Jones Act is a problem, especially during disasters

from Grassroot Institute of Hawaii, October 12, 2022

As the Grassroot Institute of Hawaii continues to advocate for Jones Act reform, Institute research associate Jonathan Helton discussed current events involving the law on Sunday, Oct. 9, 2022, with radio host Johnny Miro of H. Hawaii Media, whose stations include Oldies 101.1 FM, K-Rock 101.5 FM, Retro 97.1 FM, Nash Icon 107.5 FM and Shaka 96.7 FM. 

Helton noted that the Jones Act recently hindered Puerto Rico’s ability to receive supplies quickly after being hit by yet another hurricane; and the 102-year-old shipping law also threatens to skyrocket energy costs in New England this winter.

“It makes you scratch your head, it really does,” Miro said of the situation in Puerto Rico. “I’m frustrated just listening to your explanation.”

In the aftermath of Hurricane Fiona last month, Grassroot Institute of Hawaii President Keliʻi Akina joined lawmakers and media around the country in urging President Joe Biden to waive the Jones Act for a foreign-flagged ship that was docked off the coast of Puerto Rico waiting to unload diesel fuel it had picked up in Texas. 

Biden eventually issued the waiver, but that was three days after it was requested and a full 10 days after the hurricane struck, Helton said.

Since 1920, the Jones Act has dictated that goods can be transported between U.S. ports only on ships that are U.S. built and flagged and mostly owned and crewed by Americans. Passed with the intent of protecting U.S. shipping interests and national security, the law now imposes economic hardship on areas of the country, such as Hawaii and Puerto Rico — and even New England — that depend on water transportation to receive goods. 

In New England, the governors of Connecticut, Maine, Massachusetts, New Hampshire, Rhode Island and Vermont have put President Biden on notice that they might need a Jones Act waiver to maintain a steady and cost-effective supply of oil this coming winter because pipelines to the region don’t have the capacity needed and there are no Jones Act tankers that can carry liquid natural gas up from the U.S. Gulf Coast.

Miro asked Helton about the political climate for Jones Act reform, especially among lawmakers hailing from the Aloha State. 

Helton said that while U.S. Rep. Ed Case is still supportive of Jones Act reform, “unfortunately, a lot of the other members of Congress, including Hawaii’s other congressional members, (are) not on board with changing the law right now.” 

“We’re fighting an uphill battle,” he said. “The maritime lobbies in Washington are very powerful. … So what we’re doing is we’re working with members of Congress who are interested in updating the Jones Act, and are reaching out to other think tanks and reaching out to industry groups in agriculture and energy to find the best strategy, moving forward, to try to change the law.”

To hear the whole interview, click on the video above.

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TRANSCRIPT

10-9-22 Jonathan Helton interviewed by Johnny Miro on H. Hawaii Media radio network

Johnny Miro: All right, happy Sunday morning to you. I’m Johnny Miro. It’s once again time for our Sunday morning public access programming here on our six radio stations on the island of Oahu, which would be Oldies 101.1 FM, K-Rock 101.5 FM, Retro 97.1 FM, Nash Icon 107.5 FM and Shaka 96.7 FM. We’re also available via your smart device at hawaiistream.fm.

This morning, we’re going to be talking to the Grassroot Institute on a very important topic, not just for our island, which still isn’t available to us and, for the most part, America, but to folks in the Caribbean, especially Puerto Rico, [who] just went through some very bad weather. And joining me this morning from Grassroot Institute is Jonathan Helton, research associate. So great to have you along this Sunday, Jonathan.

Jonathan Helton: Yes, it’s great to be here, Johnny. Thank you for having me on your show.

Miro: No doubt. It is the Jones Act. We discussed this, I would say, about six months ago or so, at least me and Keli’i [Akina]. And it came about in 1920, also known as the Merchant Marine Act, a federal statute establishing support for the development and maintenance of the merchant marine in order to support commercial activity. 

Now, you can go on from there and explain the logistics behind the act that came, well, 102 years ago, and the benefits and the negatives about it currently.

