1 Data for 1929, 1939, and 1950 include non-self-propelled vessels and vessels under 1,000 gross tons. Data for 1955 through 1966 exclude such cargoes. Data for 1968 cover all self-propelled vessels.

2 Puerto Rico, Hawaii, Alaska, and other Pacific isles.

U.S. foreign trade cargoes carried by U.S. flag vessels fell from 48 million tons in 1929 to 23 million in 1939. After World War II, they increased to almost 63 million tons in 1950 while foreign fleets were being rebuilt. Subsequently their decline has been continuous, dropping below 27 million tons in 1968.

Meanwhile, domestic cargoes rose from 125 million tons in 1929 to 151 million in 1939 to 182.5 million in 1950. Since 1955, they have ranged between 165 and 175 million tons. Allowing for differences in statistical coverage, the total volume of domestic seaborne cargo appears to have been stable over the past decade and a half.

Total cargoes carried between U.S. continental "48" ports have fallen somewhat in the face of competition from other modes of transport. The bulk of the volume consists of tanker traffic between ports in the mainland 48 states. This trade accounted for 141 million out of the total domestic deep sea traffic of 172 million tons. There is no discernible trend over the past 15 years in the volume of such tanker cargoes. However, dry cargoes carried between mainland U.S. seacoast ports fell from 18.5 million tons in 1954 to 7.7 million tons in 1968.

The non-contiguous trade consists of traffic to and from ports in the continental 48 states and those in Alaska, Hawaii, Puerto Rico and other Pacific Ocean islands controlled by the United States. It is the strong expansion of this traffic that accounts for the stability in total domestic deepsea traffic, despite the decline in dry cargo traffic in the coastal and intercoastal trades. Dry bulk tonnage rose from 6.0 million tons in 1954 to 7.4 million tons in 1968, with 1 million tons of the increase attributable to increased discharge of dry bulk cargoes in Puerto Rico. The tonnage now equals that carried in the domestic coastal and intercoastal trade and is about two-fifths the total dry cargo tonnage carried by U.S. flag vessels in foreign trade.

Tanker traffic has increased much more spectacularly, from 2.5 million tons in 1954 to 16.2 million tons in 1968. The discovery of oil in Alaska is the major factor in the increase, with tanker cargoes originating in Alaska increasing by 8.7 million tons. Tanker cargoes originating in Puerto Rico have risen by 3.9 million tons as a result of the construction of refineries using Venezuelan and Caribbean crude oil.

Total non-contiguous cargoes have thus increased by over 21⁄2 times since 1954. At 23.6 million tons in 1968, they almost equalled the total tonnage carried by U.S. flagships in foreign trade.

The domestic trades, of course, involve fewer ton-miles and therefore earn less revenue per ton than do the foreign trades. The available data do not permit an adequate comparison of the contribution of the non-contiguous trades to aggregate freight revenues earned by the U.S. seagoing merchant fleet. The figures reported to the Federal Maritime Commission and to the Interstate Commerce Commission (Columns 4 and 5 of Table No. 2) should approximate total earnings in these trades, excluding the tanker traffic and government cargoes. However, the absence of rising revenues in the 1960's despite a rising volume of dry cargo suggests incompleteness in the coverage of these revenue figures, though the regulatory agencies have held the line fairly well on rate increases.

TABLE 2.-REVENUES EARNED BY U.S.-FLAG OPERATORS IN FOREIGN AND DOMESTIC TRADES, 1963-68

1 Terminated voyage revenues on shipping operations reported by subsidized operators and by certain tanker and cargo operating companies to the Maritime Administration.

2 Freight revenues reported by certain maritime carriers to the Interstate Commerce Commission on intercoastal trade that are subject to its regulation. Includes some coastwise and intercoastal traffic.

3 Gross shipping revenues reported to the Federal Maritime Commission-earned on rates subject to its regulation in trade with Puerto Rico, Hawaii, Alaska, Virgin Islands, Guam, and Sanoa. Excludes military and other Government cargo as well as tankers and other vessels that are not common carriers.

