A 95-year old law is driving up transportation costs, increasing the price of energy, and constricting economic growth.
The Jones Act, or the Merchant Marine Act, as it’s officially known, was introduced by Sen. Wesley Jones (R-Wash.) in 1920. It was designed to strengthen national security and commerce, through the development and maintenance of a merchant marine fleet. It did this by ensuring that all vessels transporting goods between American ports be American crewed, American owned, American built or repaired, and American registered.
Now, almost a century later, this archaic set of regulations is limiting the number of vessels available for shipping, and contributing to the growing cost of maritime transportation for the United States.
According to a report by the Energy Information Administration, approximately ten tankers are used for the shipping of crude oil from Alaska to the west coast. The report also found that the northeast is overly reliant on refineries within the region - If the Sunoco Philadelphia refinery were to close, it would be difficult, given the limited supply of vessels, to transport Gulf oil to the northeast to sustain demand. This limitation on supply that has contributed to these two regions having the highest cost of electricity per kilowatt in the contiguous United States.
The increased cost can also be found in the vessels themselves. According to a 2014 report by the Congressional Research Service, the cost of an American medium range product tanker is over three times the worldwide price of the same vessel. Even worse, the operating cost for American flagged vessels is almost 2.7 times more than their foreign flagged competitors. This increases the cost of expanding the supply of vessels in the market, creating an inability to meet demand, and ultimately a higher cost of transportation.
The same report found that the cost of transporting crude oil from the Gulf Coast to the American northeast is almost triple the cost of transporting the same oil to eastern Canada, with an additional cost of approximately $5 to $6 per barrel.
The northeast imports oil from a wide variety of countries, including Canada, Saudi Arabia, and Nigeria, all at a lower cost than the Gulf Coast. Even though the law intended to protect domestic commerce, it has resulted in an increased reliance on foreign oil.
The contiguous states are negatively affected by the law, but the islands receive the worst of it. Unlike the contiguous states, the islands are distant from their mainland partners. This increases the cost of transporting goods from one port to another. As a result the cost of electricity per kilowatt in the noncontiguous states is almost three times that of the mainland states. Islands such as Hawaii and Puerto Rico import most of their fuel sources. Because the Jones Act forbids foreign producers from delivering products to these islands and then proceeding to the mainland, the cost of these resources is dramatically increased. This increased cost has contributed to Puerto Rico Electric Power Authority’s debt reaching over $9 billion.
Far from increasing commerce, the limitations on supply and increased costs of transportation have disrupted foreign and domestic trade. This leaves national security as the sole remaining justification for the law. But the United States Navy is now the largest and most technologically advanced in the world, so our waterways are already protected from hostile threats. And it’s unclear how security would be increased by having vessels owned or built by Americans.
It’s not just large multi-national corporations that are affected by these increased transportation costs. According to the Heritage Foundation, the Jones Act increases the cost of gasoline by as much as fifteen cents per gallon.
The increased cost of energy hampers economic growth for these regions affected by the law, and ultimately for the entire country. The Government Accountability Office’s analysis of a 1995 report by the International Trade Commission found that removing the barriers to domestic shipping could increase gross domestic product by $2.8 to $9.8 billion annually. A report by Justin Lewis of Tulane University also found that eliminating these regulations would reduce the cost of coastal transportation by 61%.
Though the intentions were noble, the law has wreaked havoc on American commerce. As the law nears its one-hundredth anniversary, Congress should bring a peaceful end to an era of protectionism. Congress should repeal the Jones Act.
Sharp is a Young Voices Advocate and a student at West Virginia University.