Waiver goodbye to the Jones Act?

by Keli’i Akina, PhD, President/CEO Grassroot Institute, May 21, 2021

If a shipping law that ostensibly protects “national security” has to be waived every time there’s a crisis, maybe the problem is the law itself.

President Joe Biden granted two limited Jones Act exemptions over the past 10 days in response to the ransomware attack that temporarily shut down the 5,500-mile-long Colonial Pipeline. 

The pipeline runs from Texas to the Port of New York and New Jersey, and includes a branch that ends in Tennessee. It delivers about 100 million gallons of fuel per day, and its shutdown caused temporary gas shortages throughout the East Coast. Gas prices spiked in mid-Atlantic and southeastern states, and stations in Virginia, North Carolina and several other states plus Washington, D.C., reported running out of gas completely.

With fewer than 60 tankers in the U.S. merchant fleet, the obvious solution was to waive the Jones Act, the protectionist maritime law that requires goods shipped between U.S. ports to be carried on vessels that are built and flagged in the U.S. and owned and crewed primarily by Americans. 

Surprisingly, the Biden Administration went along with the idea. During the 2020 election campaign, Biden had been loudly pro-Jones Act, and since his election, his administration has repeatedly proclaimed its fealty to the century-old law. 

However, after surveying the availability of Jones Act vessels, the president decided to ignore his previous rhetoric and grant the two Jones Act waivers so Citgo and Valero Energy could use foreign-flagged vessels to move fuel from their Texas refineries to the East Coast. 

He did that despite the fact that waivers are supposed to be limited to only situations related to national defense. 

Perhaps irritated motorists up and down the East Coast constitute a threat to our national defense. But whatever the reason, the fact that it takes Jones Act waivers to rescue states from fuel and supply shortages demonstrates that there is something fundamentally flawed with the act. 

The simple truth is that the Jones Act-compliant fleet is incapable of meeting our country’s shipping needs, especially during an emergency. After all, the Colonial Pipeline shutdown did not show that we had a shortage of fuel. It showed we had a problem with fuel delivery. America produces plenty of fuel, but our ability to transport it by water is constrained by an antiquated shipping law that makes it more profitable for Gulf Coast refineries to send fuel to Latin America than the East Coast.

At this point, one can no longer argue that the Jones Act bolsters national security. If anything, it makes us less secure, less flexible and less able to respond in a crisis.

For those of us in Hawaii, there is another facet of the pipeline shutdown and subsequent waivers that is particularly frustrating. The pipeline problems caused a temporary rise in gas prices on the East Coast, and within days, the president responded with Jones Act waivers. Here in Hawaii, however, the Jones Act costs the average family approximately $1,800 a year — far more than a few cents a gallon in gas — and we’re told that’s just “the price of paradise.”

Hawaii residents should not have to accept the day-to-day surcharge that the Jones Act imposes on our lives — not when there are simple and logical ways to modernize the Jones Act for the 21st century.

One reform that would help is to lower the cost of the Jones Act vessels, which currently cost four to five times as much as on the international market. Ending the act’s U.S.-build requirement would allow American companies to buy their vessels from foreign manufacturers, just as U.S. airlines are permitted to buy aircraft from foreign companies such as Airbus (Europe), Bombardier (Canada) and Embraer (Brazil). 

Another possibility, proposed by U.S. Rep. Ed Case, is a permanent exemption from the Jones Act for Hawaii and other noncontiguous areas such as Alaska and Puerto Rico, which rely almost wholly on waterborne transport for their imports. 

To address more specific inadequacies in the Jones Act fleet, Congress could create, for example, a specialized waiver allowing the use of non-Jones Act ships when no compliant vessels are available, as is the case for the transporting of liquid natural gas.

There are multiple ways we can work together to address the failures of the Jones Act without threatening maritime jobs or weakening national defense. What we cannot afford to do is ignore the many flaws in a law that was formulated for a different time and a different world.

If these latest waivers have taught us anything, it is that the Jones Act badly needs to be updated for the 21st century.

E hana kākou! (Let's work together!)