The Jones Act Is An Unnatural Disaster

Recovery efforts in hurricane-torn Puerto Rico got a boost when the Department of Homeland Security granted a 10-day waiver of the Jones Act. With the waiver, foreign-flagged ships can transport essential supplies, including fuel, to the territory. These waivers are routinely granted after significant weather events, from blizzards in the winter to hurricanes in the summer. Katrina resulted in a 20-day waiver for Louisiana; affected states also received waivers following Harvey and Irma.

Each waiver makes explicit the normally unseen costs of the Jones Act. These costs are far too high, particularly for the residents of Puerto Rico, Hawaii, and Alaska, to justify maintaining the status quo. It is past time to seriously reform, if not outright repeal, the Jones Act.

So what is the Jones Act? It's what's known as a cabotage act, determining the rules for waterborne cargo transportation within U.S. boundaries. It requires that all vessels carrying cargo between U.S. ports to be U.S.-built, at least 75% U.S.-owned, U.S.-flagged (that is, registered in the United States), and at least 75% U.S.-crewed.

These restrictions were put into place to maintain a strong merchant marine for national security following World War I; there would be a domestic U.S. shipbuilding industry for times of war, it was thought, and Jones Act vessels could serve as a naval auxiliary.

There is little reason to believe that the Jones Act has succeeded in achieving these goals. Instead, it has imposed considerable costs on American consumers and businesses, as well as taxpayers. The U.S. shipbuilding industry has shrunk, as has the share of U.S. firms in the global freight industry as other firms in other countries with more competitive markets have innovated and cut costs.

The American-built requirement of the Jones Act means that any firm wishing to ship domestically has to buy a vessel that is likely five times more expensive than one that could be purchased on the global market. Unsurprisingly, Jones Act vessels are much older on average (at 33 years) than the global fleet (13 years), as owners keep plying vessels in an effort to recoup the large initial investment. In one recent example, a 40-year-old Jones Act ship that went missing in 2015 amid questions about safety was still not due for retirement.

These higher costs are passed down the supply chain to consumers, with the effects being particularly acute for America's noncontiguous states and territories. A U.S. Department of Agriculture study found that the Jones Act increased costs for Alaska's lumber industry; meanwhile, the residents of Hawaii pay higher prices for food and other staples. The law also results in Kafkaesque situations, including ranchers from Hawaii finding it cheaper to charter Boeing 747s to transport cattle instead of using Jones Act vessels.

Similarly, the higher freight rates of Jones Act vessels meant that the majority of Puerto Rico's petroleum needs were met by imports from South America, rather than much closer U.S. mainland sources, a costly market distortion highlighted by a 2013 Government Accountability Office report.

When a hurricane hits, as Maria did, and Puerto Ricans urgently need fuel and other critical supplies, the costs of this policy become especially clear. Many of those supplies recently had to wait for transport until a waiver to the requirements of the Jones Act was in place.

People who need help should not be at the mercy of what is essentially an arbitrary process. A waiver does not simply depend on the extent of devastation, or the need of the people. New Jersey's request in 2014 for a Jones Act waiver following blizzards was denied, because it was not considered to be relevant to "national defense." The salt the state needed, which could have been transported in cargo ships in a matter of days, was shipped in barges over weeks, extending the misery of residents, and resulting in an unknown amount of lost value to businesses.

There is little reason to believe that there are any commensurate benefits to offset these costs. The U.S. shipbuilding industry has continued to decline, despite the protection afforded by one of the more stringent cabotage laws in existence. The vast majority of the Jones Act fleet consists of barges, and is unlikely to be as effective as the naval auxiliary visualized almost a century ago.

The concept of both "American built" and "American owned" is more fluid than ever, as supply chains grow more complex and ownership of a corporation can switch with a second's trade. It is past time to scrap a law that is increasingly obsolete and costly. Not only will this benefit Americans every day, but also ensure that help will be on the way immediately when the next hurricane or blizzard hits.