Study warns Jones Act waiver could cost $2.6bn in shipbuilding demand

A study prepared by PwC for the Transportation Institute has put a price on the waiver of United States cabotage rules, estimating that a sustained suspension could remove up to 2.6 billion dollars a year of shipbuilding demand. The analysis also models losses of up to 1.8 billion dollars in tax revenue and, in its most severe scenario, 12 billion dollars in labour income.

The waiver at issue was instituted on 17 March and subsequently extended to a duration of 150 days. The Jones Act requires cargo moved between American ports to travel on vessels that are American-built, owned, flagged and crewed, and waivers have historically been narrow and short. An extended and broad suspension is a different proposition, because it affects investment decisions rather than merely the routing of individual cargoes.

The modelled ranges are wide, which reflects genuine uncertainty rather than imprecision. Tax impacts are put at between 160 million and 1.8 billion dollars, and employment effects at between 22,000 and 130,000 jobs. Shipbuilding demand losses of 300 million to 2.6 billion dollars a year rest on an assumption that domestic trade accounts for roughly 20 percent of the relevant order book, so the outcome depends heavily on how much of the fleet is genuinely dependent on the protected trade.

Capital investment is where the study identifies the most durable damage. It estimates that between 1.1 and 2.6 billion dollars of investment is at risk, derived from a projected cut of 15 to 35 percent against a baseline of roughly 7.3 billion dollars. Shipyard investment decisions are made against expected utilisation over many years, and uncertainty about whether the protected trade will still exist tends to defer commitments regardless of what happens to the rule in the end.

The study comes from an organisation that represents the domestic maritime industry, and its assumptions are naturally framed in terms of what the sector stands to lose. Critics of the cabotage rules argue that they raise domestic freight costs and that the protected fleet has shrunk despite decades of protection. What both sides accept is that prolonged uncertainty about the rule's status is worse for investment than either a firm rule or a firm repeal.