cattle-rancher on the Big island what his biggest business headache was, expecting him to say something about getting loans or meeting sanitary requirements. But, no, he said it was the Jones Act. Hawaii has a surprisingly large and robust cattle industry (some parts of the Big Island look more like Texas than Hawaii) that produces far more than can be consumed in the local market – which isn’t big enough to support an industrial-scale slaughterhouse and meat-packing industry. So, the ranchers are faced with exporting live cattle to either the U.S. Mainland or to foreign markets. They tried exporting to Japan many years ago, but that was at a time when Tokyo was saying that Japanese stomachs couldn’t tolerate non-Japanese beef. Then mad cow disease came along, and shipments of Hawaii cattle and beef were cut off because of one Canadian cow that had been brought south of the border. The world didn’t notice the long swim required for contact between Hawaiian and Mainland herds. But I digress.
Hawaii’s cattle industry today requires transport of live cattle to U.S. West Coast slaughterhouses, which brings the Jones Act into play. It’s not a huge trade, but when ships are available to carry the cattle, the prices, says the rancher, are prohibitive. It’s cheaper for the cattle ranchers to charter vessels to carry their cattle to Vancouver, Canada and either slaughter them in Canada or have them trucked down into the Lower 48. This, of course, subjects them to an additional layer of health and safety requirements, which only adds to their costs and cuts their margins. Getting rid of the Jones Act may or may not make direct transport to the West Coast feasible, but the ranchers would sure like to give it a try.
Better deal in Switzerland than New Jersey
My friend Dana Gray owns Oils of Aloha, a small company on Oahu’s North Shore that produces cooking oils and cosmetics based on macadamia nut oil or kukui oil. (Try Haleiwa Heat, a mac nut cooking oil infused with garlic and chilies. Oh yeah.) Oils of Aloha has developed an international clientele and routinely does bulk shipments to European and Asian customers, as well as the U.S. Mainland. Dana was fulminating about the Jones Act one day last fall, so I asked him for examples of how the Act impacts his company. Dana told me that he had recently sent a full container of his products from Hawaii to Switzerland for $4600. The same day he got a quote to send another container – under Jones Act rules – from Hawaii to New Jersey for an exorbitant $5940. He figures that the Jones Act costs his company $1340 per container load!
These are anecdotes, but they are indicative of the cost Hawaii pays for the Jones Act. Getting rid of the Jones Act, however, will not necessarily solve the problem. If one looks at trans-Pacific shipping, much of it is eastbound only – Asian exports bound for North America. There is going to be little space available on those vessels even if they were allowed to pick up cargo in Hawaii. There’s a ton of space available westbound across the Pacific, many ships filled to the brim with empty containers being returned for more Asian exports. So there may be some scope for increasing Hawaii’s shipments to Asia. Many such shipments now have to backtrack to California ports before they can head out again westbound, incurring Jones Act costs on the eastbound leg. And westbound foreign-flag vessels could substantially reduce the cost of products shipped to Hawaii from the U.S. West Coast.
But there is a problem. Container ships have grown so large that much of the world’s container fleet can’t fit into Hawaii’s small shallow ports. Honolulu can handle many of the big ones, but not all, and the trend in container ships is to bigger and bigger. Still, Hawaii’s companies would like to give life without the Jones Act a try.
