Recent Pipeline Problems Further Indict the Jones Act



Colin Grabow | CATO Institute

Amid widespread ire over gasoline shortages along the East Coast following the recent shutdown of the Colonial Pipeline due to the actions of Russian hackers, the Biden administration eventually issued waivers of the Jones Act (a law that President Joe Biden has repeatedly endorsed), allowing two foreign ships to transport fuel to alleviate the scarcity.

But waiving the law immediately after the pipeline’s closure should have been a policy no‐​brainer. Suspending the nearly 101‐​year‐​old Jones Act greatly expands the number of vessels permitted to transport goods within the United States. That, in turn, adds valuable flexibility in getting products to where they are needed in times of crisis.

The Jones Act has been hurting America since its inception. What the country needs is a complete overhaul, if not a full repeal, of this archaic piece of protectionism.

Passed in 1920, the Jones Act (also known as section 27 of the Merchant Marine Act of 1920) limits the domestic waterborne transport of goods to vessels that are U.S.-flagged, U.S.-built, and mostly U.S.-crewed and owned. Of the world’s nearly oceangoing 53,000 ships, a mere 96 are allowed to transport goods to help meet the needs of the world’s largest economy.

That so few ships exist is in large part thanks to the law’s unusually restrictive U.S.-built requirement. While people are free to transport goods on airplanes, trucks, or rail cars built abroad, only U.S.-built vessels can be used to move cargo inside the country. And they aren’t cheap, at prices 4–5 times as much as ships built abroad.

The last Jones Act ship delivered cost an eye‐​popping $255 million. That’s nearly $100 million more than one of the biggest container ships in the world despite the U.S.-built ship having only a small fraction of the cargo capacity.

Typically one of the most efficient means of transporting goods, domestic shipping has been made so uncompetitive by the Jones Act that little of it actually takes place. As a rule of thumb, Jones Act ships typically operate only where there are no alternative means of moving cargo. Tankers typically only sail to those parts of the country that are pipeline‐​constrained, while ships that transport containers almost exclusively serve areas such as Alaska, Hawaii, and Puerto Rico.

And they pay the price. A 2012 report from the Federal Reserve Bank of New York found that shipping costs to Puerto Rico (a Jones Act route) were roughly double that of sending goods to nearby Jamaica or the Dominican Republic, where the law does not apply. Even the Navy has blasted the “extremely high” cost of Jones Act shipping that supplies military bases in Hawaii.

To avoid these Jones Act costs, a government study noted that Puerto Ricans sometimes opt to buy products from abroad rather than the U.S. mainland. That means feed bought from Canada instead of the Midwest and jet fuel purchased from Venezuela instead of the Gulf Coast.

Sometimes, buying domestic goods isn’t just more expensive, but outright impossible. While Puerto Rico’s electric company has expressed a desire to buy liquefied natural gas from the U.S. mainland, a complete lack of Jones Act ships capable of transporting the fuel makes that impossible. The U.S. is the world’s leading exporter of propane, but Hawaii must import it from as far away as Africa due to a similar lack of appropriate Jones Act ships.

Access to road and rail, meanwhile, doesn’t spare residents in the 48 contiguous states from the Jones Act’s clutches. High transportation costs mean lost sales not just to Puerto Rico, but the rest of the country as well. Refiners import oil from abroad instead of purchasing from other states. Scrap metal and steel cannot be competitively shipped from one coast to another. Gasoline is purchased cheaper from Singapore rather than the Gulf Coast.

Properly viewed, the law is a tariff or tax placed on trade within the U.S.

The public also pays for the law in less direct ways. A dearth of water transport has resulted in the increased use of other forms of transport. That means more trucks on the road, more congestion, more highway maintenance, and more pollution.

Change is long overdue. While repealing the Jones Act may be the ideal solution, it’s among the tallest of political orders. Fortunately, more modest reforms could deliver big benefits. At a minimum, the law’s obscenely protectionist U.S.-built requirement should be repealed, and permanent exemptions for the country’s noncontiguous states and territories should be placed on the table. Establishing a waiver system so that Americans can use foreign ships when no U.S. vessel is available would be another sensible step.

Congress must act. The country cannot afford another 100 years of the failed and burdensome Jones Act status quo.

Colin Grabow is a policy analyst at the Cato Institute’s Herbert A. Stiefel Center for Trade Policy Studies where his research focuses on domestic forms of trade protectionism such as the Jones Act and the U.S. sugar program.

To read the original post by the CATO Institute, please click here.