The Jones Act Should Be Waived, but More Substantive Changes Are Needed

By Colin Grabow, CATO Foundation, May 12, 2021

In the wake of the Colonial Pipeline outage that has produced mounting fuel shortages along the East Coast, the Department of Transportation has ​announced that it is taking initial steps to determine if a Jones Act waiver is warranted. It’s not hard to see why. Transporting a massive 100 million gallons of fuel per day, the Colonial Pipeline accounts for 45 percent of the fuel used on the East Coast. That’s a huge supply gap to fill and, as the Energy Information Administration points out, waterborne transport can play a key role:

Markets along the Atlantic Coast with access to deepwater ports, such as Savannah, Georgia; Charleston, South Carolina; Wilmington, North Carolina; and Norfolk, Virginia, can receive limited imports from the global market and from marine shipments via coastwise compliant shipping originating from the U.S. Gulf Coast.

Unfortunately, only a relatively small number of tanker ships ideally suited to transport refined petroleum products are deemed coastwise compliant, meaning they meet the Jones Act’s requirements of being U.S.-flagged, U.S.-built and mostly U.S.-crewed and owned. Waiving the Jones Act would allow far more numerous—and significantly cheaper—vessels not compliant with the law to quickly move fuel from the Gulf Coast to where it’s needed.

The transportation system requires maximum flexibility in an emergency or crisis, and a Jones Act waiver would help provide it.

There is ample precedence for such a move. In the wake of Hurricanes Harvey and Irma in 2017, along with Hurricane Sandy in 2011, a lack of fuel supplies was deemed to be a threat to national security, thus clearing the way for the issuance of Jones Act waivers. If it was a good enough reason to justify a waiver then it should be a good enough reason now.

But waivers should only be a prelude to more significant changes to the Jones Act.

The law isn’t just a problem in times of pressing need, but also in everyday life. By limiting domestic waterborne transport to ships that are the world’s most expensive to build and operate, the Jones Act interferes with the efficient flow of goods within the United States. That’s particularly true of petroleum products where the law’s distortions are in abundance. For example:

• Refined products produced in the Gulf Coast are sent to Latin America instead of the East Coast.
• Refineries on both the East Coast and West Coast can find it more attractive to import oil from abroad than other parts of the United States.
• California can source gasoline more cheaply from distant Singapore than the Gulf Coast.

At its worst, the Jones Act can even make domestic transportation outright impossible. While the United States is the world’s leading exporter of propane, Hawaii must buy it from as far away as Africa owing to a complete lack of Jones Act‐​compliant ships capable of transporting it from the U.S. mainland. A similar absence of appropriate ships, meanwhile, means that Puerto Rico has no choice but to meet its bulk liquefied natural gas needs from foreign sources.

These inefficiencies are not just a hit to the country’s economic pocketbook, but a threat to its security. Reduced transportation options or over‐​reliance on a single method of transport can lead to significant problems when things go awry, as we are painfully finding out. Redundancy and flexibility are key to overcoming systemic breakdowns, and the Jones Act means less of both.

So, what should be done?

At a minimum this situation illustrates the need for a waiver system based on commercial considerations. Currently, waivers can only be issued by the Department of Homeland Security if they are deemed in the “interest of national defense” or by the Secretary of Defense in order to address an “immediate adverse effect on military operations.” That’s a high bar to clear, which helps explain why such waivers are rarely issued.

Instead, Congress should create a new type of waiver allowing the use of non‐​Jones Act ships if no vessel meeting the law’s requirements is available—no “national defense” justification required. Canada already has such a system. Other measures that should be on the table include a scrapping of the law’s U.S.-built requirement and permanent exemptions for parts of the United States that are uniquely dependent on maritime transportation such as Alaska, Guam, Hawaii, and Puerto Rico.

A Jones Act waiver could help ameliorate some of the Jones Act’s worst effects, but what’s urgently needed is the significant reform—if not outright repeal—of this failed and costly law.