New Legislation Highlights Lack of Jones Act Competition

by Colin Grabow, Cato Foundation, January 6, 2020

Just before Christmas, Rep. Ed Case (D‑HI), citing the Jones Act’s contributions to Hawaii’s high cost of living, introduced three bills taking aim at the protectionist law. The first such bill, the Noncontiguous Shipping Relief Act, would exempt all non‐​contiguous U.S. locations from the Jones Act—essentially Alaska, Guam, Hawaii, and Puerto Rico—while the second bill, the Noncontiguous Shipping Reasonable Rate Act, would limit shipping rates to the noncontiguous states and territories to no more than ten percent above international shipping rates for comparable routes.

Perhaps most interesting, however, is the third piece of legislation. Known as the Noncontiguous Shipping Competition Act, the bill would grant Jones Act exemptions to any state or territory not served by at least three Jones Act ocean carriers, each of which must have at least 20 percent of the market. The bill, in other words, would grant exemptions from the law to those states and territories that suffer from monopolies or duopolies in the Jones Act trades.

Which is to say, all of them.

Ocean transport between the U.S. mainland and noncontiguous states and territories offers very little to choose from. Only two carriers, Matson and TOTE Maritime, provide ship service to and from Alaska while the Hawaii trade is the province of Matson and Pasha Hawaii (Matson admits as much in its most recent annual report, noting that it only faces “one major U.S. flag Jones Act competitor” in both markets). In Puerto Rico, meanwhile, a 2018 report sponsored by the pro‐​Jones Act American Maritime Partnership showed that 85 percent of the container capacity in its Jones Act trade is controlled by just two carriers, TOTE Maritime and Crowley.

Duopoly after duopoly after duopoly.

Compounding matters is that, due to the Jones Act’s U.S.-build requirement, the few carriers serving these areas must pay incredible sums for the ships they use. Matson, for example, paid approximately $918 million for its four most recent vessel acquisitions, while two ships on order from Pasha are said to have a combined price tag of over $400 million. In a foreign shipyard, these vessels would likely cost anywhere from one‐​quarter to one‐​fifth as much. That’s hundreds of millions of dollars in extra costs to be borne by shippers, and ultimately consumers.

Stifled competition and increased ship costs inevitably mean higher prices for transporting cargo to and from the U.S. mainland. That’s no small matter for the noncontiguous states and territories that overwhelmingly rely on shipping to acquire needed goods. And it’s not just more expensive transport. In some cases, the Jones Act fleet’s limited capabilities make the purchase of goods from the mainland outright impossible.

At this time, Rep. Case’s effort to relieve Hawaii and other noncontiguous parts of the United States from the Jones Act’s burden faces the longest of odds. Indeed, when he introduced three Jones Act reform bills in 2003 during a previous stint in Congress they did not receive so much as a committee hearing. It’s not clear that the political ground has sufficiently shifted in the intervening years to make passage a realistic outcome.

But encouragement can still be found in Rep. Case’s willingness to speak out about the issue in what is typically a pro‐​Jones Act echo chamber. While reforms to the Jones Act may not be imminent, perhaps the new legislation can help spark an overdue conversation about the costs stemming from this failed relic.