August 20, 2018 2:05PM

The Jones Act Makes Little Sense in a Globalized World

El CoquíLate last month that rarest of commodities, a new U.S.-built commercial transport ship, completed its maiden voyage by entering the harbor of San Juan, Puerto Rico to deliver its cargo. Called El Coquí, the vessel is among the world’s first hybrid roll‐​on/​roll‐​off container vessels—a “ConRo” in industry parlance—that is powered by liquefied natural gas. Supporters of the Jones Act, a protectionist law which mandates that ships transporting goods between U.S. ports be U.S.-owned, crewed, flagged, and built, have pointed to El Coquí as a symbol of the measure’s success. The President of the Shipbuilder’s Council of America cited “American skill and ingenuity, as well as critical laws like the Jones Act” in his remarks praising the new ship. A senior official with Crowley Maritime, which owns the ship, added that investments such as El Coquí “would not have been possible without the [Jones] Act.” What El Coquí truly represents is the outdated thinking behind this law. According to its supporters, the Jones Act helps ensure U.S. expertise in shipbuilding and a domestic capability that can be relied upon in times of war. But as El Coquí demonstrates, it’s unclear how much expertise the U.S. shipbuilding industry possesses or how purely American this capability really is. The vessel’s very DNA, for example, is more foreign than American, with design work largely performed by Finnish company Wärtsilä using a team mainly located in Poland and Norway. In addition, testing for a model of the ship took place at a facility in the Netherlands. That’s not all. Its celebrated LNG propulsion system features engines from a German company, MAN Diesel & Turbo, that were produced in Japan. The actual LNG tanks were supplied by another German firm, TGE Marine Gas Engineering. No doubt a thorough inventory of the various components used to build the ship would reveal numerous other examples of sourcing from abroad. The only parts of El Coquí guaranteed to be truly U.S.-built are the hull and superstructure, which is how compliance with the Jones Act’s domestic build requirement is assessed. This demand, however, brings with it a fearsome price tag. To take delivery of El Coquí as well as a sister ship, Crowley Maritime is estimated to have paid $350 million, or $175 million per vessel. For perspective, the largest containership in the world, the G‐​Class, features a price tag of $950 million for six ships, or $158 million per vessel. That’s a $17 million discount for a ship with a vastly larger cargo capacity. And despite its bigger size, the first G‐​Class ship was delivered in a mere 18 months. El Coquí required 45 months. That’s about as much time as it took the United States to secure victory in World War II. The key difference between El Coquí and the G‐​Class is that the latter is built by Samsung Heavy Industries in South Korea. While the number of large oceangoing commercial vessels built in the United States per year typically numbers in the single digits, Samsung says that its Geoje shipyard alone churns out 30 ships. With vastly greater numbers of ships under construction the South Korea shipyard is able to realize larger economies of scale than its U.S. counterparts, producing at significantly lower cost and in less time. Because of the Jones Act these cheaper ships are effectively forbidden fruit. Instead, carriers engaged in domestic transport must purchase their vessels from U.S. shipyards at vastly higher prices. These high prices, in turn, deter competition and raise costs to consumers. The law’s alleged national security upside, meanwhile, rings hollow given the industry’s deep international exposure and reliance on foreign know‐​how. Jones Act‐​compliant ships may be officially labeled as U.S.-built, but—as is the case with all manner of manufactured products—the production process spans the globe. The Jones Act brings with it considerable disadvantages in exchange for benefits that, upon closer examination, are almost entirely mythical. It’s time to rid ourselves of this nonsensical and counterproductive law.