Helton: Of course. The Jones Act is a federal law, and it requires U.S. ships to be used when you’re transporting goods between U.S. ports. So here in Hawaii, for example, if any goods are going to come in from the mainland or from Alaska, they’d have to come on ships that are built in the United States, flagged in the United States and then mostly crewed and owned by United States citizens.

And what most people don’t know is that laws like the Jones Act have been around a really long time, almost since the nation’s founding, but recently, especially, we’ve begun to take notice that these laws increase the cost of shipping, which is a really big problem for Hawaii. 

And you mentioned Puerto Rico — which we’ll talk about maybe a little bit later — but it hurts Puerto Rico as well.

And the Jones Act causes problems when you’re trying to transport goods quickly, such as in emergencies, which we can talk about in just a minute.

Miro: Alright. So the Jones Act came about — I’m not sure of the one that you had referred to prior to that coming about since the founding of the nation. Do you have the name of that one, the act that came before?

Helton: No. The Jones Act is the most recent name for what are called cabotage laws. But those previous laws had all sorts of different names, but not quite as memorable and easy to remember as the Jones Act.

Miro: OK. It’s been in the news, and as you mentioned, with the supply chain issues we had recently. Now, before we talk about anything else, could you explain just basically what the Jones Act is again, if you could?

Helton: Yes, for sure. So as I said, if you’re going to move goods between California and Hawaii or, say, Florida and Puerto Rico, you have to use a ship that’s flagged in the United States, built in the United States and then mostly crewed and owned by U.S. citizens.

Miro: OK, and would that increase the cost of shipping, and why would that? And what’s the problem, of course, here, for that?

Helton: Of course. It would increase the cost of shipping, and the big reason for that is that ships that are built in the United States can cost a lot more than ships that are built in other countries, like South Korea or Japan. 

For example, if you want to build an oil tanker in the United States, you have to be prepared to pay three or four times more than building that oil tanker in, say, an Asian shipyard. And three or four times more, in this context, equates to hundreds of millions of dollars.

So once ship owners buy a ship that’s this expensive, they have to make up for that money somehow, so that gets translated into higher freight rates for everyone who depends on those ships. So it’s a really big problem if you live in Hawaii or Puerto Rico, and you depend on ships for a lot of your goods.

Miro: Does this have anything to do with maybe the sturdiness, the durability of the ships, the passing muster as far as inspections are concerned? I haven’t really heard that talked about in this discussion yet. Are they cautious about that?

Helton: So you would think that maybe if a ship is built in the United States and costs a lot more money, it’s going to be a better quality ship, but that’s not really true. Now, the Coast Guard does have laws in place that regulate safety for a ship. And so, for example, if you could use a foreign ship, and you could use that foreign ship in domestic transportation, that foreign ship would be subject to the same laws that U.S. ships are subject to, that have nothing to do with the Jones Act.

And actually, because U.S. ships are so expensive — again, three to four times more expensive than other large foreign ships — U.S. ship owners often keep these ships on the water a really long time. So actually, U.S. ships are a little bit more dangerous, are a little bit more unsafe, than foreign ships because, most of the time, they’re a lot older.

Miro: I see. Jonathan Helton joining us, research associate with Grassroot Institute of Hawaii, and you can find the piece on the Jones Act real easily if you go to “Issues” And it’s right there, it says “Jones Act.” It’s Grassrootinstitute.org to find that. So there’s a few issues dealing with the Jones Act, and it’s right there available to you at grassrootinstitute.org. 

Now, we just discussed Puerto Rico at the top. How does and how did the Jones Act affect Puerto Rico, I guess, recently?

Helton: About two weeks ago, Puerto Rico was struck by Hurricane Fiona. Hurricane Fiona caused pretty severe damage on the island. About two dozen people were killed as a result, and the hurricane knocked out the power for almost everyone on the island.

It took them quite a while to get the power back on, and some residents still may not have power. so The Jones Act came into play because a foreign-flagged ship that was flying the flag of the Marshall Islands — the name of the ship was the GH Parks.