At about $300 million per year, reported non-contiguous dry cargo revenues are about 1/5 as large as the earnings of the U.S. fleet in the foreign dry cargo trades. Earnings from military and other government-sponsored cargoes account for virtually all the reported revenues of unsubsidized operators. Were such earnings subtracted from the foreign trade revenues, non-contiguous trade revenues would represent a substantially larger proportion. While tanker revenues are not reported, foreign trade earnings apart from government-sponsored cargoes are negligible, while the non-contiguous tanker traffic is the most rapidly growing segment of the trade.

Statistics on the tonnage of active U.S. flag vessels engaged in the foreign domestic and non-contiguous trades give a similar picture. (Table No. 3.) Foreign trade tonnage has declined by 25 percent since 1950, overall domestic trade tonnage by ten percent, while tonnage in the non-contiguous trades has almost doubled. Tankers account for all the net growth in tonnage in the non-contiguous trades, rising from only 98 thousand tons in 1950 to some 679 thousand tons in 1968. It is noteworthy that domestic trade tonnage as a whole accounted for 44 percent of the active U.S. fleet in 1968 (40 percent in 1950), while non-contiguous tonnage increased its overall proportion from 4.5 percent in 1950 to ten percent in 1968. In the tanker trades, non-contiguous tonnage accounted for over 13 percent of the total in 1968 and equalled almost three-fourths of the U.S. flag tanker tonnage engaged in foreign trade. The tanker fleet in the foreign trades depends almost entirely on military cargoes.

Moreover, the non-contiguous traffic promises to grow vigorously. Puerto Rico was the fourth largest market for U.S. exports in 1968, purchasing $1,570 million worth of U.S. goods, almost all of which moved by sea. Trade with the United States is expected to double between 1968 and 1975, a faster rate of growth than is anticipated for other major U.S. trading partners. Moreover, the development of Alaska's petroleum and gas resources should substantially increase tanker traffic, while accelerating the growth of Alaskan income and imports from the continental 48 states.

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TABLE 3.-U.S.-FLAG MERCHANT VESSELS TONNAGE, BY TYPES OF TRADE IN WHICH ENGAGED, 1929-68

The foregoing data thus point to the importance of the Jones Act for maintaining an active U.S. flag sea-going fleet. They underline the growing significance of the non-contiguous trades in providing cargoes for U.S. flag ships, a development which depends on the Jones Act provisions. Without these trades, the U.S. tanker fleet would be threatened with virtual disappearance from the high seas. Without the cabotage laws, lower wages and the tax advantages inherent in using flags of convenience would undoubtedly divert the non-contiguous traffic increasingly to foreign flag ships.

III. ECONOMIC BENEFITS OF THE JONES ACT

The persistence of the U.S. coastal laws has derived primarily from tradition and the desire to maintain a sea-lift and shipbuilding capability for times of national emergency. However, the Jones Act does confer important economic benefits that may be expected to grow significantly over the next decade.

Employment of U.S. ships and seamen

Should the Jones Act be suspended, most domestic traffic would probably shift to foreign flag operation and much would shift to foreign flag owners. At the end of 1969, 247 ships of 5,613,000 D.W.T. were employed in these trades, accounting for 30 percent of the ships and 40 percent of the deadweight tonnage of the active U.S. merchant fleet. The non-contiguous trades employed 66 ships with a deadweight tonnage of 1,135,000.

Assuming that the average size of crew on U.S. ships is about the same in the foreign and domestic trades, about 12,000 seafaring jobs would be lost to U.S. seamen. Sixty-six vessels aggregating 1,135,000 D.W.T. served the non-contiguous trades alone. About 3,300 sea-faring jobs appear to be involved in these trades at present.

Shipyard construction work

Until recently, the heavy carryover of vessels newly built in World War II has minimized the need to build additional ships for the U.S. merchant marine. No subsidy has been available to encourage construction for the non-contiguous or other domestic trades. Nevertheless, the 66 ships employed in the non-contiguous trades at the end of 1969 included 18 ships built in U.S. yards since 1950 (total cost of $155 million), and another 25 ships that were converted in U.S. yards at a cost of perhaps another $100 million.

