 This is Think Tech Hawaii. Community matters here. OK, we're back. We're live. I'm Jay Fidel. This is Making Leadership Work. It's a study of leadership. And we do this at 2 o'clock on Monday, every Monday. And today, we're talking about leadership with respect to the Jones Act. Making leadership work with respect to the Jones Act. And whenever we think of the Jones Act, we think of Mike Hansen and the Shippers Council. Welcome to the show, Mike. Thank you, Jay. I'm glad to be back here again. Yeah, nice to have you. So recently, there was an op-ed piece, was it, by one of the principles of the SIU. Dealing with the Jones Act. Can you talk about that? Yeah, that's Michael Sacco. He's president of the Siemens International Union of North America, which is affiliated, for example, with the Marine firemen, who work the engine rooms on mats and in many of the vessels in the Pacific. And also the sailors, you know, the Pacific, which are the guys on deck. How about the AMO? AMO is also affiliated with the SIU. That's the American Maritime Officers, yes. And to set it up first, we have to know that Senator McCain, US Senator McCain, reintroduced his Open America Waters Bill again. So it's the Open America Waters Bill of 2017. And he introduced that in July, was it? In July. And Michael Sacco wrote his op-ed in August. This is all very current then. Oh, sure. And what is McCain's Bill? McCain's Bill would eliminate what's known as the US domestic ship-bill requirement of the Jones Act and other maritime legislation. I mean, the Jones Act only strictly applies to cargo. But then there's similar legislation for passengers, towing, dredging, salvage, fishing. And it all has the same requirement. Exactly. And those requirements, they've got to be built in the United States, got to be flagged in the United States, got to have a United States crew. Right. And yeah, that's basically it. And US ownership, of course. So and there's another requirement for most of the commercial vessels. They also have to have a designated US Coast Guard licensed officer as the so-called manager of the vessel. OK. That's not hard, though. That's easy. Anyone can do that. Anyone with a license, anyway. But what McCain has proposed, and this is a reintroduction of the same bill that he first introduced in 2010. And then in 2015, he attempted to attach this to the Keystone Pipeline Authorization Bill. What's it got to do with the Keystone Pipeline Authorization? Nothing. Nothing. That's the way it works. Yeah. That was unsuccessful. And then the following year, in 2016, he attempted to attach a measure that was similar but would only apply to tankers to the energy bill, which was germane to that. So I'm beginning to get the impression that McCain wants to change the Jones Act, the passenger services act, and all those acts you mentioned, which are, let's call them for this discussion, the Jones Act group. And he wants to change it in only one particular. It's the ship building requirement. He wants to soften the requirement that all these ships, in order to qualify for the inter-coastal trade, be manufactured, be built in the US. That's correct, yeah. But the other requirements would still stand. Would remain the same. The flag in the United States, all through in the United States, owned in the United States by US owners. Of course, just to dwell on ownership for a minute, my goodness, with various corporate schematics, you can own things in ways that people don't fully understand. You can have somebody far away, like a Russian, for example. For example, he. Through various proxy corporations own an American ship, easy, no problem, yeah. That's true in a certain sense. I mean, take, for example, Madsen, publicly traded company, owner of 25 or 26 vessels, depending upon how you count them, Jones Act vessels. Now, how does Madsen know that all of its shareholders are citizens? Doesn't. Of course not. And there was a publication written a couple of years ago by some very knowledgeable maritime lawyers in Washington, DC, on this whole subject. And it runs over 100 pages. It took time for that. In terms of all the ways one might go about proving that a vessel is, in fact, citizen only. So that's a little amorphous, that one. Built in the United States will mean that you've got to be built in a shipyard. And I remember in the case of the Monterey, if you remember the Monterey, they took it to the shipyard in Finland, the national shipyard in Finland, which I don't think anymore. Partzilla was the national shipyard. And they put a section of steel in the Monterey to make it longer. And then there was a question that the Coast Guard dealt with. That is, how many feet of the extension section? It has to do with steel weight. Steel weight, thank you. There's a Coast Guard office in West Virginia that does nothing but these issues. Steel weight, yes. They found that there was enough steel from Finland in