October 3, 2017

Don't Make Disasters Worse

Thomas Grennes

Emeritus Professor of Economics, North Carolina State University
Summary

To speed up recovery, waive the Jones Act and let foreign ships deliver critical aid during disasters.

Contact us
To speak with a scholar or learn more on this topic, visit our contact page.

Humans may not be able to control the occurrence of major hurricanes, such as Harvey or Irma, but prudent action could reduce the damage done to people and property. For example, reforming flood insurance so that insurance rates better reflect actuarial risk could, over time, reduce the number of people and structures locating in areas vulnerable to flooding. Perhaps most importantly, eliminating self-imposed barriers to a quick and effective hurricane response could reduce damage. The Jones Act is such a barrier.

By prohibiting the use of foreign-flag ships on coastal routes, the nearly 100-year-old Jones Act is an impediment to disaster responders, and for that reason, can only add to the damage done. To transport merchandise from one domestic port to another by water, the act requires the use of a ship that is American-built, American-owned, American-crewed and flies the American flag. This American-flag fleet is small and shrinking, and some of the ships have long-term contracts that prevent them from quickly responding to a disaster.

Conversely, the foreign-flag fleet is much larger and much less expensive. The cost difference is so large that when American businesses export from or import to the United States, they use foreign-flag ships about 99 percent of the time. Thus, prohibiting these foreign-flag vessels – the ones we overwhelmingly rely on for international trade – from assisting Americans during disasters is a needless self-inflicted wound to the nation.

The Jones Act does acknowledge this problem by allowing the president to waive portions of the act in times of emergency. Waivers were issued in 2005 by President George W. Bush and in 2012 by President Barack Obama. The Department of Homeland Security did declare a waiver after Hurricane Harvey that was extended two more weeks after Hurricane Irma arrived.

Supporters of the Jones Act have opposed many of the previous waivers by claiming that American-flag ships could do the job satisfactorily. The lobbying process has a history of delaying even successful waivers. In 2010, after the BP Deepwater Horizon oil spill disaster, the Obama administration delayed accepting help from foreign governments for more than a month, before eventually deciding that allowing foreign ships to remove spilled oil was allowed by the Jones Act. The uncertainty and delay over whether a waiver will be imposed comes at a high cost during disasters that threaten lives and property.

It is too early to know how important foreign-flag ships are in assisting with the recoveries from Harvey and Irma. Exports of gasoline from Europe to the northeastern U.S. are not subject to the Jones Act. There have been reports that some gasoline and refined products were shipped from New York Harbor to Savannah, Georgia, and to Jacksonville and Tampa, Florida. Refiner Phillips 66 was granted a waiver allowing them to move crude oil or refined products to and from their Alliance Refinery in Louisiana.

Such domestic shipments are ordinarily subject to the Jones Act and can only be carried by more expensive American-flag ships. Fortunately, the waiver allows more possibilities for disaster relief. And if American-flag ships can compete successfully with foreign ships for disaster relief shipments, nothing is lost by using the waiver.

A reform that would reduce uncertainty would make a Jones Act waiver automatic whenever a national disaster was declared, and it would last for the duration of the national disaster. A longer-term solution would repeal or substantially reform the Jones Act. It imposes large costs on consumers, it makes negligible contributions to U.S. troops operating abroad and it is an impediment to responding to domestic disasters.