All Commentary
Friday, March 15, 2019

It’s Time to Throw the Jones Act Overboard

Just because its hidden political payoff is now 99 years old does not mean it should make it to 100.

The Jones Act, Section 27 of the Merchant Marine Act of 1920, is nearing its century mark. It does not deserve to make it. And now there is a chance it might not, as Senator Mike Lee has introduced a bill to kill it.

The stated intent of the Jones Act does not sound bad. It was to guarantee a merchant marine “for the national defense and the development of the domestic and foreign commerce of the United States,” as well as provide “a naval and military auxiliary in time of war or national emergency.”

To make any sense, the Jones Act must increase American ships, sailors, and ship production capabilities. But it does not.

However, as Colin Grabow has reported, it has failed to bolster America’s maritime sector “whether measured in the number of oceangoing ships, mariners to crew them, or shipyards to build them,” turning an honest benefit-cost analysis of the Jones Act into essentially a cost-for-nothing analysis.

The Jones Act restricts trade between American ports to vessels built and owned by Americans and at least three-quarters manned by Americans. To make any sense, the Jones Act must increase American ships, sailors, and ship production capabilities. But it does not.

Crippled Trade with American Ships 

Over two-fifths of global shipping in 1950, US-flagged ships carried less than 1.5 percent of American foreign trade by 2009 (far less than 40 percent as in the EU or 15 percent as in Australia). From 1975 to 2007, US-flagged ships in international trade shriveled by more than three-quarters, and their capacity shrank by more than half.

Large oceangoing vessels meeting Jones Act requirements have been roughly halved from 2000 (193) to the present (99). Eligible tanker capacity was similarly more than halved, as 110 tankers became 43. In 2013, only 13 ships could legally move oil between American ports. This, however, has been camouflaged by supporters references to a 40,000-ship Jones Act fleet, overwhelmingly made up of river barges (55 percent of the total “fleet” on the Mississippi River alone) and tug boats, which are incapable of deep-water ocean shipping.

Despite Jones Act restrictions, it is also very instructive that almost five times as many ships owned by American interests fly a “flag of convenience.” When the vast majority of those supposedly subsidized opt out, a law is a stark failure.

It Single-Handedly Destroyed America’s Shipbuilding Industry 

The Jones Act has also all but destroyed America’s shipbuilding, not built it up. There are only seven active major shipbuilding yards in the US (versus about 60 in Europe), and from 2014 to 2016, the US built 910,000 gross tons of merchant ships of 100 gross tons and above, while Korea built 70,937,000 gross tons, China built 70,037,000, and Japan built 39,535,000 gross tons.

Of course, that is far from a surprise when ships meeting Jones Act restrictions may cost triple or quadruple what Korean or Japanese-made ships cost (with similarly higher crewing, maintenance, and repair costs). Further, it offers little benefit for our navy’s military capabilities, as only one shipyard building the Navy’s primary vessels also builds large commercial ships.

Over the years, US shipbuilding capacity has atrophied, the active fleet has aged, and the number of merchant mariners has dwindled.

In other words, in contrast to the Jones Act’s stated intent, the results have been that “Over the years, U.S. shipbuilding capacity has atrophied, the active fleet has aged—in some cases into obsolescence —and the number of merchant mariners has dwindled,” the Cato Institute noted last year.

Jones Act constraints must also provide added transportation services during hostilities and emergencies. Again, it falls short.

In the Persian Gulf War, five-sixths of dry-cargo ships chartered by Military Sealift Command (MSC) were foreign-flagged. Under one-third of the Maritime Administration’s Ready Reserve Fleet were American-made. The Department of Defense reported that “Unfortunately, very few commercial ships with high military utility have been constructed in U.S. shipyards in the past 20 years. Consequently when MSC has a requirement to charter a vessel, nearly all of the offers are for foreign-built ships.”

The Jones Act also undermines emergency preparedness. In the aftermath of Hurricanes Katrina and Sandy, Jones Act restrictions had to be suspended because they hindered emergency responses.

It Disproportionately Affects Hawaii, Puerto Rico, and Alaska

Despite largely imaginary benefits for defense or emergencies, the Jones Act imposes substantial costs, particularly in Hawaii, Puerto Rico, and Alaska, where it most severely limits supply options. In 2014, shipping a 40-foot container from Los Angeles to Honolulu cost more than ten times than to Singapore.

Jones Act restrictions hamstring Alaska from shipping oil by tanker to the lower 48 states or Hawaii.

Dependent on Jones Act-shipped petroleum for three-quarters of its power generation, Hawaii’s electricity prices are almost double the next most expensive state. In 2012, sending a container of household goods from the east coast to Puerto Rico cost more than double that to nearby Santo Domingo. Some Puerto Rican companies have even shifted sourcing beyond America to Canada, despite the longer shipments, to escape Jones Act restrictions.

Jones Act restrictions also hamstring Alaska from shipping oil by tanker to the lower 48 states or Hawaii. The restriction is so serious that Alaska’s governor is mandated to use “all appropriate means to persuade the United States Congress to repeal those provisions of the Jones Act.”

A Sneaky Result of Corruption

Not only was the Jones Act adverse in its consequences, but it was also just a special interest payoff snuck in under cover of political darkness. According to Rob Quartel, it “was actually an afterthought. No committee heard it. No one debated it on the floor. It was done solely to protect railroads on the West Coast, Senator Wesley Jones’s constituents from competition from foreign ships.” But doing so effectively heavily taxed the transportation of large numbers of American producers and consumers.

Just because its hidden political payoff is now 99 years old does not mean it should make it to 100.

The Jones Act doesn’t expand America’s naval defense capability, despite what the World Economic Forum has termed “the world’s most restrictive example of global cabotage laws.” It has been accompanied by sharp reductions in American-flagged ships, trade carried, and seamen, moving that shipping closer to extinction rather than preserving critical capacities. It can triple transportation costs over foreign-flagged ships. It hinders emergency operations. It actually reduces demand for domestic production.

The military support services it is supposed to provide are already provided more efficiently by foreign ships. And the costs are large—staggeringly so in Hawaii, Puerto Rico, and Alaska. Just because its hidden political payoff is now 99 years old does not mean it should make it to 100.

  • Gary M. Galles is a Professor of Economics at Pepperdine University and a member of the Foundation for Economic Education faculty network.

    In addition to his new book, Pathways to Policy Failures (2020), his books include Lines of Liberty (2016), Faulty Premises, Faulty Policies (2014), and Apostle of Peace (2013).