there to make it a non-US hull. And that was really sloppy work on the part of the naval orchard. Because they could have avoided that. Sure. Had they designed it in such a way that it wouldn't exceed the rules. Anyway, that's the bill rule. And that's very important, because right now, Madsen just got finished doing foreign refit work on three of their vessels that are employed in the Alaska trade. They had to meet new emissions requirements. And one of the ways you can do that is by putting certain scrubbers on your vessel. They took their ships to China. All three of them rotated them into China and did the work there. They got a letter from the Coast Guard prior to doing the work saying that this would be within the limits that are set for. For the emissions. Right. And most of it went for work. Yeah, sure. And actually, Madsen got an extra voyage out of it from the Far East to the US. Everybody wins Chinese soup. And now the more current one is that Pasha, Hawaiian transport line, just recently got a letter that they're proposing to do quite a lot of work on two of their ships, the Pacific and the Enterprise, in a Chinese shipyard. And they need to re-engine the ships and do a number of things to qualify to meet requirements. And their steel weight is just under what the limit is. And so they'll be able to accomplish all this work there in China. It will not be considered to be rebuilt in a foreign place. So it will still have its Jones Act eligibility. The letter of the law. And on top of that, there's an old provision from the Smoot-Holly Tariff that imposes its duties on foreign repairs. There's a 50% envelope duty on foreign repair. Including shipbuild repairs. Oh, sure. And extensions like this. So the owner, when that ship returns from the Far East at its first port of entry, they have to make an entry with customs, stating how expensive the repairs were, and tender a check equal to 50% of the work. So they can send the ship across the Pacific, pay for the work in a Chinese yard, pay 50% duty on the work. And it's still cheaper than the American shipyards. Oh, two of them. And this is the problem. The reason that McCain is focused on the build issue is because it's currently costing about five times as much as it would to build a comparable ship in a South Korean or Japanese or Chinese yard. Now, why is he doing this? What motivates him to do this? He's not from a state where there are shipyards. What makes this his pet project? He's really upset with the military ship procurement programs. Which use American shipyards and which pay five times as much for the same ship. It's probably higher than that. For example, the latest supercarrier that was delivered that's the, I forget the name of it. Anyway, that ship was a billion or more dollars over budget, a billion, and was almost two years late. And so the cost of the warships is really going through the roof. Doesn't have to, though. And these are the same shipyards. Actually, it's the same industry that's costing the merchant Marines so much. And the rationale for keeping the build issue is that by forcing merchant ship owners to purchase US built vessels for the domestic trades, that will help to bolster our shipyard industrial base for the purposes of military ship construction. Does that work? Is it real? It's not working. The costs are escalating both on the commercial side and on the military side to such an extent that the whole rationale doesn't make any sense. And what's the difference? We have it built overseas. We can supervise it the same way. It'll be the same plans, the same result. Right. Well, in the case of the civilian ships, since about 1990, all of the major ships built in the United States, self-propelled ships, over 1,000 growth tons, have all been designed in a foreign yard. And built here because of the Jones Act? The US shipyards build under license. Oh, people outside the country who designed the ship are trying to retain rights in the design. Of course, yeah. And it's architecture. But it's not classified, either. It's just architecture. Well, it's the engineering, too. And these foreign shipyards not only do they design the vessels, but they also supply most of the equipment that's going to be installed on the vessel because they purchase in such much larger quantities. Propulsion, for example. All the main engines are built outside the United States. Most of the steering. Most of the steering. Just a lot of the stuff. Even the deck equipment. Most of the deck equipment and some of the smaller equipment come from Europe. It's a global world, people live in. So I've seen those Europe-built ships with the equipment. Some of the cruise ships here, they're beautiful. Of course they are. They're first class, and they're not American, either. Right. And the old argument was, well, Americans do such a much better job building ships that we can't possibly take these foreign ships. It's