This ship stopped outside of Puerto Rico with 300,000 barrels of diesel fuel to help with the recovery effort. But it couldn’t unload those barrels because it picked them up in Texas. So as you know, moving any goods in the United States — this is from Texas to Puerto Rico — you’d have to comply with the Jones Act. And this ship didn’t comply with the Jones Act.

Miro: OK. How’d the feds respond with this thing? I know the president sometimes waives the Jones Act after natural disasters. Was the Jones Act a problem this time around?

Helton: Yes, it was. For this ship, the GH Parks, to drop off this fuel, it would have needed a Jones Act waiver. And so this is what a lot of media outlets and people in Congress pointed out after Hurricane Fiona hit Puerto Rico. So you might remember five years ago, I think it was, when Hurricane Maria hit Puerto Rico. 

Now, Hurricane Maria was a lot worse than this most recent hurricane. Hurricane Maria killed almost 3,000 people, it caused billions of dollars in damage. And actually, today, Puerto Rico, before the most recent hurricane, they were still in the recovery process from Maria. So their economy was still not back, it was still not doing real well. A lot of the infrastructure had been damaged and hadn’t been fixed.

So the Jones Act was one reason why Puerto Rico was actually recovering so slowly from the previous hurricane, because the Jones Act cost Puerto Rico’s economy hundreds of millions of dollars each year. And so then you have Hurricane Fiona hit Puerto Rico, and this ship comes up off the coast of Puerto Rico, wants to drop off its fuel, but it can’t, because of the Jones Act.

Miro: It makes you scratch your head, it really does. I’m frustrated just listening to your explanation. So the president gave Puerto Rico a Jones Act waiver?

Helton: Yes. So President Biden gave the GH Parks a waiver. He allowed the diesel fuel to be unloaded. But he only did this after several days of waiting. So before the [GH] Parks asked for a waiver, media outlets, members of Congress had noticed that Puerto Rico might need a Jones Act waiver, because this is usually what happens any time a hurricane strikes the island. 

So actually, a group of eight Democratic U.S. representatives asked President Biden to waive the Jones Act after Hurricane Fiona hit. They asked that he waive the Jones Act for an entire year, and they were joined by the editorial board of The Boston Globe. 

And then, after the GH Parks asked for a waiver, which I believe was on September the 25th, the media buzz grew even louder, so a bunch of other media outlets joined the party. They asked that President Biden give a waiver for Puerto Rico. This included The Washington Post, the Washington Examiner, The Wall Street Journal. They all called for Jones Act reform. 

Now, the Grassroot Institute joined these calls. Our president, Keli’i Akina, sent President Biden a letter, and he asked that Puerto Rico be given a one-year waiver from the Jones Act to help with the recovery effort, to lower the cost of goods coming into the island.

So after all of this, the Department of Homeland Security finally gave a waiver, but they gave the waiver just to the one ship carrying diesel fuel. No other ships received a waiver from the Jones Act.

Miro: I see. We have, of course, our local representatives here. Did any of them get Keli’i’s memo, the Grassroot Institute letter, and were they part of the process also?

Helton: Yes. So we forwarded this letter on to Hawaii’s Congressional delegation. From what we’ve heard from the media — for example, Sen. [Brian] Schatz was asked by a Puerto Rican news outlet what he thought of the Jones Act waiver, and he didn’t give them a lot of information, but he essentially told them, “Right now, I know the Department of Homeland Security is working on this and it’s going to get the situation resolved pretty quickly.”

Miro: OK. Was it done pretty fast, the granting of this waiver?

Helton: Yes, it was done relatively quickly. Sen. Schatz made that comment, I believe, on Wednesday, and several hours later, the Department of Homeland Security did grant the waiver for the GH Parks that was carrying the diesel fuel. 

So it was kind of fast, right? It was, the ship asked for a waiver on a Sunday, they received it on a Wednesday evening. But in terms of an emergency, you can’t think about it in just days, right? Because during an emergency — a hurricane, an earthquake, some sort of other major natural disaster — supplies need to be moved quickly. 

