Happy Birthday Jones Act. Let’s Hope it’s Your Last

by Colin Grabow, Cato Institute, June 5, 2020

The Jones Act turns 100 years old today. But the only ones likely to be celebrating or sending birthday cards are Washington special interests. For all other Americans it’s been a failure, imposing billions of dollars in costs while harming the very maritime sector it was meant to promote. It’s time to let the Jones Act sail away into the sunset.

Passed in 1920, this outdated law restricts the transportation of goods between U.S. ports to vessels that are U.S.-flagged, U.S.-built, and mostly U.S.-owned and crewed. But less than one percent of the world’s 51,000 ships meet these requirements, placing them off limits for domestic transport. That means a dramatic reduction in choice and competition.

Compounding matters, the U.S.-built ships required by the Jones Act can cost of up five times as much as those constructed abroad. U.S.-flagged ships—another Jones Act requirement—have operating costs that are triple those of vessels from other countries. This combination of reduced competition as well as high construction and operating costs has made for eye‐​popping shipping rates. Shipping a container from the East Coast to Puerto Rico, for example, can be double the price of sending it to a nearby foreign port not subject to the Jones Act.

These shipping costs are ultimately reflected in higher prices for the goods Americans buy.

Americans have responded to the high cost of Jones Act ships by seeking almost any other method for transporting their goods across the country. Despite the United States possessing thousands of miles of coastline and areas dependent on sea transport such as Alaska, Hawaii, and Puerto Rico, ships carry a mere 2 percent of the country’s freight. That means more pressure on our roads and rail. It means degraded highways and more time sitting in traffic. It means more pollution.

Incredibly, Jones Act ships are so expensive that it even means ranchers in Hawaii send cattle to the West Coast on airplanes.

But the law’s effects reverberate still further. Another method used by Americans to avoid costly Jones Act shipping is substituting American products with imports. Unlike American products, foreign goods can be transported using competitively priced international ships. Faced with Jones Act shipping rates from the U.S. mainland, for example, Puerto Rico instead buys products such as corn and potatoes from foreign sources while California refiners import oil from Nigeria rather than the Gulf Coast.

That’s lost jobs for farmers and the country’s energy workers. There is nothing wrong with buying imports, but there is also no reason for tilting the playing field in their favor.

But the Jones Act can also make American products not just more expensive, but actually impossible to buy. There are no Jones Act‐​compliant ships capable of transporting bulk LNG, so—despite a domestic abundance—New Englanders have been forced to heat their homes with gas imported from Russia and other countries. The United States is the world’s leading exporter of propane, but a similar lack of appropriate ships means Hawaii instead buys it from West Africa.

The Jones Act’s trail of destruction doesn’t end there. If the high cost of shipping is bad for the economy, it’s been calamitous for the U.S. maritime industry. Unsurprisingly, fostering an uncompetitive commercial shipbuilding industry and forcing domestic shipping companies to pay inflated prices for ships has done little to promote the sector’s fortunes. Since 1980, scores of shipyards have closed and the number of Jones Act ships has more than halved.

The ships that remain—now numbering less than 100—essentially performs only two functions: transporting goods to the non‐​contiguous states and territories, and transporting crude oil and refined products to parts of the country where pipelines capacity is limited or non‐​existent. The Jones Act fleet is used only where there is no other option. If not for the country’s energy abundance as well as Alaska, Hawaii, and Puerto Rico, Jones Act ships would nearly disappear.

This shriveled, uncompetitive fleet has implications not just for our economy but also for our national security. In times of conflict when ships are needed to transport military supplies and equipment, Jones Act ships are rarely an option. In the Persian Gulf War, for example, only a single Jones Act vessel was used to transport supplies from the United States to Saudi Arabia.

After a century of evidence, the verdict on the Jones Act is clear: it’s an abysmal failure. The law has imposed steep costs on our economy, polluted our environment, harmed our national security, and contributed to the downfall of the very sector it was meant to help. We can’t afford to keep it for another hundred years. It’s time to scrap this rusted out hulk.

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