At the average level of production in U.S. yards over those years, work for the non-contiguous trades thus accounted for about one year's work on new merchant ship construction and one-third of a year's work in merchant ship repair yards. Actual repairs would, of course, substantially augment the total figure for work in U.S. yards to service the non-contiguous fleet. While the figures seem modest, the work may well have made the difference between profit and loss for one or more U.S. private shipyards.

During the next decade a substantial volume of replacement work for the noncontiguous fleet will have to be undertaken. By 1980, only nine tankers aggregating 329 thousand D.W.T. out of the present non-continguous fleet of 31 tankers will be under 25 years of age. Mere replacement of overage ships would require 421 thousand D.W.T. of new tanker construction at a cost of $120 million.

As previously noted, however, the trade is growing and will expand even faster after 1973 as the expected flow of crude oil begins to materialize from the North Slope of Alaska. Primarily to serve the Alaskan trades, orders for 35 new tankers were placed in U.S. shipyards in recent years, aggregating 2.6 million D.W.T., at a total cost of $663 million. With delivery extending between 1968 and 1973, these tankers alone will account for one-fifth of total new ship construction for the merchant fleet in U.S. yards. In part they are intended to serve the growing production of Alaskan oil from fields already in production.

As for the dry cargo ships in the non-contiguous trades, only four of the present 35 will be under 25 years of age in 1980. Some 360 thousand D.W.T. of replacement tonnage would be required at a cost of about $200 million. Expansion of traffic at past rates could increase new dry cargo construction by another $50 million.

Thus, the non-contiguous trades should generate $500 million worth of new ship construction in U.S. yards during the 1970's, entirely apart from the requirements for moving North Slope oil. The most conservative estimate of the needs of the North Slope trade would add another $700 million of new ship construction contracts; a figure of $2.5 billion cannot be excluded.' The value to U.S. shipyards in the 1970's of the continued application of the Jones Act to the non-contiguous trades may thus be estimated conservatively at $1 billion in additional new construction contracts, equal to more than two years' work at the current rate of operation. A figure three times as high could result.

The U.S. balance of payments

For the U.S. economy as a whole, the principal benefits of the Jones Act may well lie in its balance of payments effect. Common carrier (primarily dry cargo) revenues were reported at a level of at least $300 million in 1968. Revenues of tankers and other non-common carriers may have accounted for another $50 million. If foreign carriers offered to carry the total traffic for a third less, the U.S. foreign exchange accounts would have shown gross expenditures of some $233 million. The foreign carriers would still have to meet port charges at both ends of the voyage, and these sums would accrue to the U.S. balance of payments. Assuming such charges were equal to 60 percent of gross revenues, plus normal growth in revenues, the net balance of payments loss would exceed $100 million per year in the 1970's. The more conservative estimates of the Alaska North Slope trade suggest an annual foreign loss of another $40 million by 1980 through freight payments alone to foreign flag tankers, should they be permitted in the trade."

Without the Jones Act, much of the non-contiguous business would continue to be handled by U.S. owned fleets, though operated under foreign flag. Had the Act not been operative to date, vessels would have been built and converted in foreign yards and replacement programs might well have been accelerated. However, if ordered from foreign yards, the recent tanker orders alone would cost the U.S. balance of payments some $330 million (assuming foreign construction at 50 percent of U.S. costs) between 1968 and 1973, even if the vessels were completely financed in the United States. Were they financed abroad, the payments might be stretched out over a longer period but interest charges would be added, so that the total foreign exchange cost would be closer to $500 million over a ten-year period. Were the Act now to be suspended in the non-contiguous trades, replacement of existing vessels in foreign yards plus the acquisition of enough new tankers to service the conservatively estimated flow of North Slope oil would cost $500 million in U.S. foreign exchange in the 1970's, exclusive of possible interest charges.

The more optimistic view of the impact of North Slope oil could lead to as much as $1.5 billion in construction contracts in foreign shipyards over the next decade, paid for in foreign exchange in the event that the noncontiguous trades were to be exempted from the Jones Act. Assuming foreign financing through ten-year mortgages, the balance of payments drain would average over $100 million per year for a 20-year period.