People are without power, and this is especially a problem for people who might be in a hospital, right? They depend on some equipment to help keep them alive, to monitor their vitals, and if the hospital runs out of power, it might not just be people who are killed by the initial disaster, people might die simply because they don’t have electricity.

So when we’re talking about a matter of three days, that’s really a long time in a disaster. So to give you some context, the waiver for the one ship was granted 10 days after the hurricane hit Puerto Rico, and it was granted three days after they asked for a waiver. Yeah, so you could consider it quick, but in an emergency, it really needs to be faster than three days.

Miro: Yes, it makes you wonder, and ask, “Couldn’t the president just waive the law?” You know, why did it take so long? Couldn’t he just waive this law with a flick of his pen?

Helton: No. Unfortunately, he couldn’t. And this is because back in 2021, Congress changed the law and actually made it harder to waive the Jones Act. It was already not easy to waive the Jones Act, but they made it harder. 

So here’s what they did: Congress decided that now only the Secretary of Defense and the Secretary of Homeland Security can waive the Jones Act, and to do that, they have to jump through a lot of hoops.

So for the Secretary of Defense, he can only waive the law — and I’ll quote from the law — “in the interest of national defense to address an immediate adverse effect on military operations.”

So that’s the only way the Secretary of Defense can waive the Jones Act. And then, for the Secretary of Homeland Security, they can only waive the Jones Act in the interest of national defense, but they can only waive it for a maximum of 45 days. And on top of that, the Secretary of Homeland Security has to consult with the United States Maritime Administration to confirm that there are no available U.S.-flagged Jones Act vessels that can meet those national defense needs.

So, no wonder it took three days, because the Department of Homeland Security had to jump through all of those hoops in order to just waive the law for this one ship.

Miro: OK. No kidding. Cumbersome. Very cumbersome process. My goodness. I can see why it’s so difficult. 

We’re joined by the Grassroot Institute. Once again, it’s Jonathan Helton, research associate.

We’re discussing the Jones Act and the process to go through with getting waivers, which are needed to move ships without U.S. flags. So OK, now that we’ve learned about the situation in Puerto Rico, how about the Jones Act impacting fuel supplies in New England?

Helton: So the Jones Act is having an impact on fuel supplies in New England, and it’s likely to get worse as the New England states enter the winter. So the states of New England depend on liquid natural gas, called LNG, to generate a lot of their electricity. And obviously, that’s important in winter because, in a cold snap or a really bad freeze, people need more fuel to keep everyone’s lights on and their houses warm. 

So to get LNG to New England, most of the time, New England uses pipelines, but the pipelines that deliver natural gas to New England don’t have enough capacity to supply all of its needs. So that means they have to get their liquid natural gas from elsewhere when they need extra natural gas.

Miro: OK. A question would be: Where are they going to get it from, and can they ship it in from somewhere else? Jonathan?

Helton: Yes, they could ship it in from somewhere else. In fact, the United States is actually the world’s largest producer of natural gas, so it would make sense for them to get the extra natural gas they need from the United States. But unfortunately, the Jones Act makes that a lot more complicated. 

Why? Well, there’s zero natural gas tankers in the Jones Act fleet. There aren’t any Jones Act tankers that are capable of carrying natural gas. And so, why is that? Well, it’s probably because they’re so expensive.

There hasn’t been any of those tankers built in the United States in the past 40 years, and building one today would be very expensive. I mentioned earlier that building maybe an oil tanker would be three to four times more expensive in the United States than in a shipyard in Asia. You’re looking at something similar for an LNG tanker. Now, LNG tankers are a little bit more technically sophisticated, so they cost a little bit more even in a shipyard in, say, South Korea.

It might cost $200 million to build a tanker, but in the United States, it could cost up to $650 million to build an LNG tanker. But no one knows exactly how much it would cost because, as I said, there haven’t been any built in the United States in the past 40 years. 

So for New England to get liquid natural gas from the United States, well, they can’t. They can’t ship it in from Texas or Louisiana because there aren’t any Jones Act ships that can carry LNG.

