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The U.S. has borne the Jones Act long enough

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Commentary

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.

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Chad Prevost

Chad is radio host and broadcast media specialist for FreightWaves.

One Comment

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  2. God God forbid if we ever go to war. As of right now India is scrapping most of the United States warships because it’s cheaper. The only problem with it is India reverse engineering has given the plans to aircraft carriers for China India even on the Russian aircraft carriers all because we are scrapping are shipped overseas because it is cheaper.

    So now we’re going to do away with all our Shipbuilding and have somebody else build our ships with our technology. All because you want to build cheaper ships so you give up your security to do so!!!

  3. This article focuses on the economics of shipbuilding, but the more important aspect of Jones is security. At a time when those who wish to do harm to the US are becoming more sophisticated in their tactics, we shouldn’t be entertaining changes that open up holes in controlling what is brought into the country. It seems like McCain’s proposal is something terrorists would like. For me, that is reason enough not to consider it.

  4. You must really hate America to want to get rid of the Jones Act.. American maritime is bigger then coal.. Just like when Obama went after coal and destroyed an American Industry… treasonous and American trader..

  5. The act has been developed in natuonal security. Only reason why it is failing is because foreign interest isn’t able to penetrate and devistate US ships. Hiw much foreign interest is promoting this article?

  6. First, the MMA 1920 needs to be set in the context of the time frame. Cabotage has been the law in the US since 1817. During the First World War, due to the withdrawal of European merchant fleets, in particular the British and the Germans, the US found itself with goods sitting on the dock, and unable to move. During the war, the US passed the Shipping Act of 1916, which created the US Shipping Board and aimed to promote the construction of an American merchant fleet to make us less dependent on foreign-flagged merchant fleets. During both World Wars, the United States was able to tap into its large coastal fleet (aka, the Jones Act fleet) to support its military operations overseas, in both the transportation of the AEF in the First World War, and the two-front war in the Second World War.
    The CATO institute’s assertion, “about fallacious argument about the law’s necessity to national security,” is completely misplaced and fails to account for all issues at play. The Jones Act today, as in the past, is essential for maintaining not just national security, but for the ability of the United States to be a true sea power in the world. The statement concerning type of vessels that the military prefer, depend on which mission one is analyzing. If it is the surge sealift phase, when units are being shipped from the United States into an area of operation, then the military prefers ships that it maintains in a reserve status, specifically roll-on/roll-off ships. However, for the sustainment phase, it aims to tap into the commercial fleet, and their networks to deliver cargo to the theaters.
    The assertion that the Jones Act has “continually proved itself irrelevant” since Desert Shield/Storm, is erroneous on several levels. In 1990/1991, many ships that were Jones Act did participate in the transport of goods to the Persian Gulf, but due to the poor readiness of the ships in the reserve, the desire not to pull ships from the coastal trade and disrupt the American economy, and the ability to acquired foreign ships on the commercial market, decisions were made to transport about a quarter of all cargo to the area by foreign-flag ships. However, many of the mariners who crewed the reserve ships, were those that sailed on Jones Act vessels as a matter of routine. The same holds true to the conflict post 9/11, but due to the smaller scale of that operation, the US military was able to use its reserve ships, and those ships in the merchant marine, particularly under the Maritime Security Program and Voluntary Intermodal Shipping Agreement to transport the sustainment.
    Senator John McCain’s statements are perhaps the most confusing as his issue focuses on the issue of free trade. However, for the US to be a true sea power, it must be able to not just project military power, but also have the commercial ability to ensure that it could sustain its own forces abroad or experience a situation akin to the Canadian Army when a large amount of their equipment was held on board an arrested foreign-flag ship.
    CATO’s assertion that many nations do not utilize cabotage is correct, but they are do not have a world-wide presence around the world, have the largest economy on the planet, or the largest military. The use of the hurricane in Puerto Rico is another example of selective information as it was not the issue of shipping material to the island but the devastated inland transportation system that bears much of the fault.
    I would counter that institutions like CATO and Heritage refuse to hear counter-arguments to their view and in many ways their arguments are misleading, as they do not take into consideration the full spectrum of the national defense role of the merchant marine. Their view is counter-intuitive as they fail to factor in the rise of open registries after the Second World War and the issues associated with goods being moved within the United States on ships built outside the nation, with foreign licensed and registered ships on our waterways. Finally, the protectionist issue is vastly overstated as this only refers to coastal trade in the United States. Any examination of American ports indicates the global nature of trade. While there are examples cited about the cost involving the movement of certain goods within the US as being more expensive due to requirement to use American ships, this is the norm in terms of shipping any good. Fuel is always more expensive at gas stations further away from depots and pipelines and magnified if it is more difficult to get to. Goods are more expensive in Hawaii, Puerto Rico, and Guam because they are islands and they are still open to trade from the outside world.

  7. So I post my reasons against getting rid of the Jones act, and you delete my post? I shared this post with my comments and know one on my friends list could see it! So people understand that if you post negatively they will not let your concerns be heard. Long live the Jones Act!

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