Jones Act is bad deal for Guam

by Colin Grabow, Grassroot Institute

The following article was published originally on July 31, 2024, in the Pacific Daily News on Guam.
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Perhaps no federal policy imposes a heavier burden on Guam than the protectionist shipping law known as the Jones Act.

Enacted in 1920, the law restricts the transportation of goods between U.S. ports to vessels that are flagged and built in the U.S. and mostly owned and crewed by Americans.

That makes for very expensive shipping, the effects of which reverberate throughout the U.S. economy — and few places more than Guam.

In 1995, the U.S. Navy disclosed that shipping to Guam was so expensive that it was considering shifting personnel to Japan to save money.

A year later, a study commissioned by the Government of Guam found that families on the island were paying at least $1,139 per year due to excessive shipping costs, or about $2,300 in 2024 dollars.

The danger of shipping protectionism to Guam’s economic well-being has been apparent for a long time. In 1951, a government commission recommended exempting Guam from U.S. shipping laws, and a 1979 United Nations report on Guam called for repealing or amending the law.

That the Jones Act increases the cost of shipping is indisputable. For example, Matson’s Daniel K. Inouye and Kaimana Hila ships — both of which regularly call on Guam — were constructed at a cost of $209 million each. According to one maritime consultancy, building comparable vessels overseas would have cost one-fifth as much.

Beyond vastly higher construction costs, U.S.-flagged ships are approximately three times more expensive to operate than internationally flagged vessels, a cost difference the U.S. Government Accountability Office pegged in 2020 at about $7 million annually.

The Jones Act also restricts competition. Of the more than 6,100 container ships in the global fleet, fewer than 30 comply with the Jones Act. That means over 99% of such ships in the world are off-limits for transportation between U.S. ports.

Put it all together and Americans end up with some of the world’s most expensive shipping.

For example, the Federal Reserve Bank of New York found in 2012 that sending a container of household goods from the East Coast to Puerto Rico via a Jones Act ship was twice as expensive as sending the same container via a foreign-flagged vessel to nearby Jamaica or the Dominican Republic.

In 2017, meanwhile, the head of one company that operates Jones Act-compliant tankers admitted that such vessels are three to four times more expensive than their international counterparts.

Fortunately, Guam is spared from the Jones Act’s requirement that vessels transporting goods between U.S. ports be domestically built. But some hard realities diminish the value of that exemption.

One is that the only operator of U.S.-flagged foreign-built ships that serve Guam, American President Lines, takes an indirect route to Guam from the U.S. West Coast, going first to Japan, then transferring cargo to another ship bound for Guam. This means higher costs that undo some of the benefits of Guam’s unique status.

APL’s lone competitor, Matson, takes a more direct route from the West Coast to Guam, but that includes first serving Hawaii, which means its ships must comply with the Jones Act.

Despite the Jones Act’s high costs, the law would arguably be worthwhile if it fostered a strong domestic maritime industry. But that isn’t how the law has been working out. U.S. shipping and shipbuilding are both extremely minor players on the world stage.

U.S. commercial shipbuilding output is dwarfed by China, South Korea, and Japan, and even lags behind much smaller shipbuilding countries such as the Netherlands and Norway. The Jones Act fleet, meanwhile, has nearly halved over the last 40 years, to fewer than a hundred oceangoing ships.

What’s more, the law is simply unfair. If shipping and shipbuilding are national security imperatives, the burden of providing them should be more evenly shared by all Americans and not disproportionately borne by the shipping-dependent residents of Guam and the other non-contiguous states and territories.

The Jones Act is costly, ineffective, and unfair. Guamanian advocacy for either the law’s repeal or significant reforms should be an obvious move to encourage the island’s prosperity.