CABOTAGE LAWS: PROTECTIVE
STRATEGY TO IMPROVE CRUISE VESSEL
COMPETITIVENESS AND TRAFFIC TO
Monterey Institute of International Studies
Professor William Arrocha
Professor Geza Feketekuty
Professor Bill Monning
Definitions of key terms
I.A. The Role of the Cruise Industry
I.A.2 Domestic Port Economic Impact
II. Background: Understanding
Flagging And Cabotage
II.A. International Shipping Requirements
II.B. Background and History of
II.B.1 The Passenger Services Act
II.B.2 The Jones Act
II.B.3 Background on Flag Restrictive Laws in General
II.C. Political Stakeholder Background
II.C.1 Overview of Stakeholders Involved
II.C.1.1 The Jones Act Reform Coalition
II.C1.2 The Maritime Cabotage Task Force
II.C1.3 AFL-CIO Maritime Trades Department
II.D Legal Background
II.D.1 Domestic Legal Background
II.D.1.1 The Maritime Security Program
II.D.1.2 The Maritime Security Program II (MSP II)
II.D.2.1 More Citizenship Issues
II.E. Economic Background
II.E.1 The Barriers Faced By the
Flagged Cruise Ships
II.E.2 The Foreign Competitive Advantage In Operating Ships
II.E.3 The Comparative Costs in Shipbuilding
II.E.4 The Impact of the Cruise Industry on Jobs
II.F. Background: Various International Trade Organizations
II.F.1 The OECD
II.F.2 The World Trade Organization (WTO)
III.A Comprehensive Analysis
III.A. Policy Analysis
III.A.1 Are Cruise Ships Used for National Defense?
III.A.2 Should Congress continue to rely on Cabotage as a method to
protect U.S. ships from competition and preserve for use ships in times
III.A.3 Why Should Cabotage be changed?
III.A.4 What Are The Reasons Cited For Being Pro-Cabotage?
III.A.4.1 National Security
III.A.4.2 Wages, Ship Safety, And Environment
III.A.4.2.1 Safety and Flages of Convenience
III.A.4.3 Environmental Standards
III.A.4.4 Title XI Loan Guarantee
III.A.5 Who Wants Cabotage Reform/Repeal?
III.A.5.1 The International Stakeholders Who Want Cabotage Reform/Repeal
III.A.5.1.1 The WTO
III.B. Legal Analysis
III.B.1 Cabotage Laws
III.B.1.a The Passenger Vessel Services Act
III.B.1.a.1 A Demonstration Of Foreign Flagged Cruise Itineraries
Created Under The PVSA
III.B.1.a.1.1 Scenario 1
III.B.1.a.1.2 Scenario 2
III.B.1.b The Jones Act
III.B.1.c The Puerto Rico Passenger Ship Act
III.B.2 The Corporate Income Tax
III.B.3 An Example Of A Proposed Bill To Reform Cabotage Laws
III.B.3.1 The United States Cruise Vessel Act S.127
III.B.4 Special Bill To Which Provided DOD Funding to American Classics
to Operate in Hawaii
III.C.1 An Example of Revenues Redirected due to Cabotage
III.C. Economic Analysis
III.C.2 The Comparative Costs of Ship Operating
III.C.3 Ship Crewing Costs
III.C.4 An Economic Analysis Of The Differential In Capital Costs
Between The U.S. Build And Flagged Cruise Ship And A Foreign Flagged And
Build Cruise Ship
III.C.5 Economic Impact Study Findings on Reforming The PVSA
III.D. Commercial Analysis
III.D.1 Are Shipbuilding and Crewing Costs Too high?
III.D.2 Is The Cruise Market Growing?
III.D.3 What is the Largest Market for Cruise Ships?
III.D.4 Where are Cruise ships located?
III.D.5 Who are the Largest Players?
III.D.6 The Duration of Cruises
III.D.7 Summary of Commercial Analysis
III.E. Political Analysis
III.E.1 Who are the proponents of Cabotage?
III.E.1.1Legislators Who Represent Shipbuilding States
III.E.2 Legislators Who Might Support Cabotage Reform
III.E.3 The Committees Who Would Hear Bills on Cabotage Reform or Repeal
III.E.3.1 The Senate Committee On Commerce, Science, and Transportation
III.E.3.2 The House Committee On Transportation and Infrastructure
V.A.1 The Coalition for Reform
V.A.2 Strategy for the Opposition
V.A.3 Financing The Campaign for Reform
V.A.4.1.a Propose Bills
V.A.4.1.a.1 Draft Text
V.A.4.2 Committee Action
V.A.4.4 Presidential Action
V.B International Strategy
V.C Media Strategy to Reach Legislators
V.D Public Relations Strategy
V.D.1 Target Audience: Consumers
V.D.2 Target Audience: Business, Investors and Entrepreneurs
V.D.3 Target Audience: Labor
V.D.4 Other Audiences To Be Addressed
by Kathleen Magee:
chose the topic of cabotage because it affects my life personally and is
so representative of such a broad array of constituents. My father works
in shipping, and I remember sitting in on a very heated Jones Act debate
with him when I was in high school.
