SA’s coastal shipping policy: A return to protectionism? – Ivo Vegter - Biznews

The South African government’s contemplation of reviving centuries-old coastal shipping restrictions for South African-owned vessels echoes a puzzling desire to bolster domestic maritime industries. Although reminiscent of colonial-era mercantilism, such policies ignore the impracticality and economic burden of transferring entire cargoes at sea. While promoting domestic industries seems appealing, historical precedents reveal the folly of such protectionist measures, risking economic inefficiency and higher costs for consumers and businesses alike.

Ivo Vegter

The government isn’t quite sure how to do it, but it wants to adopt a centuries-old policy to restrict coastal shipping to South African-owned vessels.

The funniest thing in the election manifesto of the Economic Freedom Fighters, I wrote on X, was this: ‘The EFF government will restructure the ship docking arrangement such that international vessels offload their goods into our domestic fleet in the Ocean. Only domestic vessels will be allowed to dock in our harbours.’

The South African Navy can’t even transfer a few personnel from one ship to another in choppy water. Picture, if you can, the rigmarole and danger of transferring entire cargoes – containers, or bulk goods – from one ship to another in the treacherous waters off the South African coast. 

The logic, it seems, is that if you interpose South African middlemen in a trade relationship, then you’ve created jobs for all those middlemen and their employees, and because the middlemen charge a hefty fee for their service, you’ve increased the GDP, to boot. 

This, according to the socialists, is how you conjure entire industries into existence at the stroke of a pen, resulting in new jobs and economic growth.

It doesn’t occur to them that someone has to carry the cost of all this extra (and entirely unnecessary) effort. That cost is born by the industries and consumers that depend on the imports and exports, which used to be carried quickly, safely and efficiently, but will now be transported with dangerous and expensive extra steps.

Increasing the costs of production in an economy is not an improvement, even if it ‘creates jobs’, or gets counted in the GDP. Instead, it destroys wealth that otherwise could have been spent on, or invested in, more productive ventures.

Surprise
Imagine my surprise, however, to be told that a similar idea is already included in something called the Merchant Shipping Bill of 2020. This Bill was designed to replace the Merchant Shipping Act of 1951, the Marine Traffic Act of 1981, and the Ship Registration Act of 1998 in their entirety.

And sure enough, it is: ‘No ship, other than a South African owned ship … is permitted to engage in coastwise traffic. No coastal cargo is to be carried on a ship other than a South African owned ship …’

It’s not quite as ridiculous as the EFF proposal, but it would have a major impact on foreign-owned shipping lines, which will no longer be able to dock in multiple South African ports anymore, or carry cargo from one South African port to another.

Instead, they’ll have to pick a port and unload all their South African-bound cargo, from where some of it may have to be transshipped to other ports by South African-owned vessels (or distributed by land-bound freight services), as needed.

That Bill, however, is not current. The latest version of the Bill, dated 2023, has no such provision, which is a big relief.

Policy
That isn’t to say the idea has been shelved, however. 

The revised Bill still requires the owners or masters of ships engaged in coastwise traffic to be in possession of a ‘coastal shipping permit’, issued by the South African Maritime Safety Authority, which will administer the Act. 

There’s no telling what requirements the Authority, or the Minister of Transport, might impose at a later date. Transport regulatory bodies do not have a reputation for scrupulously following the law.

It also requires ships engaged in coastal traffic to be manned, entirely, by South African nationals. This conflicts with the removal of the requirement that no ship, other than a South African owned ship is permitted to engage in coastwise traffic, and implies that foreign-owned ships plying coastal trade will have to employ South African crews.

The Bill notes that it relies upon the Comprehensive Maritime Transport Policy for South Africa, published in 2017. Unfortunately, that policy appears to be missing. 

The Gazetted notice merely says it can be found on the Department of Transport’s website. That website appears to link to it, but the link returns a 404 error. The only relevant document on an official government website appears to be a draft.

Luckily, not everyone is incompetent, and the South African International Maritime Institute preserved a copy of the actual policy document.

Cabotage
That policy – like the Bill – was watered down from the draft, presumably because of the difficulty of legislating that South African ships must carry coastwise traffic when hardly any such ships actually exist.

Still, it states that a ‘cabotage framework’ will be developed and phased in over a number of years. The ultimate objective is to ‘introduce cabotage restrictions on coastal shipping as part of a long-term strategy to promote South African ship ownership to serve national and regional economy’.

Cabotage refers to coastal shipping. It refers to the transportation of passengers and goods within the same country, but is also used to describe laws that prevent or limit the transport of goods or people within a country’s borders by foreign vehicles, ships, or aircraft.