just not true anymore. Especially in terms of with the International Maritime Organization, the US has entered into a large number of treaties and conventions. Which set standards. Exactly. Which the US abides by. Worldwide. Yes, everywhere. It's the same standards internationally. Certainly, if you've got an inner island vessel in Indonesia, for example, that never goes on a foreign voyage, it doesn't have to be. If you go on a foreign voyage, go to the high seas, you're going to be following all those conventions and treaties. It doesn't matter what flag you fly. It doesn't matter what route you're on. If you're on an international voyage, you have to comply with all these rules. This is good. Safety of life at sea is what it is. That's part of it. That's part of it. The safety of life at sea is one of those conferences. Anyway, we never really got into the question of what this op-ed piece said or your response. We're going to do that right after the break. This is Mike Hansen, Shipper's Counsel. We're talking about the Jones Act. We're talking about a, let's say, a number of public statements made about the presidency of the Jones Act and about John McCain's bill, which was put into Congress yet again in July. We'll be right back. This is Think Tech Hawaii, raising public awareness. Welcome to Sister Power. I'm your host, Sharon Thomas Yarbrough, where we motivate, educate, empower, and inspire all women. We are live here every other Thursday at 4 PM. And we welcome you to join us here at Sister Power. Aloha and thank you. Interesting situation. We're back with Mike Hansen. This is Making Leadership Work. We're talking about the Jones Act. We're talking about leadership in the Jones Act. And you have to give credit, actually, John McCain, for sticking on the point, for recognizing the right of it, and for putting that bill in over and over again anywhere he can to try to get it through. Unfortunately, he hasn't gotten it through, and there has been no reform, no relief for the Jones Act of any consequence in all these years. So now, this fellow Sacco from the SIU and other unions writes an op-ed piece, and you disagree with it. What did he say in the op-ed piece? Basically, Michael Sacco took the position that most of the maritime industry does, is that the Jones Act is an essential part of the industry, and it's needed to protect the domestic industry from foreign competition. Shipbuilding. Whole industry. More broadly than just shipbuilding. And his union members are not involved in the construction of ships. His members are the sailors who sail on the ships. Nor are they involved in national defense, by the way. Oh, no, they are. The members who sail on the ships? Sure, because they're carrying material. Right. But his members and some of the associated unions of his also work on the military sea lift command ships. So they're working on those ships. And they're also working on some of the ships in the, what's known as the US flag, international trade fleet, which is subsidized by what's known as a maritime security program payments, or basically operating subsidy payments of $5 million a year per ship. He's arguing with McCain. He says McCain's bill should not be passed. And his reason is that McCain's bill would damage the American ship industry. He wants to protect his members' jobs. Self-interest. And the irony of this is that if we could use foreign-built US flag ships in domestic trade, we would have a lot more shipping activity, and therefore many more jobs for his union members. But he's unwilling to break with the program as it's defined for the larger Jones Act or US Maritime Industry and start talking about eliminating the bill requirement. Many of his members actually sail on ships that are foreign-built US flag, but they're regulated to the foreign trade of the United States. Some of those ships are operated by MSC, which is military sail. There are actual government-owned ships that the government contracts. The tone comply with the Jones Act. How interesting. They can't carry domestic cargo. And like I said, there's another fleet called the International Trade Fleet. US flag International Trade Fleet, which is all foreign-built US flag. About half are foreign-owned through specialized US trusts. The truth is emerging that this is really silly with the Jones Act. So he's got guys, lots of guys, working on a bunch of ships that are foreign-built US flag in the foreign trade. So his arguments are undermined by that. So now you wrote back. You wrote in response. You wrote an op-ed piece yourself. What did you say there? Well, basically, I said that he's cutting off his nose despite his face, because, I mean, from my point of view, it's obvious that he could provide many more jobs for his union members if we were able to use foreign-built US flag ships in domestic trade. And the reason for that is because there is a far greater variety of ships