The debate was held in a union hall in
involving Rob Quartel (who had run for a
Senate seat and was at the time the founder and leader of the Jones Act
Reform Coalition) versus the labor union.
difficult part of doing a project on
cabotage laws, is that my father works for a Jones Act company, and is a
supporter of the Jones Act. In
choosing to do the project, I had to form my own conclusions, and do
research outside of what I had known personally.
What I found, is that the debate itself has many facets. In
shipping circles, the debate takes on a deeper meaning.
Regardless of what side of the debate one finds oneself, the Act
has roots to the beginnings of American history.
It contains elements of domestic economic policy, international
trade policy, national security, local economic development and labor
issues. I personally
found the discovery process is fascinating, and all I ask of readers is
to think constructively, and to draw their own conclusions.
A crew position on a
ship. Generally speaking each billet supports the employment of two
sailors, and each billet is matched by a room on the ship. Examples of
billets are: captain, chief mate, 2nd mate, 3rd
In shipping, the transport of goods or persons between ports within a
single country. The term is from the French verb “caboter,” to sail
between the capes.
Cruise ship. A
ship formerly associated with passenger transportation now almost
exclusively used for entertainment.
Dry dock: A
basin for receiving a vessel for repairs, capable of being pumped dry
(to repair vessel and scrape marine growth from bottom).
ship designed to carry all types of general cargo, or "dry
Act. A statute
requiring that vessels carrying goods or passengers between US ports
must be built and documented in the United States and be, owned and
operated by US citizens. The original Act dates from 1898, and was,
subsequently incorporated into the Merchant Marine Act of 1920. Similar
cabotage laws date from the earlier days of the American Republic.
A laborer who works at loading and discharging cargo.
Master: A term
for the captain, a holdover from the days when the captain was
literally, and legally, the "master" of the ship and crew.
ship's certificate determining the ownership and nationality of the
Tanker: A ship
designed to carry various types of liquid cargo, from oil and gasoline
to molasses, water, and vegetable oil.
Vessel Act of 1886.The act states, “That foreign vessels found
transporting passengers between places or ports in the United States,
when such passengers have been taken on board in the United States,
shall be liable to a fine of two hundred dollars for every passenger
for the American Association of Port Authorities
for Lighter Aboard Ship. Describes a shipping system whereby barges are
loaded at a port of embarkation (usually in shallow water) and floated
to a mother ship upon which the barges are lifted and stowed.
The mother ship then makes the ocean crossing at high speed and
discharges the barges at the port of disembarkation.
Administration, a promotional agency of the U.S. Department of
Maritime Cabotage Task Force, Coalition of shipbuilders, and unions
which seeks to protect maritime cabotage laws.
Engineers Beneficial Association. This is the oldest American maritime
union, it represents engineering officers on many U.S. ships.
Industrial Transportation League, a coalition of American Industrial and
Agricultural shipping interests. Generally
speaking these interests purchase shipping services and do not own ships
for Roll-On Roll-Off. This
describes a shipping system whereby highway trailers or vehicles are
driven aboard a ship via ramps, instead of being lifted aboard via
cranes. These are particularly useful ships for short run commercial
ferry service or longer run military moves of tracked and wheeled
For the purposes of
this project, I have positioned myself as a representative of the
American Association of Port Authorities (AAPA).
The AAPA is an alliance representing the interests of 150 ports,
300 firms and individuals in the western hemisphere. The AAPA
protects and advances the common interests of its diverse members
through advocacy for government policies that expand opportunities for
member ports. The goal of
the AAPA is to generate greater economic benefit for ports and port
From the perspective
of the AAPA, I will present evidence as to why reform of
cabotage should take place. My goal is to explore an approach to
generate more cruise vessel traffic between U.S ports.
The proposed solution is the elimination or reform of cabotage
laws, to enable more ships to travel between more
ports, and bring more tourism dollars to coastal (port) towns. The
increase in tourism will contribute to more jobs in and around these
towns in the hospitality industry, and in other industries as well.
The President of the American Association of Port Authorities, Mr. Kurt
From: Kathleen Magee, deputy director port and maritime affairs
RE: The campaign to reform cabotage and increase cruise ship
April 3, 2002
Ports in the
have been losing cruise business. The
reason is two fold. First, few U.S. ports are visited by the most
competitive cruise ships, the foreign flagged cruise ships, because they
are restricted in their coastwise movement between U.S. ports.
ports are losing cruise business because the most legally mobile ships,
flagged cruise ships are subjected to high cost requirements on
shipbuilding and crewing. These
costly shipbuilding and crewing requirements render existing
flagged cruise ships uncompetitive, and create a strong disincentive to
. It is the goal of the
American Association of Port Authorities (AAPA) to reform
cabotage laws as they apply to cruise ships in order to: increase the
mobility of foreign flagged cruise ships; and while decreasing the costs
cruise ships to make them more competitive. The desired result of this
reform would be the increase in cruise vessel traffic to
ports, and the increase in economic benefit and employment these visits
bring. One port who would stand to benefit is
, which due to cabotage restriction on foreign flagged movement has lost
an enormous amount of business to
However, in order to
be successful with reform, it is necessary to take into account the
interests of the opposition. To
date, the Pro-Cabotage movement has successfully defeated other attempts
at cabotage. The opposition
is Pro-cabotage because they believe that cabotage will: maintain a
ready reserve fleet of
ships, sailors, and shipbuilding capability for times of war.
