• DATVF.ATLPHL
    1.643
    -0.074
    -4.3%
  • DATVF.CHIATL
    1.951
    0.018
    0.9%
  • DATVF.DALLAX
    0.880
    0.015
    1.7%
  • DATVF.LAXDAL
    1.501
    0.007
    0.5%
  • DATVF.SEALAX
    0.966
    -0.092
    -8.7%
  • DATVF.PHLCHI
    0.929
    -0.038
    -3.9%
  • DATVF.LAXSEA
    2.005
    0.035
    1.8%
  • DATVF.VEU
    1.508
    -0.031
    -2%
  • DATVF.VNU
    1.395
    -0.016
    -1.1%
  • DATVF.VSU
    1.191
    0.011
    0.9%
  • DATVF.VWU
    1.486
    -0.028
    -1.8%
  • ITVI.USA
    9,836.710
    -180.070
    -1.8%
  • OTRI.USA
    4.790
    0.100
    2.1%
  • OTVI.USA
    9,831.280
    -180.470
    -1.8%
  • TLT.USA
    2.410
    -0.010
    -0.4%
  • WAIT.USA
    150.000
    0.000
    0%
  • DATVF.ATLPHL
    1.643
    -0.074
    -4.3%
  • DATVF.CHIATL
    1.951
    0.018
    0.9%
  • DATVF.DALLAX
    0.880
    0.015
    1.7%
  • DATVF.LAXDAL
    1.501
    0.007
    0.5%
  • DATVF.SEALAX
    0.966
    -0.092
    -8.7%
  • DATVF.PHLCHI
    0.929
    -0.038
    -3.9%
  • DATVF.LAXSEA
    2.005
    0.035
    1.8%
  • DATVF.VEU
    1.508
    -0.031
    -2%
  • DATVF.VNU
    1.395
    -0.016
    -1.1%
  • DATVF.VSU
    1.191
    0.011
    0.9%
  • DATVF.VWU
    1.486
    -0.028
    -1.8%
  • ITVI.USA
    9,836.710
    -180.070
    -1.8%
  • OTRI.USA
    4.790
    0.100
    2.1%
  • OTVI.USA
    9,831.280
    -180.470
    -1.8%
  • TLT.USA
    2.410
    -0.010
    -0.4%
  • WAIT.USA
    150.000
    0.000
    0%
American ShipperShippers PerspectiveShippingTrade Compliance

Commentary: Report author stands by Jones Act analysis

Study criticized by former Trailer Bridge CEO examined the Jones Act’s impact on Puerto Rico’s economy.

Editor’s note: The opinions expressed here are those of John Dunham and not American Shipper or FreightWaves.

John Dunham & Associates recently completed an analysis for the Chamber of Marketing, Industry, and Distribution of Food in Puerto Rico on how the high cost of shipping, due to the Jones Act, impacts the economy of Puerto Rico. The study examined a range of differential costs from other sources and applied them to a standardized shipping model.

John Dunham

A recent commentary in American Shipper by John McCown, former chairman and CEO of Jones Act carrier Trailer Bridge Inc., took issue with the analysis. As the author of this report, I would like to respond to some of Mr. McCown’s points.

First, it seems that Mr. McCown took offense with the overall premise of the analysis — that the Jones Act imposes costs on businesses and consumers. Further, he attributes the study to the CATO Institute, an organization that does great research but was not involved with my study.

Second, he suggests that my study concludes that container shipping rates would decline by 88.9% if there were no Jones Act, which is false. My analysis examined seven different assumptions as to the price differential for shipping costs, ranging from a low of 28.9% to a high of 88.9%, depending on the source. He suggests that the differential should be somewhere between 47.3% and 9.1%. To put this in context, the U.S.-flag carriers commissioned a study that showed a differential of 28.9%, a figure that would lead to about $570 million in higher costs for consumers and businesses in the commonwealth and 6,260 lost jobs.

Mr. McCown suggests that the analysis is based on a model comparing different per-mile shipping costs.  While many other studies attempt to do this, mine does not. Rather it calculates the cost of shipping international freight to Puerto Rico (across about 200 product types) and then compares that to costs under seven scenarios. Nowhere do we compare costs by route. This is why his comment that port-pair distances are off in the analysis would not impact the conclusions since these are just used to develop one of the scenarios that my study uses.  

Finally, Mr. McCown suggests that my study underestimated non-ship costs. This could be true; however, these costs are used to determine international market pricing and would not impact the overall conclusions.  

He goes on to present a number of nonsequiturs that really have nothing to do with the effects of the Jones Act on transportation pricing.  While I agree with Mr. McCown that the cost structure of operating different types of ships on different trades can differ, this has nothing to do with the question at hand.  The whole point of protecting Jones Act carriers is to allow them to charge above-market prices and to limit capacity. Were the Jones Act to be eliminated, the nature of ships serving the Puerto Rican market would change, and so would the prices.

Mr. McCown also presents a long discussion of shipbuilding costs and crewing costs. This is not relevant to the issue since costs do not equal prices, and in a protected market, sellers are generally going to price above-market rates since they face little or no competition.

In sum, while criticism and review are an important part of economics, and constructive criticism is a way to improve research, Mr. McCown presents little usable information in his commentary. We would be happy to rerun our models based on his assumptions and sources were he to make them available to us.  

