The Jones Act Isn’t Working. Just Ask Its Supporters.

Although the Jones Act's stated purpose is to ensure that the United States "shall have a merchant marine of the best equipped and most suitable types of vessels sufficient to carry the greater portion of its commerce and serve as a naval or military auxiliary in time of war or national emergency," this plainly isn't the case. But don't take my word for it, just listen to ardent backers of the law such as Rep. John Garamendi (D-CA):

Our military relies on privately-owned sealift capacity and highly trained and credentialed merchant mariners to transport and sustain our armed forces when deployed overseas during times of conflict. But the number of ocean-going U.S.-flag vessels has dropped from 249 in the 1980s, to 106 in 2012, to at most 81 today.

The consequences of this steep decline are not just theoretical. Our military has had to turn to foreign-flagged vessels for sustainment in times of war, and experience shows that can have dangerous consequences. In the 1991 Gulf War, our armed forces relied on 192 foreign-flagged ships to carry cargo to the war zone. The foreign crews on thirteen vessels mutinied, forcing those ships to abandon their military mission. Would foreign flag carriers be any more reliable today, especially for a long-term deployment into active war zones?

But the number of ships is not the only issue: The U.S. Transportation Command and Federal Maritime Administration estimate that our country is now at least 1,800 mariners short of the minimum required for adequate military sealift, even with the Jones Act firmly in place. Without the Jones Act, our nation would be wholly unprepared to meet the labor demands of rapid, large-scale force projection for national security.

The House Coast Guard and Maritime Transportation Subcommittee's ranking member is absolutely correct about the sad state of the U.S. merchant fleet. Some of his numbers, however, are off the mark. The drop in the number of ocean-going U.S.-flag vessels is even more dramatic than what he states, declining from 737 in 1985 to a current figure of 180. Regarding the 1991 Gulf War, meanwhile, the actual number of foreign-flagged ships used as part of the U.S. sealift was 177 rather than 192. It's also inaccurate to say that thirteen vessels were forced to abandon their military mission, with eight of those vessels ultimately delivering their cargo after initial hesitations. 

Although an article of faith in pro-Jones Act circles, the congressman's claim that the United States would be in even more dire straits absent the law is open to question. The Jones Act's domestic build requirement, for example, forces U.S. carriers to purchase vessels at vastly inflated prices compared to foreign shipyards (4x is a figure used by many observers while a 2017 Congressional Research Service report placed the U.S. price at 6-8x higher). Using basic microeconomics we can intuit that higher prices mean fewer ships, and thus fewer mariners to crew them. 

Linking to a Cato Institute analysis of the Jones Act, Garamendi then turns his attention to accusations that the law is an "outdated protectionist anachronism":

Opponents of the Jones Act routinely claim that it is an outdated protectionist anachronism that does more harm than good, but nothing could be further from the truth. A comprehensive 2018 survey of seafaring and industrial nations around the world shows that cabotage laws such as the Jones Act, which provide for domestic preference for shipping policies, are the norm, not the exception. Ninety-one U.N. member states comprising 80 percent of the world’s coastlines have cabotage laws protecting domestic maritime trade. The conclusive fact from this survey is clear: seafaring nations understand the importance of their domestic maritime industries, and have laws on the books to safeguard them.

This misses the point. While cabotage laws are indeed common, the Jones Act's stringent requirements—and in particular its mandate that ships must be built in the United States—place it well outside the mainstream. Indeed, the World Economic Forum calls the Jones Act the world's "most restrictive example" of cabotage laws, noting that not even China has a domestic build requirement. 

Finally, he addresses the Jones Act's economic impact on Puerto Rico:

Just as important, a recent nonpartisan economic study found that the Jones Act does not impact consumer prices in Puerto Rico. Rather, the Jones Act has a net positive economic impact, because the certainty of the regularly scheduled coastwise trade allows shippers to invest in state of the art maritime technologies and local port investments. In fact, consumer price comparisons of common household commodities between Puerto Rico and other Caribbean islands found that consumer prices on Puerto Rico are commonly lower.

The referenced study may have been "nonpartisan" but it was hardly the product of disinterested observers, having been funded by the pro-Jones Act American Maritime Partnership. As discussed in a previous blog post the study's methodology is dubious and its claims should be treated with a great deal of skepticism.

In addition, the logic behind the claim that the Jones Act has a net positive economic impact on Puerto Rico is unclear. State of the art maritime technologies and local port investments are certainly good for the carriers, but it is unclear how this benefits the average Puerto Rican. If the argument is that these confer efficiencies that allow Jones Act carriers to lower transport costs, then they should have little to fear from competing against foreign-flag ships. The fact that they steadily refrain from doing so and instead cling to the Jones Act's protections, however, is telling. 

It's also worth noting that regularly scheduled trade with Puerto Rico happens outside of the Jones Act, with Tropical Shipping (whose owner, Saltchuk, also owns Jones Act carrier TOTE Maritime), for example, offering regular service from Halifax, Canada. 

Although the Jones Act's alleged economic benefits to Puerto Rico are fictional its costs are very real and well documented. A 2012 report from the Federal Reserve Bank of New York, for example, stated that shipping a twenty-foot container of household and commercial goods from the East Coast to Puerto Rico costs roughly twice that of shipping the same goods to nearby Jamaica or the Dominican Republic.

In addition, a 2013 GAO report points out that the high cost of shipping resulting from the Jones Act results in Puerto Rican farmers purchasing grain from Canada instead of New Jersey and jet fuel from countries such as Venezuela rather than the Gulf Coast. The report also highlighted price fixing in the Jones Act trade servicing Puerto Rico, with a federal investigation resulting in three of four Jones Act carriers pleading guilty and fined about $46 million. Six executives were sentenced to a total of more than 11 years in prison.  

All of these points and much more will be discussed during the Cato Institute's upcoming conference on the Jones Act in December, the culmination of which will be a debate between those who favor and oppose the law.

We invite Rep. Garamendi to participate in this debate and defend the Jones Act in this public setting.