Miro: It’s amazing. As far as you know, is there any impetus, any inkling that they’re even thinking about doing that now, based on what’s going on in New England?

Helton: Yeah. So thankfully, some people have taken notice. The governors of Connecticut, Maine, Massachusetts, New Hampshire, Rhode Island and Vermont — those six governors — they all wrote President Biden a letter and they listed a couple of things, asking him to basically help out in the winter if fuel supplies become an issue.

And so the No. 1 thing at the top of their list is they asked President Biden to consider waiving the Jones Act this winter so that they could use foreign tankers to move liquid natural gas from the U.S. Gulf Coast up to New England.

Miro: OK. In years past, they actually did that. What did they do instead? And, of course, why is this a problem now? Because I believe they did that in the past.

Helton: Yes. So this is a problem now, especially because of all of the global instability, especially since Russia has invaded Ukraine. So when Russia invaded Ukraine, you saw prices for energy skyrocket, and then on top of runaway inflation — you have both of those things together —the global fuel supplies are kind of unstable.

And so, this winter especially, New England wanted to make sure it could have a reliable and relatively less expensive supply of natural gas. And so that’s why they asked for the waiver this year. 

Now, in past years, what ended up happening is that states in New England don’t get a Jones Act waiver. Instead, they sometimes move the liquid natural gas in by train — what I’ve heard some people saying — but one thing that they’ve done, which has caught the media’s attention before, is that sometimes New England has imported natural gas from Russia. This happened back in 2018.

Now, the United States has banned oil from Russia and banned a lot of other things from Russia in response to the conflict, but then you have to think of that image. The Jones Act is supposed to benefit U.S. national security, and here we are, because of the Jones Act, New England is buying natural gas from Russia. I mean, that’s not a very good image right there, for sure.

Miro: Oh, not at all, not at all. It’s reminiscent of Hawaii doing that, right? We were importing natural gas from Russia and other countries because it made it more expensive to tap in and ship it in America.

Helton: Yes, for sure.

Miro: OK. What are the New England states doing about this? Has anyone other than the Grassroot Institute taken notice? Because you folks have really been out front and center with this for quite some time now.

Helton: Yeah. Thankfully, as I said, the governors of the New England states did write President Biden that letter. In response to that letter, the governors met with the Secretary of Energy on this issue. and the Department of Energy has essentially said that, “Yes, we will consider waiving the Jones Act this winter if things become a problem.” So they were really not committal about that.

And as I said, right earlier, waivers are really hard to get. Even if the Department of Energy wanted to give a waiver, they’d have to go through those hoops to get either the Department of Defense or the Department of Homeland Security to issue a waiver. 

So will New England get a waiver this winter? We don’t know. I’m sure if the winter is really bad, there’s a heightened chance of that happening.

Miro: Alright. Jonathan Helton, research associate with Grassroot Institute of Hawaii, Grassrootinstitute.org. For the great research work on the Jones Act, there’s several papers written about that. Jonathan Helton joining us from Grassroot Institute of Hawaii. 

Speaking of Hawaii, we’ve spoken of New England, Puerto Rico. Now, what about Hawaii? Has anything changed here?

Helton: Well, so there hasn’t been a natural disaster in Hawaii, thankfully, and for good or for bad, that’s when most people in the media focus on the Jones Act, when the weather shows how bad the law is.

So the Jones Act is almost always a problem for moving supplies in areas that have been affected by natural disasters, which is kind of ironic because the Jones Act was intended to supply a fleet of ships that the United States could use during emergencies. But it hasn’t followed through on those intentions because there’s only 93 large oceangoing ships in the Jones Act fleet.

So Hawaii still is suffering from higher shipping costs because of the Jones Act, but recently, there has not been a major event that has happened in Hawaii that would draw media attention to it. Thankfully, there hasn’t been a bad earthquake or any kind of hurricane that struck the island. 

That if something like that were to happen, you can bet that some people in the media would notice and they’d say, “Well, what about a Jones Act waiver for Hawaii?” But something like this did happen earlier this year, as you recall, when Hawaii stopped importing Russian oil. 

