The Merchant Marine Act, a federal law also known as the Jones Act, deals with cabotage (the movement of water transportation between domestic ports). This law, however, requires more than simply all goods transported by water between U.S. ports to be carried only by U.S.-flag ships. The ships also must be constructed in the U.S., and owned by U.S. citizens, and crewed by U.S. citizens and U.S. permanent residents.
The act was introduced by Senator Wesley Jones in 1920. It was presented as a plan to ensure adequate domestic shipbuilding capacity and ready supply of merchant mariners to be available in times of war or other national emergencies. A century of evidence shows that the Jones Act has failed in its main objectives, and as The Cato Institute’s recent overview of the Jones Act asserts:
"The protected domestic shipbuilding industry has a captive market from which it benefits handsomely and seeks to preserve by promoting fallacious arguments about the law’s necessity to national security, while the vast costs are dispersed across the economy in the form of higher prices, inefficiencies, and forgone opportunities that few people can even tie to the cause."
Understanding the full implications of the Jones Act is complicated, as it reaches into a variety of sectors and interests. There are no less than 16 congressional committees and 6 federal agencies that have some form of oversight authority on the Jones Act. Yet full repeal anytime soon seems unlikely because of the intransigence of incumbent interests, regulators, and politicians inured to the privileges of a system that benefits a concentrated and well-organized few.
One of the main arguments is to keep “a strong merchant class on the waters.” In 1920, the original intent of the legislation was to foster a vigorous domestic maritime industry, and avoid the reliance on foreign shipping during times of war.
Yet, among other things, the Jones Act is no longer relevant to this form of U.S. national security. Consider the growing divergence between the characteristics of Jones Act fleet vessels, and the needs of the armed forces. According to the Congressional Research Service, the military prefers ships with speed and versatility that “unload diverse cargos in shallow harbors lacking shore-side cranes.” Jones Act shippers, by contrast, prefer vessels that operate at slower, more fuel-efficient speeds, are specialized for specific types of cargo, and are designed to operate in modern port facilities.
In fact, because of the decline in U.S. shipbuilding, in recent crises and natural catastrophes, the U.S. has had to strongly rely on foreign-made vessels. From Desert Shield, to Desert Storm, to deployment in the early 2000s in the Persian Gulf, to the Iraq War, the Jones Act has continuously proved itself irrelevant.
In 2016, Senator John McCain proposed legislation that would do away with one aspect of the Jones Act, calling the act itself “an antiquated law that has for too long hindered free trade, made U.S. industry less competitive and raised prices for American consumers.” His specific amendment targeted the U.S.-build requirement of the Jones Act.
“I have long advocated the repeal of the Jones Act, an archaic and burdensome law that hinders free trade, stifles the economy, and ultimately harms consumers,” said Senator McCain in reference to his most recent legislation. “My legislation would eliminate this regulation, freeing American shippers from the requirement that they act against their own business interests. By allowing U.S. shippers to purchase affordable foreign-made carriers, this legislation would reduce shipping costs, make American farmers and businesses more competitive in the global marketplace, and bring down the cost of goods and services for American consumers.”
“The protectionist mentality embodied by the Jones Act directly contradicts the lessons we have learned about the benefits of a free and open market. Free trade expands economic growth, creates jobs, and lowers costs for consumers. I urge my colleagues to support this bill and finally repeal the outdated and protectionist Jones Act,” Senator McCain added. To date, his attempts for reform have been scuttled.
Cato’s report calls the domestic shipbuilding requirements a “particularly onerous aspect” of the Act. They write, “Of 56 countries surveyed by the U.S. Maritime Administration, only Brazil, Egypt, Indonesia, Peru, Spain, and the United States have domestic-build requirements.”
McCain still vows the eventual full repeal of the Jones Act despite tough opposition.
“It’s one of these things you just propose amendments to bills and encourage hearings and sooner or later the dam breaks,” McCain said after a speech at The Heritage Foundation, a conservative think tank.
“But I have to tell you…the power of this maritime lobby is as powerful as anybody or any organization I have run up against in my political career,” he said. “All I can do is appeal to the patron saint of lost causes and keep pressing and pressing and sooner or later you have to succeed.”
Yet another recent uprising of Jones Act attention surfaced in September 2017 after a hyperactive hurricane season, and a brief reprieve was given from the Jones Act. It took two “acts of God.”
First, Hurricane Harvey had hit Texas fourteen days prior, and then Hurricane Irma hit Florida on September 8. Only then was a reprieve lifted. Then, later in the month, a third “act of God.” Puerto Rico was devastated by powerful Hurricane Maria. It still took two days of debate. President Trump, in fact, admitted he was hesitant to grant the waiver because “a lot of people who work in the shipping industry…don’t want the Jones Act lifted.”
Sure enough, out came the well-coordinated chorus of support for the Jones Act. Among them, a Forbes contributor who disclosed “at least two of the companies contributing to my think tank benefit from Jones Act protections.”
In general, the arguments for the Jones Act are misleading, counterintuitive, or protectionist. It is simply not correct that the military would suddenly have to spend billions of dollars on vessels if the Jones Act were lifted. The vessels in question—much like the law itself—are antiquated for military purposes. Regardless, if the military really does need to expand its “organic sealift outlets,” it needs to because of the Jones Act, not in spite of.
One also hears claims that shipbuilding would cease in the U.S. altogether, which would account for “tens of thousands of lost jobs.” This is counterintuitive at best. Far from being stronger, the U.S. shipbuilding industry doesn’t hold a candle to the powerful and competitive maritime vessels being built internationally today. U.S.-built ships are as much as six to eight times more expensive than foreign-built ships and, as a result, there are far fewer of them.
The high expense has contributed to an aging fleet. The higher costs imposed on shippers are passed on to their customers—the intermediate goods-consuming producers, wholesalers, and retailers—who absorb some of the costs and pass the rest on to customers. It is for the very reason that these costs are dispersed over a broad array of interests that makes repeal of the law less of a priority than for the well-organized few who benefit greatly.
The Jones Act also stands out for its extreme protectionism. Only a handful of countries require ships participating in their domestic maritime services to be built domestically, and none have such heavy restrictions. There are no similarly stringent regulations of any other means of transportation in the U.S. As Cato's report says, “The wave of deregulation that brought renewed efficiency and vitality to the rail, trucking, and airline industries in the 1970s and 1980s left the maritime sector untouched.”
If the Jones Act were repealed, they argue, the nation’s coastlines would likely become dominated by foreign shippers and mariners. Be warned, foreigners will be crossing our borders if we repeal this outdated and costly law!
If "acts of God" are required to issue brief reprieves from the Jones Act, then surely it will only take something slightly less likely to offer a permanent lift: an act of Congress.
Stay up-to-date with the latest commentary and insights on FreightTech and the impact to the markets by subscribing.