The Jones Act: How Congress Made Cows Fly

Of the 460-ship fleet that deposited military cargo at Saudi ports prior to the first Gulf War, not a single Jones Act vessel participated.

BY KEN BRAUN

Background: The Jones Act

The Merchant Marine Act of 1920 (a.k.a. “The Jones Act”) is a federal statute created because of a concern that the U.S. military would always need access to readily available and all-American commercial shipping —  and a lot of it —  to provide logistical help during a major overseas conflict. It requires that ships transacting business between two U.S. ports must use vessels that are built, owned, flagged and (for the most part) crewed by U.S. citizens.

On Sept, 28, the Trump Administration granted Puerto Rico a temporary waiver from the law, allowing the U.S. territory to receive disaster relief from the U.S. mainland, regardless of the nationality of the boats and crews bringing the help. The lack of Jones Act compliant vessels to properly service trade between American ports has occurred before. For example, 46 of 47 oil tankers shipping to northeastern U.S. refineries from the U.S. strategic petroleum reserve during the summer of 2011 were foreign-flagged, thanks to Jones Act waivers repeatedly granted by the Obama Administration.

Congressmen John Rutherford (R-Fla.) and Peter DeFazio (D-Ore.) each issued statements stridently defending the Jones Act during a November 1, 2017, Congressional hearing examining the Puerto Rico waiver.

What they said:

“The Jones Act has not added difficulties to the recovery in Puerto Rico and the Virgin Islands. The goods getting to the port were not the problem.”

— Congressman Rutherford

“I hope once and for all to put the idea to rest the idea that somehow the Jones Act is inhibiting the recovery of Puerto Rico. We’ve had more than 20,000 containers delivered. The problem has been the logistics of getting those out of the port.”

— Congressman DeFazio

What should be said:

The Jones Act was pummeling Puerto Ricans long before Hurricane Maria hit them. It imposes an artificially high cost on Americans wishing to trade with other Americans, and the burden falls hardest on those living in and doing business with U.S. states and territories outside the mainland, such as Alaska, Puerto Rico and Hawaii.

An April 2017 analysis from the Grassroot Institute of Hawaii, citing a report from the U.S. International Trade Commission, estimates the annual economic output of Puerto Rico, Hawaii and Alaska would increase by $5 billion to $15 billion per year if the Jones Act were repealed. On the low side, this works out to $2,500 per worker, and on the high side it’s $7,500 per worker.

That’s a huge burden that Puerto Ricans in particular should not be forced to pay.

Even as U.S. citizens Puerto Ricans are cut off from many of the blessings of the U.S. economy. Their median household income is just $19,000, compared to $56,000 for the U.S. as a whole. An additional $2,500 or more per Puerto Rican household each year would change hundreds of thousands of lives.

While the Jones Act is just one of many factors contributing to Puerto Rico’s poverty, a recent report from the Mercatus Center at George Mason University reveals the profoundly unfair costs the law is imposing on the island. Published by Mercatus in May 2017, An Economic Analysis of the Jones Act compares the Jones Act to a sales tax that is used not for the general good, but to fund corporate welfare for shipping companies and their labor unions:

Because of higher shipping costs, Puerto Ricans pay more for imports and receive less for exports. Puerto Rico consumers pay higher prices for goods shipped in Jones Act vessels because shippers pass on their higher transport costs to consumers the same way they would pass on a sales tax.

According to a study from the Federal Reserve Bank of New York, shipping a container from the US East Coast to Puerto Rico cost $3,063, but shipping the same container to nearby Santo Domingo, Dominican Republic, cost only $1,504, and to Kingston, Jamaica, only $1,607. The price of electricity in Puerto Rico is higher than in any of the contiguous 48 states.

One reason for the high electricity rates: There is not one liquid natural gas (LNG) tanker in service that is Jones Act compliant. This also affects Hawaii, which has even higher electricity prices than Puerto Rico. Even though the U.S. has surpassed Russia as the world’s largest producer of natural gas, Puerto Ricans — American citizens — must have their LNG sent in from a non-American port.

Bargain-priced power is a perk of being an American. American families now pay some of the lowest electricity prices in the developed world … unless they’re Puerto Ricans or Hawaiians.

Ninety-eight percent of products brought to Hawaii come by water, according to Mercatus, but there are strange exceptions:

Former US Representative Ed Case (D-Hawaii) reported that Hawaiian ranchers chartered “a weekly 747 out of Keahole Airport to get their cattle to the mainland because that’s cheaper than Jones Act shipping.”

Similarly, even though Hawaii has a favorable climate for growing sugarcane, and a hungry market for sugar on the U.S. mainland, the Jones Act has taken its toll:

Hawaiian sugar growers have been at a disadvantage in the US mainland market, relative to growers in the Philippines and Latin America, because of higher transport costs caused by the Jones Act. In fact, the last sugar plantation on Hawaii closed its sugar operation in 2016.

Damaging the nation’s economy, and that of Hawaii and Puerto Rico in particular, might be justifiable if the Jones Act still provided a national security benefit. It does not.

Consider:

  • Of the massive 460-ship fleet that deposited military cargo at Saudi ports prior to the first Gulf War (1990-91), the Mercatus report tells us not a single Jones Act vessel participated. In fact, the Jones Act had to be suspended to provide for the fueling of this sealift.
  • While the law is supposed to preserve a domestic merchant fleet, Mercatus reports abysmal failure. The Jones fleet has been shrinking severely: There were only 90 large vessels in service as of 2014, down from 193 in 2000. And the Jones fleet is elderly: The average age is 33 years old, compared to just 13 years for the global (foreign) fleet.
  • An original justification for the law was concern for the need to replace vessels that could be sunk by the German U-boats that were a real threat — at the time. Today there are no foreign submarines likely to threaten trans-ocean shipping. By one estimate, the U.S. Navy has a greater combat capability than the might of the next dozen largest navies joined together. If the American fleet is ever again unable to protect merchant vessels, it will be indicative of problems vastly larger than the U.S. military’s access to commercial shipping.

The Jones Act no longer serves a relevant national security purpose and exists only as a corporate welfare benefit for domestic shipping companies, ship builders and their big labor unions. That’s a price tag impoverished Americans in Puerto Rico and the rest of the nation shouldn’t have to pay. Rather than making hollow excuses for the law, Congressmen Rutherford and DeFazio should be doing away with it.

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Further reading…

An Economic Analysis of the Jones Act – The Mercatus Center report referenced above.

THE JONES ACT IN PERSPECTIVE: A survey of the costs and effects of the 1920 Merchant Marine Act – The Grassroot Institute report referenced above.

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Ken Braun is the director of policy and communications for Think Freely Media. He has served as a public policy and communications professional for four different free market policy organizations, and as a chief of staff in the Michigan Legislature. He has also been a freelance political columnist for one of Michigan’s largest newspaper chains. Ken can be followed on Facebook, and when he has something really clever to say he will even use Twitter.

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What Should Be Said shows effective ways of communicating freedom principles by using a storytelling approach, taking the moral high ground, and staying hopeful and aspirational. Media, politicians and thought leaders often fail to include the freedom perspective at all by omitting critical facts. Alternatively, when they do make a sincere attempt to sell the freedom philosophy, they often do so with a stale and defensive approach that is missing stories that humanize the dry facts and figures. Here we show examples of how storytelling and emotionally compelling changes in message will make all the difference for those trying to advocate for liberty.

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