Jones Act or Strategic Commercial Fleet? The Fork in the Road for U.S.-built Tankers
Most oil majors avoid chartering vessels aged 15 years or older. Yet, ExxonMobil employed the 44-year-old MR product tanker the “Challenge,” built in 1981 at Avondale Shipyard in Louisiana, USA. Usage of the Fairwater-owned Challenge costs ExxonMobil more than any other similarly sized vessel in their worldwide fleet.
Welcome to the economics of the Jones Act.
The domestic cabotage trade protections created a closed ecosystem where U.S. newbuild vessel costs are so prohibitive that older vessels stay afloat and trade far beyond their economic lives in the global market.
A U.S. shipyard hasn't produced a new MR product tanker since 2017.
But that’s all about to change with the SHIPS for America Act’s revitalization of the American shipbuilding sector, right?
Maybe, maybe not.
One of the core provisions of the SHIPS for America Act is the creation of the Strategic Commercial Fleet: U.S.-built, U.S. operated vessels trading in the international market yet also available to the U.S. government in times of need. The bill specifically calls out the need to prioritize tankers in the composition of the Strategic Commercial Fleet.
In the SHIPS for America Act, U.S.-built MR product tankers have two possible purposes:
Employment into the Jones Act trade, or
Assignment into the Strategic Commercial Fleet, with eligibility for the associated capital and operating subsidies.
So, it’s possible the next U.S.-built MR product tanker doesn’t renew the aging Jones Act fleet and instead goes into the Strategic Commercial Fleet.
The SHIPS for America Act’s language goes to great lengths to avoid disrupting the Jones Act, given the politically contentious discussions that typically ensue whenever that topic is broached. However, there are inescapable trade-offs as to how we allocate our shipyard capacity. For example, a vessel built for the Strategic Commercial Fleet is a vessel that will not be eligible to trade in the Jones Act.
