No one will tell you anything good came out of the dual impacts of Hurricanes Katrina and Rita, but there are certainly lessons to be learned. One lesson we can't afford to miss relates to a 1920 law that may be holding the U.S. back from developing a 21st Century logistics system.
When fuel supplies were disrupted in the aftermath of Katrina and further threatened by Rita, President Bush suspended the Jones Act temporarily for critical petroleum and gas shipments. A group led by the American Farm Bureau Federation then asked the President to suspend it until the end of the year for agricultural products.
The Jones Act dates to 1920 and contains a number of worker compensation rights for sailors. It also requires that ships engaged in cabotage (intercoastal, short sea and other transportation between U.S. ports) be U.S.flagged vessels, built in the U.S. and manned by crews consisting of at least 75% U.S. citizens.
If those safety rules are not already part of regulations that the Occupational Safety and Health Administration (OSHA) oversees, they should be shifted to OSHA to allow a pure discussion of the transportation elements of the Jones Act.
The question raised by current events is: Are efforts to protect a segment of our maritime industry based on conditions from 85 years ago artificially limiting critical transportation capacity today? The temporary suspension of the Jones Act suggests they are.
The transportation system has come a long way since 1920. That was the year KLM made its first flight from Amsterdam to London. (Charles Lindberg was still seven years away from his historic trans-Atlantic solo flight.) The law establishing the interstate highway system was still 26 years in the future. And the U.S. Railroad Administration (USRA) had just returned control of the U.S. rail network to its constituent railroads after nationalizing them to support America's entry into World War I.
There's a thin connection between the Jones Act and the railroads at that time. The Act sought to extend some of the same worker safety rights that had been granted to rail workers to the maritime sector. As we observe the 25th anniversary of the Staggers Rail Act that provided economic deregulation of the railroads, does Staggers suggest a path for domestic marine transportation?
U.S. railroads did not fare well under regulation and when they needed to support U.S. efforts in World War I, they couldn't meet the challenge. At the time, one sixth of U.S. trackage was owned by railroads in receivership. The government nationalized the railroads and poured $1.12 billion into the infrastructure ($15 billion in 2003 dollars). The rail system that was returned to private interests in 1920 was stronger, but it faced heavy regulation by the Interstate Commerce Commission following dissolution of the USRA.
Nationalization was not considered to be very successful, but heavy regulation wasn't much better. By the 1970s, over 20% of trackage was owned by bankrupt railroads. Deregulation in 1980 allowed the railroads to rationalize their networks based on market demand and improve the industry's financial health.
Market freedom includes the freedom to fail. But, if there is a sufficient demand for a service, a free market allows commercial interests to respond to the need in a timely manner.
U.S. transportation deregulation has had its ups and downs, but it has been a commercial boon to today's supply chain management strategies. We should take this time to reflect on future needs and ensure our transportation systems have the ability to respond. That could mean pulling the plug on an 85-year-old law and allowing the domestic maritime industry to chart its own course.