Recent hurricanes remind us why we should scrap out-of-date shipping rule

Recent hurricanes remind us why we should scrap out-of-date shipping rule
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Nearly every time a major hurricane hits the United States, the Department of Homeland Security issues a temporary waiver of the Jones Act. The most recent example of the Secretary of Homeland Security issuing these waivers was this month in response to Hurricanes Harvey and Irma, but waivers were also released following Hurricane Sandy in 2012, and Hurricane Katrina in 2005. The justification is always the same — waiving the Jones Act makes it possible for ships to transport necessary supplies, such as oil from other parts of the United States to affected areas. A valid reason, but it begs the question of why the Jones Act exists in the first place.

The Jones Act is an archaic, 100-year old law that stays around solely because it benefits a small group of politically well-connected private shipbuilders. The law requires that any ship traveling between two American ports be built in the United States, owned by American citizens and crewed by American sailors. 

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These restrictions make it difficult to transport goods along the coast and to islands such as Puerto Rico and Hawaii. There’s a reason that Jones Act waivers always mention the need to provide affected areas with oil — it’s difficult to do by ship with the Jones Act in place. Liquid natural gas, also known as LNG, has fueled (pun intended) much of the decline in gas prices most of the country has benefited from. Yet not a single LNG tanker is Jones Act-eligible, making it near impossible to move large quantities of oil to natural disaster areas quickly. Regions such as Hawaii and Puerto Rico do not receive a waiver for the natural disaster of not being connected to mainland U.S., a fact which causes them significant economic harm.

 

Officially, the Jones Act is kept around for national security reasons. Proponents of the law argue the Jones Act ensures that the United States has a sizeable civilian merchant marine fleet to be used for naval defense in case of an emergency. Yet today, only 20 private shipyards remain in operation in the United States, and a mere 73 ships are classified as “militarily useful” under the Jones Act. 

At its core, the Jones Act is a form of protectionism. By restricting coastal trade to a tiny fleet of qualifying ships, the Jones Act aimed to keep the domestic shipbuilding industry thriving.

This has hardly been the case, unfortunately.

Without competition and innovation, the quality of U.S. shipbuilding has declined markedly. At least in part because of this decline in quality, the U.S.-flag fleet has shrunk from 16 percent of global shipping in 1960 to a mere 1 percent today.

But if the Jones Act is supposed to help American businesses compete domestically, they must have missed the memo. The bizarre nature of the Jones Act often means that it is cheaper to purchase foreign goods shipping from much further away than it is to purchase domestic goods. An analysis by the Mercatus Center found that it cost $8,700 to ship a 40-foot container from Los Angeles to Honolulu. That same container could be shipped from Los Angeles to Shanghai for a mere $790.

Such drastic differences in prices affect the competitiveness of domestic businesses against foreign competitors. American businesses near a coastline that rely on inputs to make their products are less likely to choose American-made goods. These businesses must use less cost-effective manners of transporting their product than foreign competitors, who can simply ship from a foreign port. Domestic businesses which would otherwise have an economic advantage in the form of geographic proximity are forced into an artificially disadvantageous position.

There is no reason why Americans should be given relief from the Jones Act only when a natural disaster strikes. The Jones Act has been an unnatural disaster to the economy, and it’s time to get rid of it. 

Andrew Wilford is an associate policy analyst at National Taxpayers Union Foundation. Follow him on Twitter @PolicyWilford.