The Pro-cabotage coalition therefore consists of the shipbuilding
unions, maritime unions, and defense interests.
For successful reform it is necessary to show that the
ready reserve would be better preserved by lowering costs to compete
with foreign competition, rather than increasing the restrictions which
have accelerated the demise of the
The Jones Act must have its requirements modified to
The freedom to build
domestic cruise vessels anywhere.
The Citizenship requirement for the crew should allow for:
the option of filling all non-navigation and non-engineering positions
and the preponderance of hotel, service, and entertainment positions to
be by crew that are either
citizens or non-U.S. citizens.
The IRS tax-code should be amended to provide a personal
income tax holiday to crew members when the cruise ship is engaged in
international trade. The coalition should firmly support the proposed
Merchant Marine Cost Parity Act of 2001 (H.R. 3262), which would provide
such a tax holiday to
Ammend the IRS tax code to provide an investment tax
credit for any cruise ship operator building a ship in an American
shipyard. The tax credit should be set at a rate that would adjust the
final capital cost to a level similar to that of a foreign built ship.
It is recommended that PVSA be reformed to allow foreign
flagged ships to serve all coastal ports.
Service between ports on
inland waterways, including rivers, sounds, bays and lakes which are
currently protected by PVSA and served by
flag cruise operators will continue to be reserved for
flagged operators. The idea
is to eliminate the foreign touch port, while requiring that a cruise
vessel after serving an inland port serve its next port through
National Parks such as
shall continue to be reserved for
flagged operators only.
The Problem with Cabotage
are losing cruise vessel
traffic to foreign ports because of restrictive cabotage laws such as
the Passenger Vessel Services Act (PVSA) and the Jones Act. The main
reasons are: restricted mobility of foreign flagged cruise ships between
ports, and the higher costs associated with
flagged ships complying with Cabotage laws. Although many attempts have
been made to reform cabotage, these attempts have met with forceful
resistance despite the current state of the
flagged cruise ship fleet, and
the compelling economic evidence that would warrant reform. The
consequences of not reforming to
port city economies is:
loss of the most legally mobile cruise ships in the
; that is the
flagged cruise ship.
These ships can legally call between any port but cannot
compete in foreign markets with foreign ships due to substantially
continual “pass up” of some coastal ports due to a schedule
crunch induced by the need for Foreign flagged ships to reach a
foreign port within a reasonable amount of time (a week).
This disadvantages consumers, particularly those living
remotely from foreign “touch” ports.
of competition as cruise companies either go bankrupt or merge with
continuing loss of cruise traffic to foreign ports, versus more
ports specifically due to
the current cabotage requirement.
continuing loss of revenues and jobs associated with cruise traffic;
which includes jobs in the ports, the hospitality industry, tourism
industry, transportation industry, retail, etc.
flagged ships are handicapped
with higher imposed costs, the foreign flagged ships are handicapped
with the foreign port call restriction.
situation will continue indefinitely unless the
relieves its restraints on
Foreign cruise vessel mobility between
ports and alters its
restrictive policies toward
ships which help to create an economic disadvantage. The opportunity
cost to the American Economy is substantial and will be discussed in the
course of this paper.
Why Is This
Simple, the Cruise industry creates jobs throughout the economy.
Based on a 1993 study
done by Price Waterhouse Coopers,
the cruise industry provided 450,166 full time jobs, the break down of
the total across the industries can be seen below.
By 1996 this number had increased to 584,878.
The Cruise Industry Creates Jobs
Throughout the Economy
Total in 1992
Total in 1996
in transportation and utilities include shipboard employees, and
service industry includes hotel workers and restaurant employees
includes petroleum refiners, ship repair workers, and print shop
and retail trades include distributors providing food and beverages,
and gift shop employees
includes ranchers and farmers who supply the cruise industry with
greatly from the cruise industry. However, it is important to remember
is not benefiting as
much as it could be.
a study done by Price Waterhouse Coopers, the amount of employment
generated by Cruise related spending has grown by the year 2002 to 54.8%
since 1997. (See Chart
titled “Estimated Jobs created. . .” below). Total wages and
taxes to the
economy paid by the
cruise industry will be $570,000,000 in the year 2002.
It is important to remember that these figures represent the
Cruise industry serving the
market as a whole,
flagged and foreign.
Estimated Spending in the
Economy Associated With the North American Passenger Cruise Industry,
2002 (In billions of dollars)
and Taxes Paid by Cruise Lines
Spending (excluding Wages and Taxes)
Jobs created by the Total Spending in the North American Passenger
Employment Generated by Cruise- Related Spending
this issue is important because the cruise industry creates jobs, and
with reform of
cabotage laws, the cruise industry has the potential to create even more
jobs and economic benefit for port cities.