Hurricane season has come with a vengeance this year. Harvey was followed by Irma and Jose, and now Maria is on its way.
The Administration recently issued a temporary waiver to the Jones Act, to make it easier for desperately needed fuel to reach emergency responders and the areas affected by the destruction of the hurricanes.
The law, also known as the Merchant Marine Act of 1920, requires goods shipped between American ports to use vessels built, crewed, flagged and owned in the United States or by U.S. citizens.
Congress should consider doing away with the Jones Act altogether.
Proponents claim the law protects American jobs and ensures the country will have an established fleet of vessels and shipbuilding capability. However, the Jones Act imposes substantial costs on American consumers, and these costs are concentrated in noncontiguous parts of the United States, such as Puerto Rico.
The law can also act as a hindrance to the speed and effectiveness of responses to disasters, because foreign ships have to wait for waivers. Sometimes waivers are not issued promptly, and in some emergencies not at all. These delays and uncertainty limit the full range of options and resources that could be leveraged to help the distressed areas in times of need.
The Jones Act has not even succeeded in one of its stated goals, namely bolstering the number of U.S.-flag ships. In 2000 there were 193 Jones Act-eligible ships in the U.S. fleet, declining to 91 by 2016. The law has not been able to forestall other developments that are more important for ship construction, such as the relative cost of building ships in the United States compared to other countries that have significantly increased their shipbuilding capacity. Building new ships in American shipyards can be up to five times as much as the cost of imported ships.
Areas hit by natural disasters and in need of supplies must deal with the dual constraints of limited Jones-eligible U.S. fleet and the exclusion of foreign-flagged vehicles unless a waiver is granted.
The temporary waiver was a positive step that made it easier for the places grappling with the damage from the hurricane. But the road to recovery will be long and arduous for many of the affected areas, and the waiver lasted only one week. While timeliness and bringing more resources to bear are an important part of the response, shipping costs will be an important component influencing the degree to which some of these places will be able to recover.
Unfortunately, the Jones Act also increases shipping costs. In addition to the differences in costs of constructing the ships themselves, the Jones Act has led to substantial differences in related labor costs. One report from United States Maritime Administration found that U.S. labor costs were 5.5 times greater than labor costs for foreign-flag vessels. Part of this is due to the difference in wages, as U.S. ship and wage crew salaries almost doubled in real terms from 2000 to 2013. Another component is crew size requirements, which for U.S.-flag vessels are dictated by a statute “dat[ing] back to 1915, when vessels were powered by steam boilers and turbines that required round-the-clock attention.”
Overall, the Maritime Administration found that the average cost of operating a U.S.-flag vessel was 2.7 times higher than the cost for foreign-flag equivalents. These higher costs are transmitted to higher rates for consumers.
The U.S. Virgin Islands are exempt from the law, and those people will be able to work with the full battery of ships willing and able to transport the goods needed to rebuild and recover from the effects of the hurricane. The other noncontiguous areas of the United States have all filed for exemptions from the Jones Act, but their efforts have been stymied thus far.
According to a report from the Federal Reserve Bank of New York, it cost more than $3,000 to ship a container of household and commercial goods from the east coast to Puerto Rico, while the same shipment cost only $1,504 to the Dominican Republic and $1,687 to Jamaica, which are not subject to the law.
Puerto Rico was already dealing with a fiscal crisis and economic stagnation. There are reports that the entire island is currently without power due to the storm. The higher shipping costs caused by the Jones Act will make it harder for the commonwealth to weather the effects of the storm.
Jones Act waivers make it easier for needed goods such as gasoline to make it to areas affected by the hurricanes. The law limits responsiveness in the period following emergencies and raises costs for consumers. To make it easier to rebuild, Congress should consider repealing the act permanently.
Most of this information was collected by my friend and fellow logistician Charles Hughes, he is a policy analyst at the Manhattan Institute and can be folllowed @CharlesHHughes.
Colonel Sam Pearson, USAR, Retired, is a 33 year veteran with six combat deployments. He is currently working on a doctorate degree.
Good to hear the Jones Act was waived for Puerto Rican hurricane relief.