Then many in the media noticed that the Jones Act was a problem because the Jones Act was making it too expensive for Hawaii to buy oil from the United States, and so we were having to import it instead.

Miro: Yeah, good point. How are you going to change this? What do the prospects look like for reforming the Jones Act?

Helton: Well, we’re fighting an uphill battle. The maritime lobbies in Washington are very powerful. But just last week, one of our staff members met with a dozen lawmakers on Capitol Hill, and he wanted to see kind of where they stood on the Jones Act.

Miro: I know there’s one prominent one here that’s out in front. He’s been speaking a few years about this. So what did he find out?

Helton: So in his meetings, he found United States Sen. Mike Lee from Utah was very interested in Jones Act reform, which we’ve worked with Sen. Lee before. He appeared on a webinar with the Grassroot Institute actually back in 2020. Sen. Ted Cruz was also interested in Jones Act reform, and so were Reps. Tom McClintock and then, of course, Hawaii’s Ed Case was definitely interested in reforming the law.

A couple of the other people he spoke to were also interested. And then, of course, many people in Puerto Rico want to change the Jones Act. The governor of Puerto Rico wrote President Biden a letter back when they needed the waiver, and he was very supportive of the waiver. 

But unfortunately, a lot of the other members of Congress, including Hawaii’s other congressional members, they’re not on board with changing the law right now. 

So what we’re doing is we’re working with members of Congress who are interested in updating the Jones Act, and are reaching out to other think tanks and reaching out to industry groups in agriculture and energy to find the best strategy, moving forward, to try to change the law.

Miro: Do you get a sense that the other representatives from Hawaii are close to considering it? I mean, Ed Case has been front and center for, I’d say, the past, what, five years? Maybe more than that. 

Yet you haven’t heard a word from any other representatives in the Senate, and do you have an idea, what is holding them back? Just, they’re not knowledgeable of it? What’s going on there?

Helton: In our meeting with Sen. Schatz, he expressed that he supported the Jones Act. I think part of that has to do with Matson, which is generally interested in keeping the Jones Act around, being based in Hawaii.

I think there’s a case to be made that the Jones Act harms Matson, because any time Matson needs to buy a new ship, it has to pay a lot more money to do that, and in a United States shipyard than it would if the Jones Act — at least the builder requirement — weren’t around. So I think that has a lot to do with it, unfortunately.

Miro: Got it, yes. All right, have any members of Congress put forward some new legislation on the Jones Act that you know of right now?

Helton: Yes. One bill that has been put forward is called the Puerto Rico Recovery Act. This was proposed by Sen. Mike Lee, and then Rep. Nydia Velázquez. So what the Puerto Rico Recovery Act would do is it would kind of create a period of several months to a year where ships could get expedited waivers from the Jones Act if they’re carrying relief supplies to Puerto Rico.

So this bill is a good idea. It is a very small reform, and it does not affect Hawaii, but even this bill is certainly better than nothing, for sure. If this bill were to pass, which it is notable that it has bipartisan support here while the senator being a Republican, and the representative being a Democrat. 

Of course, bipartisan support always helps, especially with Washington’s divided climate right now. But right now, the bill hasn’t passed, so we are waiting and we are continuing to work with people who are interested in changing the law.

Miro: Well, great job, Jonathan, breaking it down. Jonathan Helton, research associate with Grassroot Institute. And where can they find all this great work? I’ve put that forward, but now, you can do that and instruct them to where to go.

Helton: Absolutely. If everyone will go to grassrootinstitute.org, we’ve got a page that details how the Jones Act harms Hawaii. And then we’ve got a bunch of other research on this law, on the Passenger Vessel Services Act and how it creates a problem for Hawaii, and we’re working hard to update these maritime laws for the 21st century.

Miro: Alright. Fantastic job. And we look forward to having a discussion about another important topic to the state of Hawaii with the good people at the Grassroot Institute who are working hard to make it easier to live and work here in the 808 State. Jonathan, mahalo for spending some time with us, and have yourself a great Sunday.

Helton: Thank you. You as well.