Bad government policy and a lack of logistics infrastructure failed Puerto Rico

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Commentary

Puerto Rico is reeling after the onslaught of Hurricane Maria, with the island being wrecked by the storm, which made direct landfall on the 20th of September. Hurricane Maria, a Category 4 storm with winds exceeding 150 mph sliced through the island, obliterating farms, homes, and buildings that were on its way. Millions of people have been stranded without electricity, drinking water, and food rations, making it a catastrophe of epic proportions.

But to understand the current scenario of Puerto Rico, it is imperative to delve deeper into the macroeconomics and also the policies of the US government which has strangled the economic growth of the region.

Puerto Rico is an island state of the United States, with over 3.4 million people living in it. But unlike the rest of the 50 mainland states, Puerto Rico does not get electoral representation in the general presidential elections nor does it have voting representatives in the Congress. This situation has exacerbated the economic fallout of the region over the past century, with bad policies like the Jones Act crippling the island of its shipping potential.  

The Jones Act of 1920 is a maritime regulation brought into existence to help grow the American shipbuilding industry. It requires goods that are being shipped from one American port to the other to be ferried on a ship that is American-built, American-owned, and crewed by American citizens. Though this seems like a harmless law which protects the interests of the American people, it is a death knell to the shipping industry of Puerto Rico.

This policy purports the need for goods that move between the US mainland ports and Puerto Rico to be transported through expensive US-owned ships, rather than the cheaper alternatives available around the island. The policy is outdated and is predatory to the interests of Puerto Rico, especially because the Asian countries of China, Japan, Taiwan, and South Korea leading the global shipbuilding production. The United States merchant ships carry less than 2 percent of world cargo, and the protectionism of the Jones Act has rendered Puerto Rico helpless.  

Adding to this is the fact that the island state imports 85 percent of its food rations and all of its fuel to produce energy. This leads to an unwarranted increase in the price of the essential commodities, making it difficult to be economically self-sustainable as well.

As readers of FreightWaves will recognize, when you restrict capacity in a market, you end up with a limited amount of transportation assets that can handle the surge.  

Now with Hurricane Irma clipping its borders and Hurricane Maria bisecting the island, it has been testing times for Puerto Rico. Reports coming out from the region mention that over 1 million people are left without power after Maria and 60,000 did not have power since the advent of Irma. Rooftops have been ripped off, pipelines have been ravaged, and the storm has uprooted nearly 90 percent of the communication towers. Because of this unprecedented calamity, relief operations have been in a standstill, incapable of communicating from ground zero for a proper disaster response.

After realizing the extent of damages incurred, the US government has waived the Jones Act on the 28th of September which experts hope could help expedite the recovery process. But Puerto Rico is staring down the barrel on another problem - the nightmare of failed logistics. Since communication lines have been down and fuel being scarce, there has been a shortage of freight truckers to move aid around the island to the areas in distress.

The US government has shipped thousands of containers laden with food, water, and medical supplies to the island. But the lack of communication and distribution networks essentially lets the containers lie at the ports with no one to transport the goods. It is estimated that less than 20 percent of the truckers have returned to their jobs and thus, the workforce is inadequate. Apart from this is the problem of fuel shortage, which is forcing people to be stranded on the island, completely cut off from contacting relief authorities. Desperate officials have gone on record saying that they are willing to recruit any truck drivers with a valid license who would be willing to ferry the freights.

Since Puerto Rico is a disaster zone, it is crucial for the hospitals to be kept running to help the affected people. FEMA says that the operational status of 59 out of the 69 hospitals on the island is unknown. Power supply to these hospitals is through diesel generators, with it getting incrementally difficult to run due to the shortage of fuel resources. Relief volunteers at San Juan claim that if power is not restored soon, Puerto Rico would be facing a massive humanitarian crisis.

Agriculture had been a small but albeit important part of the economy, has completely been destroyed by the Category 4 storm. “In a matter of hours, Hurricane Maria wiped out about 80 percent of the crop value in Puerto Rico,” reports the New York Times. This could further jack up the prices of the rations, with future prospects looking quite dim.

San Juan’s mayor Carmen Yulin Cruz has implored the US government to ease the logistics bottleneck soon, to avert a larger calamity. It needs to be remembered that Puerto Rico was already in the middle of an economic crisis from May 2017, when it declared bankruptcy. It has been looking to restructure itself ever since, to face an accrued debt of over $70 billion. Post Maria, catastrophe risk consultancies estimate a loss of at least $35 billion in the island, making the situation much more ominous.

Unfair policies directed towards Puerto Rico has created a brain drain on the island, with the population dropping by over 8 percent in the last seven years. According to the Times, “the cost of living in Puerto Rico is 13 percent higher than in 325 urban areas elsewhere in the United States, even though per capita income in Puerto Rico is about $18,000, close to half that of Mississippi, the poorest of all 50 states.” With the disaster of Hurricane Marina, there is a serious possibility of the migration levels to increase, which in turn would pile up the burden of debt even further.

With the extent of damage created, it might well take the island state six months to get back to normal. But with the Hurricane Maria putting Puerto Rico into the limelight, it is time for the local authorities to stress the issues that have politically sidelined the state, and try pulling up the failing economy once and for all.

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