available from the international market, construction market. They're far cheaper, one-fifth the cost. And you can purchase newer designs than the licenses which are being sold to the US shipyards. We would do better without the Jones Act. We here in Hawaii, we here in Puerto Rico, we here in any island state or territory would do better. The biggest problem with the Jones Act is the build issue. And that is connected to the national security argument that we have to maintain our US shipbuilding industrial base. All two shipyards. We've actually got seven shipyards that can build large, sea-going vessels. I have a hearing, by the way, that some of them are owned by foreign companies, foreign owners. That's very ironic, isn't it? In a sense, yeah. But there's of the seven, four are exclusively engaged in building military ships. There's two build-only commercial, and one builds both. So the argument that you need this to support the industrial base for military ships, yeah, there's one shipyard that does both. So now, putting this in the context of leadership, seems clear to me, and to a lot of people I know, it's certainly to you, that we'd be better off if we had some relief from the Jones Act after these 100 years of retrograde kind of policy. This policy no longer applicable. It never was. It never was applicable. And here we are with special interests controlling the field on this policy, not for real good causes, not for national interests anyway. So what we have, though, is we have a delegation of four members of Congress, two representatives and two senators, all of whom have taken the position that the Jones Act should not be modified. There should be no change, no amendment, no relief for Hawaii, which needs and certainly could benefit by some relief on the ship-build requirement and other requirements to improve our economy, not only in the loaf of bread we buy, because it may match and pay too much for these ships in American shipbuilding, but because there would be more ships plowing the trade into coastal trade in Hawaii, and that would benefit our economy. So where's the leadership on this? I mean, who is stepping up? Who is recognizing this, or is it all a matter of influence by special interests? The special interests play a very large role in all of this. The Democratic Party of Hawaii is pretty much lock step in support of the Jones Act. I mean, this is Senate- It's not like shooting ourselves in the foot. Senator Inouye was a very strong supporter. Yeah, I know. That was so interesting. He could have changed things, but didn't. Yeah, but he believed very deeply that we needed to protect US shipbuilding. But of course, we're doing that of the 100 or so Jones Act ships. These are self-propelled seagulling vessels over 1,000 gross tons. It's the fleet's 97 vessels, something like that. And about half are employed in what's known as the non-contiguous trades, Alaska, Guam, Hawaii, and Puerto Rico. What's a non-contiguous trade? What used to be referred to as the continental United States is now usually called the contiguous US. Continental didn't work because Alaska's actually continental. But it's not contiguous. So you've got the contiguous US or Kansas, as the military refers to it. And then you've got the non-contiguous US or non-Consist. And it's actually in the Maritime Laws, the trades to Alaska, Hawaii, Guam, and Puerto Rico are referred to as the non-contiguous trades. And about half of the Jones Act vessels are employed in the non-contiguous trades. So a very small population is really paying a lot for the Jones Act. And the contiguous trades? There's very little Jones Act trading along the coasts in comparison to what? From Seattle to Portland to Los Angeles. That doesn't happen. To a very small extent. And the reason for it is because Jones Act shipping is so expensive, it's not competitive with a rail truck and pipeline. Right. Easy. So what about from Hawaii? It does affect Hawaii to the West Coast. Oh, absolutely. It's very, very important for us. Yeah. Actually, Matt and Pasha do offer what's known as backhaul rates from Hawaii to the West Coast. So I'm not sure that that's the real issue. The bigger issue is the rates from the West Coast to Hawaii. We pay more for that a lot for bread. Yeah. And for example, because of the Jones Act, we lost the flour mill within the last year or so. And that would bring in bulk grain and then mill the grain here in Hawaii. And of course, bulk shipping is far cheaper than shipping containers. Now what about passengers? What about the inter-coastal trade among the islands in Hawaii? If we had a, you have to have a Jones Act to do that inter-coastal trade with those passengers. Right, the coast-wise trade. How come in Alaska you can take a foreign vessel and there are a lot of foreign vessels in Alaska moving millions of people through this season and a lot of times around the calendar from one