May 4, 2020 9:55AM

Energy Industry Desperation Leads to Jones Act Tanker Use

By Colin Grabow

Something strange is afoot in the energy industry. According to Reuters, demand for tankers has reached such stratospheric levels that traders are resorting to that most desperate of measures—using Jones Act ships:

Oil traders are hiring expensive U.S. vessels, normally only used for domestic shipments, to store gasoline or ship fuel overseas, five shipping sources said, in a sign of the energy industry’s desperation for places to park petroleum amid a 30% drop in worldwide demand.

Billions of people worldwide are living under confinement rules due to the coronavirus pandemic, destroying demand for gasoline and other fuels and creating a supply glut. Storage tanks onshore and floating storage in tankers on the water are rapidly filling, leaving fewer options for traders looking to sock away oil.

Several shippers said they have started to book Jones Act (JA) vessels for foreign voyages or to store refined products. The century‐​old Jones Act requires that vessels traveling between domestic ports be owned and operated by U.S. crews, and they are generally more expensive than other vessels.

“It’s very unusual to use JA tankers for international trips,” one shipping source said.

Pause for a moment to reflect on this. International traders with a wide range of vessels to choose from consider Jones Act ships a last gasp option. But these costly vessels are the only option when transporting goods by water within the United States. Which helps explain why Americans largely avoid water transport. Despite 40 percent of the U.S. population living along coasts, ships are used to transport just 2 percent of the country’s freight (barges account for another 4 percent). In contrast, 40 percent of the European Union’s internal freight is moved by sea.

This is in large part the Jones Act’s handiwork. Instead of being able to select from a vast array of ships offering competitive rates, those seeking domestic waterborne transport are restricted to a limited, old, and expensive fleet undesired by the rest of the world. And what should be a leading means of transporting goods within a country as vast as the United States is a last resort. Americans deserve better.