{"id":22723,"date":"2017-11-14T21:12:11","date_gmt":"2017-11-15T02:12:11","guid":{"rendered":"https:\/\/digital.hbs.edu\/platform-rctom\/submission\/hurricane-maria-stirs-the-protected-u-s-maritime-industry\/"},"modified":"2017-11-14T21:12:11","modified_gmt":"2017-11-15T02:12:11","slug":"navigating-the-storm-seacor-and-the-jones-act","status":"publish","type":"hck-submission","link":"https:\/\/d3.harvard.edu\/platform-rctom\/submission\/navigating-the-storm-seacor-and-the-jones-act\/","title":{"rendered":"Navigating the Storm: SEACOR and the Jones Act"},"content":{"rendered":"

While rising isolationism around the world poses threats to many companies engaged in trade, one niche industry in the United States stands to benefit: the domestic shipping industry.\u00a0 The Merchant Marine Act of 1920, commonly referred to as the Jones Act, protects the U.S. maritime industry by requiring that any shipments between U.S. ports be made using American-built, American-owned, and American-crewed (\u201cU.S. flagged\u201d) vessels [1]. This arcane regulation recently entered the spotlight in the wake of Hurricane Maria which devastated Puerto Rico in September 2017.\u00a0 Many politicians, economists, and pundits blame the Jones Act for limiting the flow of relief goods to Puerto Rico (subject to the regulation as a U.S. territory) and are using this crisis to highlight broader concerns about the inefficiencies caused by the protectionist policy [2, 3, 4].<\/p>\n

The conflict of the recent swell of anti-Jones Act sentiment with the broader rise of isolationism creates uncertainty for U.S. shipping companies such as SEACOR Holdings Inc.\u00a0 How can SEACOR, which has relied on the relative obscurity of the Jones Act, navigate the heightened level of public scrutiny and legislative uncertainty?<\/p>\n

SEACOR\u2019s Protected Business<\/em><\/strong><\/p>\n

SEACOR is a diversified holding company primarily in the shipping and logistics businesses [5].\u00a0 SEACOR owns and operates 1,472 barges and 22 towboats for U.S. inland river shipping as well as 10 petroleum-carrying tankers and dozens of harbor and offshore tugs and barges [6].\u00a0 In SEACOR \u2019s core businesses of inland and general shipping services, 87% of 2016 revenue came from coastwise trade within the United States protected by the Jones Act [7].<\/p>\n

<\/p>\n

 <\/p>\n

Since vessels engaged in this trade must be \u201cU.S. flagged,\u201d there is a limited supply of qualifying ships and no competition from lower cost international operators.\u00a0 SEACOR\u2019s revenues are boosted and costs are covered by the higher price tag for transporting goods between American ports; in a 2012 report, the Federal Reserve Bank of New York estimated that shipping a twenty-foot container from the East Coast to Puerto Rico cost $3,063 compared to only $1,504 to the nearby Dominican Republic [8].\u00a0 Higher prices are driven in large part by ship construction, which can cost four times as much in the U.S. as in foreign shipyards, as well as higher wages and benefits to U.S. crews [9].\u00a0 Critics of the Jones Act claim that while a small constituency of companies such as SEACOR benefits from these dynamics, a vast group of consumers is harmed by higher costs (see figure above) and limited choice [10].<\/p>\n

Defending the Industry<\/strong><\/em><\/p>\n

SEACOR acknowledges the possibility of a repeal of the Jones Act, listing it as a material risk factor in its annual 10-K reports [11].\u00a0 To date, the company has focused its efforts on lobbying to defend protections for the domestic maritime industry.\u00a0 One of the company\u2019s senior leaders sits on the Board of Directors of the American Maritime Partnership, a coalition of businesses in the U.S. shipping industry and leading advocate for its constituents\u2019 shareholders and employees. \u00a0The industry coalition has successfully combated previous attempts to repeal the Jones Act, such as one push by Senator John McCain in January 2015 [12].<\/p>\n

SEACOR is also battling negative press from the crisis in Puerto Rico by making a concerted effort to publicly highlight its engagement in the hurricane response through press releases [13].\u00a0 Likewise, the American Maritime Partnership has dedicated a section of its website to demonstrating the U.S. shipping industry\u2019s service to Puerto Rico (see video from its webpage below) [14].<\/p>\n

https:\/\/www.youtube.com\/watch?v=t4-BdPYXKuY<\/a><\/p>\n

Defending the Company<\/strong><\/em><\/p>\n

SEACOR, bolstered by a strong industry coalition and growing isolationist sentiment, may be able to weather the recent outburst against the Jones Act and survive without changing in the medium to long term.\u00a0 However, the company\u2019s management should not rely on lobbying and public relations to ensure its ongoing competitiveness.\u00a0 Instead, SEACOR should focus on finding ways to either secure its revenue streams over longer-term contracts or improve its cost effectiveness in anticipation of a potential increase in competition.<\/p>\n