port in Alaska to another. Why is that possible with non-Jones Act ships? First of all, the Jones Act is, when it's used very specifically, means Section 27 of the Merchant Marine Act of 1920. What governs the passenger trade is the Passenger Vessel Services Act of 1886. And the rules for handling cargo, the cabotage rules for handling cargo, are a little bit different than those. Why can't I move one of these non-Jones Act ships from here to Kahalui, to Lihui, and so forth? They do that. Foreign flag ships? Yeah. OK, yeah. There's allowances. What they normally do is the foreign flag cruise ships will sail from Los Angeles, stop in Ensenada, break the domestic voyage, and then proceed to several islands in Hawaii. And they can get away with that because they've called on a foreign port. And they're doing the same thing in Alaska by calling on a Canadian port. Like Vancouver. Or up the coast further. Perth, Rupert, or wherever. All right, so in terms of leadership, in terms of getting this thing tuned for Hawaii, for the benefit of Hawaii, especially for the West Coast to hear shipping, that loaf of bread, and so forth, who should be stepping up, this is the seminal question for our discussion. Right, for three years in a row, we had a resolution introduced into the Hawaii State Legislature, detaining all of these arguments in favor of eliminating the bill requirement for the non-contiguous trade. They have no power to do that, so they have to make a recommendation to Congress a resolution. But I mean, that was the vehicle we tried to use to begin to develop some support. We did have some Democrats sign on, but we never had a hearing. Never got to committee. And thus it died. Why is the state legislature, for that matter, the Democratic Party in general, against changes to the Jones Act? I mean, it sounds like they are siding with the unions. The unions are a very important... Who's representing the people? Who's representing the consumers, Mike? The unions are a very important constituency of the Democratic Party. Well, sure. And they ensure re-election. And one of the biggest unions is the ILWU. ILWU, of course, is the Longshoremen on the waterfront. Those are the guys that take the cargo off the ship and put the cargo back on the ship. In addition, of course, they have some hotels and some other things that they've organized. Now, it doesn't matter from the stevedro's point of view whether or not the ship is US flag or foreign flag. They still exercise their jurisdiction on the wharf and get the work. So that doesn't change for them at all. Who's representing the people? Who's representing you and me with our loaf of bread in the store? The Democrats believe that they're representing their constituencies. And the ILWU is in lockstep with the SIU and the MMP, the master mates and pilots, and all the other unions. See all the other maritime unions to support the Jones Act in its current form. I've had discussions with union guys at different places where I've done a presentation. And you explain to the guys who are basically sailors that we'll increase your job opportunities through this elimination of the bill requirements. And their response is, they don't care. They want to save the jobs in the shipyards that are existing now. It's a sort of sympathetic thing from one you into another. Well, I mean, it's sad because we are paying much too much for a loaf of bread as we are paying too much for occupancy of land. So this place becomes relatively more expensive than really any other state. And there's nobody looking out to make a change. I mean, I've heard it before and you can confirm it that you don't have to throw the whole thing out. You can just tune it so that Hawaii has a better deal of it. And yet still in the legislature and in the delegation, nobody wants to do that. The simplest way to really affect change is to change the bill requirement. And we propose that it be just done for the non-contiguous trades because that's our interest. Senator McCain has proposed it be done across the nation. So there's a difference then. So there's going to be a gubernatorial election coming up. You think this is a state issue, a state platform issue? The Republican Party actually adopted our position, the Shippers Council's position, of eliminating the bill requirement in the non-contiguous trades several years ago. So that's part of the platform. It's, for example, the one Republican who is announced that he's going to run for governor, the member of the House from Ewa Beach. I can't think of his name right now. But he basically supports the Jones Act. OK, we've got to go now. Thank you, Mike Hansen, Shippers Council for the discussion of the Jones Act and the relationship with the Jones Act and the need for change of the Jones Act to benefit Hawaii. And finally, the need for leadership to look over that. Thank you so much, Mike. Thank you for having me. Aloha. Yeah.