Help Puerto Rico's Recovery – and Many Others in the U.S. – by Sinking the Jones Act

COMMENTARY Trade

Help Puerto Rico's Recovery – and Many Others in the U.S. – by Sinking the Jones Act

Feb 20th, 2018 3 min read
COMMENTARY BY
Nicolas Loris

Former Deputy Director, Thomas A. Roe Institute

Nick is an economist who focused on energy, environmental, and regulatory issues as the Herbert and Joyce Morgan fellow.
Jones Act repeal is not only necessary to help Puerto Rico's recovery but to finally end a broken policy that users other peoples' money to favor the politically connected. CARLOS GARCIA RAWLINS/REUTERS/Newscom

Key Takeaways

Five months have passed since Hurricane Maria devastated Puerto Rico, and more than 400,000 Puerto Ricans still lack electricity.

The Jones Act inflicts serious economic harm on American consumers and businesses, particularly in Alaska, Hawaii, Guam and Puerto Rico.

The result is a tight web of politicians and special interests making decisions that benefit very few while dispersing the costs among the rest of us.

Five months have passed since Hurricane Maria devastated Puerto Rico, and more than 400,000 Puerto Ricans still lack electricity. Many have no access to food supplies and drinkable water. Yet this U.S. territory doesn't just need recovery, it desperately needs reform. One easy reform for Congress to take is to sink the Jones Act, which would help not only Puerto Rico, but U.S. consumers and businesses.

You may have never heard of the Jones Act. There's a good chance you weren't alive when it became law as section 27 of the Merchant Marine Act of 1920. The Jones Act mandates that any goods shipped by water between two points in the United States must be transported on a U.S.-built, U.S.-flagged, and at least 75 percent U.S.-crewed vessel.

Originally conceived to sustain the Merchant Marine fleet after World War I, the Jones Act is nothing more than a protectionist measure that concentrates benefits to a select few at the expense of many, especially non-contiguous U.S. territories such as Puerto Rico.

The Jones Act undermines U.S. economic competitiveness in several ways. According to a number of economic analyses, including ones from the U.S. International Trade Commission and the Federal Reserve Bank of New York, Jones Act vessels have dramatically higher building and operating costs than other options available to shippers. U.S.-flagged container ships and tankers spend more than four times as much as foreign vessels.

Anecdotal evidence illustrates the economic inefficiencies created by the Jones Act. NPR's "Planet Money" podcast told the story of Hawaiian cattle rancher Pono von Holt. To avoid using a pricier Jones Act vessel, von Holt would ship his cattle to Canada and then down to the U.S. for consumption.

When that didn't pan out, von Holt would actually send the cattle by plane, shipping them when they were young to save on weight costs. As NPR's Zoe Chace said, "When cows fly, it's a sign that there are some real distortions in the maritime shipping business."

In 2014, New Jersey couldn't get rock salt from Maine to treat icy roads. Maine had 40,000 tons of it, and a vessel available for transport. "It was a perfect coincidence," Joseph Dee, spokesman for the New Jersey Department of Transportation, remarked at the time. "There was this foreign-flagged vessel next to the salt; it had unloaded its cargo. It was large enough to take it (the salt) to Newark."

But the vessel was not Jones Act-compliant. So the salt couldn't be shipped on it. Defenders of the Jones Act blame poor planning, but the reality is the Jones Act makes it excruciatingly more difficult and costly to match supplies of goods with demand.

The Jones Act inflicts serious economic harm on American consumers and businesses, particularly in Alaska, Hawaii, Guam and Puerto Rico. Economists Scott Swisher and Woan Foong Wong estimate that repealing the Jones Act would save consumers $1.91 billion that occur from additional shipping costs.

For Puerto Ricans in desperate need of the affordable staples in life, the Federal Reserve Bank of New York found that, "It costs an estimated $3,063 to ship a twenty-foot container of household and commercial goods from the East Coast of the United States to Puerto Rico; the same shipment costs $1,504 to nearby Santo Domingo (Dominican Republic) and $1,687 to Kingston (Jamaica) – destinations that are not subject to Jones Act restrictions..."

The exorbitant costs of Jones Act vessels has forced non-contiguous states and territories to look elsewhere for supplies, which means lost opportunities for American businesses. The Government Accountability Office notes that the Puerto Rican Farm Bureau said that "the rate difference between Jones Act carriers and foreign carriers has led farmers and ranchers on the island to more often source animal feed and crop fertilizers from foreign sources than from U.S. domestic sources, even though commodity prices were stated to be similar.

They provided an example that shipping feed from New Jersey by Jones Act carriers costs more per ton than shipping from Saint John, Canada, by a foreign carrier – even though Saint John is 500 miles further away. The GAO highlights that other products such as corn and potatoes could be coming from the U.S., but are now coming from foreign suppliers.

The Jones Act also undermines the long-term competitiveness of the U.S. shipping industry. Government support for the industry artificially props up the market, reducing the incentive for American companies to become cost-competitive and encouraging dependence on the preferential treatment by the government.

Furthermore, when the government uses its power to protect the American shipbuilders, they use more of their resources to lobby for continued protection. The result is a tight web of politicians and special interests making decisions that benefit very few while dispersing the costs among the rest of us.

Jones Act repeal is not only necessary to help Puerto Rico's recovery but to finally end a broken policy that users other peoples' money to favor the politically connected.

This piece originally appeared in The Sacramento Bee