SEACOR may need to team up with shipbuilders to invest in research and development for technologies that offer lower cost solutions and seek new ways to gain operating efficiencies.\u00a0 It may also benefit from launching or acquiring new lines of business that are not reliant on the Jones Act, perhaps international shipping operations or other equipment services that are demanded globally such as maintenance and repair.\u00a0 With a renewed focus on its business\u2019 fundamentals, SEACOR may be able to cushion the potential blow of a repeal of the Jones Act and meanwhile improve its profitability.<\/p>\n

Several important open questions remain.\u00a0 Can SEACOR management plan for the possibility of a Jones Act repeal without signaling a concession?\u00a0 Should SEACOR and its sister shipping companies elevate their appeals beyond Congress to the American public to gain ground support for this historic domestic industry?<\/p>\n

(791 words)<\/p>\n

 <\/p>\n

Footnotes:<\/p>\n

[1] Thomas Grennes, \u201cAn Economic Analysis of the Jones Act,\u201d Mercatus Research, Mercatus Center at George Mason University<\/em> (2017), http:\/\/mercatus.org, accessed November 2017.<\/p>\n

[2] Niraj Chokshi, \u201cWould Repealing the Jones Act Help Puerto Rico,\u201d New York Times<\/em>, October 24, 2017, https:\/\/www.nytimes.com\/2017\/10\/24\/us\/jones-act-puerto-rico.html?_r=1, accessed November 2017.<\/p>\n

[3] Sam Ori, \u201cPuerto Rico\u2019s Challenges After Hurricane Strengthen Case Against The Jones Act,\u201d Forbes<\/em>, November 7, 2017, https:\/\/www.forbes.com\/sites\/ucenergy\/2017\/11\/07\/puerto-rico-has-had-a-hard-time-getting-fuel-for-our-next-disaster-lets-fix-the-problem\/#6f0770356646, accessed November 2017.<\/p>\n

[4] Daniel Flatley, \u201cPuerto Rico Oversight Official Backs Jones Act Exemptions to Boost Economy,\u201d Bloomberg<\/em>, November 7, 2017, https:\/\/www.bloomberg.com\/news\/articles\/2017-11-07\/puerto-rico-overseer-backs-jones-act-exemptions-to-boost-economy, accessed November 2017.<\/p>\n

[5] SEACOR Holdings Inc., March 30, 2017 From 10-K, https:\/\/www.sec.gov\/Archives\/edgar\/data\/859598\/000085959817000047\/ckh-12312016x10k.htm, accessed November 2017.<\/p>\n

[6] SEACOR Holdings Inc., \u201cInvestor Fact Sheet,\u201d https:\/\/d1io3yog0oux5.cloudfront.net\/seacorholdings\/media\/e517aaa3cee3aed6f8c1039f62172fda.pdf#zoom=100, accessed November 2017.<\/p>\n

[7] SEACOR Holdings Inc., March 30, 2017 From 10-K, https:\/\/www.sec.gov\/Archives\/edgar\/data\/859598\/000085959817000047\/ckh-12312016x10k.htm, accessed November 2017.<\/p>\n

[8] Jaison Abel et al., \u201cReport on the Competitiveness of Puerto Rico\u2019s Economy,\u201d Federal Reserve Bank of New York (June 2012), https:\/\/www.newyorkfed.org\/, accessed November 2017.<\/p>\n

[9] John Frittelli, \u201cShipping U.S. Crude Oil by Water: Vessel Flag Requirements and Safety Issues,\u201d Congressional Research Service (July 2014), https:\/\/fas.org\/sgp\/crs\/misc\/R43653.pdf, accessed November 2017<\/p>\n

[10] Dan Bergstresser (Brandeis University) and Mark Melitz (性视界 University), \u201cThe Jones Act and the Cost of Shipping Between U.S. Ports,\u201d Econofact.org (October 2017), http:\/\/econofact.org\/, accessed November 2017.<\/p>\n

[11] SEACOR Holdings Inc., March 30, 2017 From 10-K, https:\/\/www.sec.gov\/Archives\/edgar\/data\/859598\/000085959817000047\/ckh-12312016x10k.htm, accessed November 2017<\/p>\n

[12] Dan Bergstresser (Brandeis University) and Mark Melitz (性视界 University), \u201cThe Jones Act and the Cost of Shipping Between U.S. Ports,\u201d Econofact.org (October 2017), http:\/\/econofact.org\/, accessed November 2017.<\/p>\n

[13] \u201cSEACOR Holdings Businesses Engage in Hurricane Response and Relief Efforts,\u201d SEACOR press release (Fort Lauderdale, FL, October 17, 2017).<\/p>\n

[14] American Maritime Partnership, \u201cPuerto Rico Service,\u201d https:\/\/www.americanmaritimepartnership.com\/puerto-rico-service\/, accessed November 2017.<\/p>\n","protected":false},"excerpt":{"rendered":"

A regulation that has long protected the U.S. maritime industry faces scrutiny in the aftermath of the catastrophic Hurricane Maria in Puerto Rico. 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