Since the golden spike was driven to mark the completion of the first transcontinental railroad 150 years ago, much of the country has had a choice between transport modes. When the relative ease of a Pullman car beckoned, traveling from New York to San Francisco no longer meant a long and dangerous trip around Cape Horn or across Central America, both of which were journeys mostly by ship. Technological improvements have helped all transport modes, but the increased number of options—as well as costly mandates imposed by the Jones Act—bodes ill for the waterborne share of freight. Today, marine transport is primarily used where there are no substitutes, and the U.S. domestic oceangoing fleet has shrunk to a mere 99 ships. Using data from the Commodity Flow Survey, two‐thirds of U.S. bluewater freight transport trips (excluding inland waterway and the Great Lakes) either originate or terminate in the noncontiguous states of Alaska and Hawaii, yet these trips carry only about 2 percent of the ton‐mileage of U.S. water freight transport. Waterborne freight is concentrated in a handful of low‐value, mostly time‐insensitive, commodities. Nearly three‐quarters of the waterborne ton‐mileage of marine transport is in four classes of commodities: metallic ores, refined petroleum products, coal, and agricultural products.
By restricting the choice for domestic waterborne transport to qualified carriers, the Jones Act has raised costs for marine transport. Measuring these costs is a challenging empirical task. The first channel for impact is that the qualifications might directly raise production costs, either by requiring more expensive factors such as labor, or by specifying more costly performance standards, such as safety equipment. These changes must be measured relative to a historical transportation cost basis, so continuing technological improvement could lead to lower real costs and also to contemporaneous alternatives not subject to the same qualifications. Nonexclusive to the first, a second possibility is that substitute transport modes experience falling costs because of technological change or other policy measures. Third, the market structure in the domestic market may afford occupant firms short‐term pricing power. Unless there are barriers to entry, in the long run firms cannot maintain market power. But the Jones Act does restrict entry to domestic firms and may act as an effective barrier to entry into the market. A fourth explanation is that short‐term factors might reduce the long‐term incentive for complementary investments, such as in ports, which then raise costs in the long run. The extent to which these factors amount to substantial and significant cost differences is an empirical question.
Surveys provide estimates of higher operating expenses for Jones Act–eligible vessels than for foreign‐flagged vessels. The magnitude of the cost differential is contentious, but a variety of sources corroborate the intuition that the Jones Act contributes to higher costs for domestic shipping services. The U.S. Maritime Administration reported in 2011 an average operating cost for U.S.-flagged vessels that was 2.7 times higher than the foreign‐flagged equivalent, mostly because of higher crew costs,9 while the Government Accountability Office noted in a 2018 report that “the relative cost of operating a U.S.-flag vessel compared to a foreign‐flag vessel has increased in recent years.”10 Older estimates suggest that the cost differences have grown over time. The U.S. International Trade Commission (USITC) reported higher U.S. operating costs: from 110 percent for Aframax tankers11 to 15 percent for 2,000-TEU containerships, which is consistent with earlier reports that found operating cost differentials of 52 percent for Aframax tankers and 13 percent for a 2,000-TEU containership, according to the USITC.12 The OECD data provide a consistent picture: in 2018, the OECD Service Trade Restrictiveness Index rated the United States as 60 percent more restrictive than the average OECD country, which was about the same as the difference in 2014. Most of the barrier is attributable to Jones Act restrictions on foreign entry.13
Existing information about cost differentials has been used to parameterize the USITC computable general equilibrium model that provides economic welfare estimates. In 2002, the USITC estimated that full liberalization of the Jones Act would increase U.S. economic welfare by $656 million (1999 U.S. dollars, equivalent to $1 billion in 2019).14 Removing only the domestic shipbuilding requirement but keeping all other provisions of the Jones Act would deliver an increase of $261 million (1999 dollars, equivalent to $407 million in 2019) in economic welfare. Gary Clyde Hufbauer and Kimberly Ann Elliott found a similar topline figure using a different methodology, estimating that a full liberalization would increase U.S. economic welfare by $556 million (1990 dollars, equivalent to $1.1 billion in 2019).15 This gain is decomposed into a $1.83 billion (1990 dollars, equivalent to $3.59 billion in 2019) gain for consumers of marine services and a $1.28 billion (1990 dollars, equivalent to $2.51 billion in 2019) loss for producers. Joseph Francois, Hugh M. Arce, Kenneth A. Reinart, and Joseph E. Flynn arrive at a higher estimate of $3 billion (1989 dollars, equivalent to $6.21 billion in 2019) in economic welfare cost, but add to the consensus that the Jones Act protects a relatively small number of jobs and firms at a broadly dispersed cost.16 None of these studies have attempted to enumerate the external costs, and so they potentially represent an underestimate of the burden of this law by measuring only direct cost differences.
The net effect of making waterborne transport relatively more expensive is that less freight moves by ship and boat than one might otherwise expect. In 2016, 4.2 percent of U.S. domestic freight tonnage was moved by water, compared to 65.7 percent by truck.17 Waterborne freight transport focused on low‐value products, moving only 1.8 percent of total freight value. In 2015, 3.4 percent of domestic freight tonnage was moved by water, compared to 66.1 percent by truck.
Environmental costs are an important class of external costs associated with transport choices. Table 2 shows that in 2016, ships and other vessels accounted for only 0.9 percent of all freight GHG emissions, compared to more than 80 percent for trucks. The relative intensity of moving freight by different modes is shown in the final column of Table 2. Here water transport has a clear advantage: it is one‐third lower than pipeline, 70 percent lower than rail, more than 80 percent lower than truck, and hundreds of times lower than air.18 So while water transport is not particularly competitive when environmental costs are excluded, taking GHG emissions into account makes water transport relatively more competitive among modes. How large this effect is relative to existing cost differences that drive current freight patterns, and how incorporating other types of environmental externalities affects the net balance, are all relevant to determining the environmental costs of the Jones Act.