Damage done to Puerto Rico by the Jones Act illustrates the need to repeal the law

By now, you’d think the case for repeal of the protectionist Jones Act, a century-old relic from the Woodrow Wilson administration, would be so strong that we could close our laptops and declare the battle over. But we can’t, and it’s unfortunate because millions of Americans, including Puerto Ricans following Hurricane Maria last year, are paying hugely inflated prices for gasoline and other consumer products, thanks to a powerful maritime lobby.

In 1920, the year the League of Nations was established and American women gained the right to vote, Congress passed the Merchant Marine Act, also known as the Jones Act, ushering in a form of protectionism for America’s shipping industry and seafaring unions that remains on the books today. The Jones Act requires vessels carrying goods shipped in U.S. waters between U.S. ports to be U.S.-built, U.S.-registered, U.S.-owned and manned by crews, at least 75 percent of whom are U.S. citizens.

{mosads}This means for example that oil shipped from ports in Texas and Louisiana to refineries on the East Coast must be carried by U.S.-flag tankers, which imposes significantly higher shipping costs on companies and results in higher crude oil prices and eventually higher prices at the pump for Americans. By being denied access to competitive international shipping rates, U.S. companies bear much higher shipping costs for many goods, which are passed on to consumers. For instance, repealing the Jones Act statute would reduce the cost of transporting petroleum products by vessel because foreign-flagged ships can currently transport oil for an estimated one-third of the cost of U.S. vessels. 

The Jones Act keeps otherwise uncompetitive elements of the American shipping industry afloat, but it carries a stiff price. In addition to driving up shipping costs, the protectionist policy stifles competition, and hampers U.S. energy production by making it more difficult and costly for producers to send crude oil to refineries.

Since cargoes must be shipped on so-called Jones Act tankers – and there are a limited number of such tankers, it’s easier for European exporters to cover supply shortfalls in the Northeast than petroleum sellers on the Gulf Coast who are saddled with Jones Act restrictions.

In fact, last winter, a shipment of high-priced liquefied natural gas (LNG) had to be imported from the Russian Arctic and unloaded at a terminal in Boston Harbor for use in home-heating and electricity production. If not for the Jones Act, New England could have been supplied by LNG coming from elsewhere in the Northeast or the Gulf Coast. Part of the problem is that New England has a shortage of gas pipeline capacity, requiring shipments to be made by tanker. But there are no Jones Act tankers capable of carrying LNG.

The shipment of Russian LNG, despite international sanctions against Russia and an abundance of U.S. natural gas that could have met New England’s needs, demonstrates how foreign energy companies are able to gain a competitive advantage by gaming the Jones Act.

These costly market distortions are what happens when the shipment of oil and gas and other consumer products is hampered by outdated regulations. The Jones Act has raised the cost of transporting oil and gas to all U.S. domestic ports, but especially ports in the noncontiguous regions of Hawaii and Puerto Rico, which was devastated by a natural disaster in the form of Hurricane Maria a year ago this month. Inflated shipping costs due to the Jones Act were a secondary and avoidable man-made disaster for Puerto Rico that added to the costs of recovery and significantly slowed the recovery time.

Because of this absurd, antiquated protectionism, it’s now twice as expensive to ship critical goods – fuel, food and building supplies, among other things – from the U.S. mainland to Puerto Rico, as it is to ship from any other foreign port in the world. Just the major damage done to Puerto Rico from the Jones Act is enough reason to tell us that now is the time – past due time – to repeal the anti-consumer Jones Act.

Mark J. Perry is a scholar at The American Enterprise Institute and a professor of economics at the Flint campus of The University of Michigan.

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