Sep 10, 2015

Jones Act Gives Unfair Boost to Shipping Industry, All Americans Pay the Price

Post by Freedom Partners

The Jones Act was enacted in 1920 as an effort to protect the domestic shipping industry. The Act mandates that all goods transported over navigable water between U.S. ports must be transported by American built, owned, flagged and crewed vessels.

Under this legislation, a cargo ship travelling from a foreign country like China may only stop in one American port per voyage. The ship could not, for example, make a stop in Hawaii or Alaska before heading on to its final destination in Los Angeles. When the ship arrives, the goods must be offloaded from the foreign vessel and reloaded on an American built ship in order to be moved to different ports within U.S. territory.

The Jones Act is blatant protectionism, and it increases costs for consumers and producers.

In an effort to protect the powerful and well-connected U.S. shipping industry, the law inflates the cost of shipping goods, particularly in food and energy sectors, and that cost is borne by American consumers.

A 2011 study conducted by the Maritime Administration (MARAD) found a stark difference in operating costs between U.S. and foreign containerships. In 2010, the average daily operating costs for a U.S. built/flagged vessel were $21,194; for a foreign vessel those costs were just $9,583.

These increased operating costs have a direct impact on the cost of goods for families in the United States. A 2012 report in the Financial Times found that shipping U.S. crude oil from Texas to Philadelphia costs more than three times as much as shipping the same product on a foreign flagged vessel to a Canadian refinery, even though the latter is a longer route.

Bloomberg reported in 2014 that revoking the Jones Act would reduce gasoline prices by as much as “15 cents a gallon by increasing the supply of ships able to shuttle fuel between U.S. ports.”

These disruptive economic effects have an even more dramatic effect outside of the contiguous United States. State senators and representatives from Hawaii, Alaska and Puerto Rico have asked Congress to reconsider the Jones Act, as the rules have a disproportionate negative affect on their costs of living. For example, a recent study of the Act’s economic impact in Puerto Rico revealed that the mandate has cost the island over $29 billion since 1970. That is a cost that cannot be ignored, especially given the island’s current economic crisis.

Lawmakers shouldn’t be forcing American’s to pay more for necessities like food and gas in order to prop up the U.S. shipping industry. If Congress truly wants to help American families who are struggling during the slow economic recovery, it can start by repealing the Jones Act.