But first, he should thoroughly read the report and get his facts correct.

John Dunham is the managing partner of John Dunham & Associates.

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5 Comments

  1. “…Mr. McCown also presents a long discussion of shipbuilding costs and crew costs. This is not relevant to the issue since costs do not equal prices, and in a protected market, sellers are generally going to price above-market rates since they face little or no competition….”

    Interesting comment. Then why is it that Mr. Dunham and his anti-Jones Act proponent friends (in Hawaii) demand that US Flag owners be allowed to build ships in foreign shipyards?

  2. I’m quite familiar with Mr. Dunham’s report and confident all my facts are correct. Indeed, it is he who has mischaracterized what it says in his commentary. The complete report can be read via the following link: https://www.cato.org/blog/new-reports-detail-jones-acts-cost-puerto-rico.

    Table 1 on page 2 of the report lists the differences from five examples of estimating the container shipping cost impact of the Jones Act. Example 1 showed the 88.9% decline and the table showed that example as the recommended case. The text then went on to say what the aggregate costs would be from “using JDA’s recommended model”, with another table and more text with numbers arising from the 88.9% decline. All of this is in the Executive Summary and for Mr. Dunham to now say the 88.9% decline wasn’t a key conclusion of his report is poppycock. I encourage folks to read the Executive Summary and judge for themselves.

    He claims that I proposed a range of from 47.3% to 9.1% as the Jones Act impact and I did no such thing. First, I don’t believe in analyses that result in a range wide enough to sail a supertanker through because they are virtually meaningless and tend to be more indicative of the analyst’s lack of subject matter expertise. I merely started with his 88.9%, adjusted it to 47.3% to exclude math errors, adjusted that to 19.4% to include more realistic non-ship cost assumption and adjusted that to 9.1% to include an apples to apples vessel size comparison. The 9.1% is in effect from Mr. Dunham’s recommended model adjusted for math and logic errors. Separately, as my commentary stated, my own analysis pegged the Jones Act impact on the Puerto Rico container market at 12%.

    Pages 16 thru 19 of the report show the methodology of Mr. Dunham’s recommended model that was used to arrive at the Example 1 figure. That model is clearly based on using international rates per nautical mile as developed in Table 7 on page 17 as the benchmark to be applied to what rates in Puerto Rico would be with no Jones Act. For the reasons stated in my commentary, that is simply a flawed methodology. Mr. Dunham knows full well that my critique was based on the rate per mile methodology he used and he obfuscates in suggesting I said his model was based on costs. Indeed, his whipsawing between rates and costs and what he views as relevant is in part semantics, but more indicative of a lack of understanding of shipping industry economics.

    Mr. Dunham’s recommended model resulted in the Example 1 figure. In his Executive Summary, he concluded that the figure of 88.9% was the most indicative representation of the Jones Act impact among the five cases.

  3. 1/3: I’m quite familiar with Mr. Dunham’s report and confident all my facts are correct. Indeed, it is he who has mischaracterized what it says in his commentary. The complete report can be read via the following link: https://www.cato.org/blog/new-reports-detail-jones-acts-cost-puerto-rico.

    Table 1 on page 2 of the report lists the differences from five examples of estimating the container shipping cost impact of the Jones Act. Example 1 showed the 88.9% decline and the table showed that example as the recommended case. The text then went on to say what the aggregate costs would be from “using JDA’s recommended model”, with another table and more text with numbers arising from the 88.9% decline. All of this is in the Executive Summary and for Mr. Dunham to now say the 88.9% decline wasn’t a key conclusion of his report is poppycock. I encourage folks to read the Executive Summary and judge for themselves.

  4. 2/3: He claims that I proposed a range of from 47.3% to 9.1% as the Jones Act impact and I did no such thing. First, I don’t believe in analyses that result in a range wide enough to sail a supertanker through because they are virtually meaningless and tend to be more indicative of the analyst’s lack of subject matter expertise. I merely started with his 88.9%, adjusted it to 47.3% to exclude math errors, adjusted that to 19.4% to include more realistic non-ship cost assumption and adjusted that to 9.1% to include an apples to apples vessel size comparison. The 9.1% is in effect from Mr. Dunham’s recommended model adjusted for math and logic errors. Separately, as my commentary stated, my own analysis pegged the Jones Act impact on the Puerto Rico container market at 12%.

  5. 3/3: Pages 16 thru 19 of the report show the methodology of Mr. Dunham’s recommended model that was used to arrive at the Example 1 figure. That model is clearly based on using international rates per nautical mile as developed in Table 7 on page 17 as the benchmark to be applied to what rates in Puerto Rico would be with no Jones Act. For the reasons stated in my commentary, that is simply a flawed methodology. Mr. Dunham knows full well that my critique was based on the rate per mile methodology he used and he obfuscates in suggesting I said his model was based on costs. Indeed, his whipsawing between rates and costs and what he views as relevant is in part semantics, but more indicative of a lack of understanding of shipping industry economics.

    Mr. Dunham’s recommended model resulted in the Example 1 figure. In his Executive Summary, he concluded that the figure of 88.9% was the most indicative representation of the Jones Act impact among the five cases.

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