Just as it is illegal for a foreign airline to land in Johannesburg and embark passengers for onward travel to Cape Town, maritime cabotage laws would make it illegal for foreign freight carriers to carry goods between multiple South African ports.

In addition, the government has also announced plans to launch a National Shipping Company, because state-owned enterprises have such a tremendous record.

Cabotage laws are actually surprisingly common. Eighty percent of UN maritime states have cabotage laws. That doesn’t mean they’re a good idea, however.

‘British bottoms’
Rudimentary cabotage laws were enacted as early as 1381, under English king Richard II. 

These laws played a key function during the era of colonial empire. Major colonial powers restricted trade to and from their colonies to domestically-owned ships. 

‘British goods in British bottoms,’ the slogan went.

They formed the basis of an economic system known as mercantilism, a policy of national self-sufficiency aimed at minimising imports, maximising exports, and keeping resources tightly controlled within a country or empire. 

Mercantilism was based on the fundamental misconception that trade is largely a zero-sum game, and that an empire could only benefit itself by territorial expansion aimed at accumulating resources and trade for itself, at the expense of its colonial rivals.

Although mercantilism is the defining economic policy of colonialism, the belief in zero-sum trade is shared by socialists, which is why mercantilist policies appear attractive to ANC and EFF policymakers.

Rebellion
The British Acts of Trade and Navigation, first enacted in 1651 and revised frequently, prohibited the use of foreign ships in colonial trade or coastal shipping, and required that 75% of the crews were English or colonial nationals. 

These Navigation Acts played a key role in spurring colonial rebellions. The most notable was the American Revolution, during which that uppity colony opened its ports to foreign ships and ushered in a new era of free trade.

Ultimately, the nation that invented cabotage also rejected it as unjustifiable and unsustainable protectionism that increased the cost of trade.

Under the pressure of classical liberals who promoted peaceful free trade among nations, Britain repealed its mercantilist laws, including the Navigation Acts, in the mid-19th century.

Jones Act
Not everyone followed suit, however. Ironically, the American rebellion against the British Navigation Acts did not prevent it from enacting its own protectionist policies for domestic shipping.

Foreign ships were required to unload their cargos at major hub ports like New Orleans, from where American-owned ships would forward goods along the coast, or inland up the river.

In 1920, an era of renewed protectionism dawned – which would culminate in the Great Depression – and the US enacted the Merchant Marine Act. It contained a cabotage section commonly referred to as the ‘Jones Act’.

This Act survives to this day. 

Promoters of the Act make bold claims about how wonderful it is: ‘The Jones Act is … critical to our country’s economic security.  The 40 000 Jones Act vessels operating in the domestic trades support nearly 650 000 American jobs and $150 billion in annual economic impact. An impressive five indirect jobs are created for every one direct maritime job, which results in more than $41 billion in labor compensation. The industry moves a billion tons of cargo every year, which plays an important role in relieving congestion on the nation’s crowded roads and railways.’

What this does not explain, however, is that by limiting coastal shipping to a privileged few companies that happen to be American, the customers of these shipping firms suffer from a lack of choice and competition.

As a result of the protection, the ‘Jones Act Fleet’, as the protected domestic coastal and river shipping fleet is known, is filled with old ships in poor condition. There is no pressure on the shipping lines to improve their ships, their services or their prices, because they have limited competition.

A CATO Institute analysis of the impact of the Jones Act finds that it substantially reduces US prosperity and economic output, has not resulted in a vibrant American coastal shipping industry, and – contrary to common claims – undermines national security.

Bad example
Following the US example, or indeed the example of the other maritime states that place artificial restrictions on their maritime trade, is simply bad policy.

It is based on age-old, but mistaken, views on economics that should have been turfed out with the end of colonialism.

A government cannot make a nation richer by imposing mercantilist restrictions aimed at creating or protecting domestic industries. If they were more efficient, they would exist already, and would indeed enrich the nation. 

The fact that they don’t exist, and that legislative fiat or tariff protection must create them, demonstrates that they would not be more efficient. 

That they have to be interposed as middlemen in trade just underscores this inefficiency.

While such an artificial domestic industry appears to contribute to national economic growth and employment, its broader impact is to reduce economic output. Customers, industrial, commercial and individual, end up paying higher prices, which destroys wealth rather than creating it.

The EFF’s idea of transferring entire cargoes at sea is positively unhinged. The ANC’s stated policy on cabotage is not much better, though. It relies on colonial-era ideas that belong neither in the 21st century, nor in a country that claims to value freedom.

Ivo Vegter is a freelance journalist, columnist and speaker.

https://www.biznews.com/rational-perspective/2024/04/05/sas-coastal-shipping-policy-ivo-vegter

This article was first published on the Daily Friend.