Last year the American Maritime Partnership released a report claiming that the Jones Act, a protectionist law which requires domestic water transport to be performed by vessels that are U.S.-made, crewed, owned, and flagged, imposes no cost on consumers in Puerto Rico. Riddled with apples-to-oranges comparisons and an opaque methodology—the no cost assertion was in large part based on a cost comparison of a mere 13 items sold by Walmart at its stores in Jacksonville, Florida and San Juan, Puerto Rico—the report was deeply flawed.
Just how flawed became more apparent last week when several Puerto Rico-based business groups released two analyses examining the Jones Act’s economic impact on the territory.
The first analysis, prepared by Puerto Rico-based Advantage Business Consulting, focused on the food and beverages sector where it found a Jones Act cost of $367 million. The methodology used is transparent. After surveying food industry companies in the territory about their transportation costs, the report’s authors found Jones Act vessels to have shipping prices 2.5 greater than non-Jones Act shipping from foreign ports ($3,027 versus $1,206) after adjusting for container size and distance. Total maritime transportation costs, meanwhile, were found to be 12 percent of the value of imports. By multiplying 60 percent (the percentage differential between $3,027 and $1,206) by the 12 percent figure, the report’s authors were able to derive a de facto Jones Act tax of 7.2 percent (.60 * .12).
When this 7.2 percent tax was applied to the $4.154 billion estimated to be imported from the U.S. mainland in FY 2018 ($4.615 billion in food and beverages were imported while survey data indicates 90 percent of this originated from the U.S. mainland), the result was a cost of nearly $300 million. Again, this is just for food and beverages.
The report points out, however, that other factors no doubt push this $300 million figure still higher. One such factor is the need to first transport the goods to a port for shipment to Puerto Rico. While as recently as 1996 there were ten mainland ports from which goods could be transported to Puerto Rico, that number has since shrunk to a mere four. Furthermore, survey data indicates that just a single port—Jacksonville, Florida—accounts for 88 percent of containers sent to the territory.
In other words, to ship goods to Puerto Rico likely first means sending them to Jacksonville, which can mean significant added expense in a country as vast as the United States. The cost of transporting a 40-foot container from California to Jacksonville, the report noted, is $7,000.
Another factor cited is a “cascade effect” from markups in the distribution chain being higher than would otherwise be the case owing to the artificially high cost of transportation. In addition, the increased cost of inputs used by producers in Puerto Rico, such as farmers who must use fertilizers imported from the mainland, means a higher cost for final goods. According to Advantage Business Consulting the incorporation of these factors results in a total Jones Act cost to the food and beverage sector of $367 million.
The second analysis, meanwhile, took a more comprehensive look at the Jones Act’s impact on Puerto Rico. Produced by John Dunham and Associates, it used a model of international shipping costs for 260 different commodities and compared it against six different estimates of Jones Act shipping cost differentials. After controlling for distance and terminal handling charges the analysis estimated these differentials to range from 89 percent to roughly 30 percent.