With the U.S. balance of payments deficit running at several billion per year, additional losses of $150-$300 million per year may not seem staggering. Nevertheless, it is clear that redress of the large and persistent U.S. balance of pay

1 See Part VI below.

See Part VI below. $140 million in freight charges by U.S. flag carriers might be reduced to $100 million if foreign carriers were admitted. The net balance of payments loss would be about $40 million per year after port charges.

ments deficits will only come about through relatively small savings of expenditures and increases in revenue from a wide variety of sectors of the U.S. economy. In this context, the indicated benefits from maintaining the applica tion of the Jones Act to the non-contiguous trades represents a significant contribution.

Tax revenues

In addition to balance of payments savings, the U.S. economy as a whole benefits from the taxes collected from U.S. flag operators and their crews as well as from U.S. shipyards and their employees. Should the non-contiguous trades come to be dominated by U.S. operators using flags of convenience, they would avoid significant taxation by the country of registry and would probably reinvest their earnings abroad for considerable periods, thus deferring their income tax liabilities to the U.S. government.

Development of containerized shipping

Finally, the contiguous trades provided the testing ground for containerized shipping which has come to play such a significant role in the U.S. flag foreign trade business. Containerization was pioneered in the Puerto Rican and Hawaiian trades. Its introduction might well have been deferred for some time if a protected market were not available to sustain the substantial investments needed for converting ships, buying containers and improving port facilities.

As a result, the Puerto Rican and Hawaiian trades-and to some extent Alaska-have benefitted from increased marketing opportunities for their products and from better service and more competitive shipping for their imports. It is significant that total common carrier revenues reported for the Hawiian trade fell slightly between 1963 and 1968 although dry bulk tonnage increased sharply. The basic wage scale for able-bodied seamen on the West Coast rose by 15 percent during this period. The advent of containerized shipping thus seems to have permitted a decline in average freight charges per ton of cargo, despite increases in wages and other costs.

The staff of the United States-Puerto Rico Commission on the Status of Puerto Rico prepared a background memorandum summarizing five economic reports on Puerto Rico. The following statement concerning shipping was included:

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"... the Puerto Rican government and industry representatives had developed ‘a program aimed at expanding shipping services.' This program also called for increased efficiency in the handling of sea freight through such means as containerization and improved port facilities. The program has now been implemented to the point where the negative effects of shipping costs on Puerto Rican industry's competitive position in the mainland market have been mitigated."

Until the late 1950's, Puerto Rico was served by break-bulk carriers belonging to two U.S.-Puerto Rico ratemaking conferences. In 1956, containerized shipping service was introduced by Sea-Land. The new system proved capable of greatly improving stevedore productivity and of reducing vessel time in port and other operating costs. Its competitiveness led to the demise of the ratemaking conferences in this trade, the withdrawal of the break-bulk operators and the entry of additional container ship services. As a result, despite rising costs for container ships, increasing ship operating costs and higher stevedoring wages, dry cargo rate in this trade tended to remain steady or even decline between 1960 and 1968.1

Moreover, the New York to Puerto Rico rates are substantially lower than those prevailing between New York and Haiti, Jamaica and Santo Domingo. These latter routes are served by shipping conference in which non-U.S. flag carriers participate, using less costly ships and lower-wage seamen. Nevertheless, international rates from New York to Jamaica and Haiti increased by 20 and 10 percent respectively from 1963 to 1968, while rates to Puerto Rico were essentially stable though the latter service was limited to U.S. flag ships, built in U.S. yards.

On the basis of their successful experience with containerized shipping in the Puerto Rican and Hawaiian trades, U.S. operators entered the transatlantic and transpacific trades where they have been able to operate profitably without subsidy while attracting a growing volume of business away from conventional break-bulk operators. Nevertheless, Sea-Land's New York to United Kingdom

1 Federal Maritime Commission, Puerto Rican-Virgin Islands Trade Study, April, 1970, Chapter IV.