Recently, the Wall Street Journal reported that President Biden is considering a new executive order to address “consolidation and perceived anticompetitive pricing in the ocean shipping.” This order would charge the Federal Maritime Commission and the Surface Transportation Board to target practices of "aggressive pricing that has made it onerously expensive for American companies to transport goods to market.”
If the Biden Administration is serious about promoting a robust maritime industry, they ought to repeal the Jones Act.
The Merchant Marine Act of 1920, also known as the Jones Act, requires that any cargo shipped between domestic ports must be aboard a U.S.-owned and built vessel with a 75 percent American crew. While the objective of the Act was to bolster American shipbuilding and protect maritime jobs, the Jones Act has done the opposite. In fact, the Act has proven to be an economic burden on the very sector it meant to improve and includes broader adverse impacts.
Under federal law, the U.S. can waive Jones Act shipping requirements in the interest of national defense. Since 2005, the federal government has suspended the Act following Hurricanes Katrina, Rita, Sandy, Harvey, Irma, and Maria, as well as during the Colonial Pipeline shutdown. Though in times of crisis, the Jones Act hinders government response and action.
Following the Colonial Pipeline outage in May, President Biden granted a Jones Act waiver that allowed foreign tankers to transport gasoline and diesel to the affected areas of the country. Colin Grabow, a policy analyst at CATO pointed out that, “The law isn’t just a problem in times of pressing need, but also in everyday life. By limiting domestic waterborne transport to ships that are the world’s most expensive to build and operate, the Jones Act interferes with the efficient flow of goods within the United States.”
After Hurricane Maria struck Puerto Rico in 2017, millions of its residents were lacking power, food, and shelter. Under the restrictions of the Jones Act, Puerto Rico would ordinarily only be able to receive shipments exclusively from U.S. ships. After the hurricane, the Act was lifted to provide more opportunities for basic necessities to be shipped to the island. As the necessity from the emergency passed, the Jones Act was reinstated, restricting the ease of delivering basic goods to the territory.
A short-term waiver does not address the law's negative impact on the residents of Puerto Rico, nor any other U.S consumer. In the long term, the nation would benefit from a complete overhaul of the Jones Act.
How the Jones Act Harms the United States
Under the Jones Act, domestic shipbuilding’s competitiveness has significantly declined. Currently, U.S.-built merchant ships cost 4–5 times as much as those built abroad. These high costs hinder the shipbuilding industry. U.S. shipbuilding accounts for only 0.2 percent of global output.
Jones Act-compliant ships are far more expensive and have limited supply. If an increased demand in domestic ocean transportation were to occur, there would be a shortage of Jones Act-compliant ships to move products from U.S. sellers to buyers. As a result, American companies cannot adapt to shifts in the energy market because it takes years to build new ships and train new staff.
The Jones Act also makes U.S. energy producers less competitive with foreign producers since they cannot quickly ramp up oil transportation. Nor can U.S. producers connect these new sources of production with demand centers. Consequently, the Jones Act increases our reliance on foreign oil while placing limits on shipping oil and gas to U.S. ports. These limits force American companies to send low-cost oil and gas to foreign consumers.
By limiting which ships can move cargo between American ports, the Jones Act has increased the price of shipping and has unfairly forced anyone outside of these parameters to pay hefty penalties. The OECD found that repeal of the Jones Act would increase U.S. domestic output by $40 billion to $135 billion.
The Jones Act increases the cost of commodities for domestic consumers, especially those in parts of the country such as Hawaii, Puerto Rico, and Guam who can’t receive shipments via rail or truck. Puerto Rico disproportionately suffers from this law because the nation is highly dependent on domestic shipping and is suffering from a 43 percent poverty rate.
The Jones Act is still alive and kicking because it supports the interests of a handful of shipping companies and maritime unions. Worst of all, many Americans are still unaware of the true cost and gravity of the law. Protectionist policies like the Jones Act undermine the American economy and result in higher shipping costs and serious inefficiencies in exports and imports. The Act has failed to provide a strong maritime sector, and it is time to reverse a century of bad policy and repeal it.
Instead of placing heavy-handed regulations on shipping and freight industries through a new executive order, the Biden administration should encourage Congress to repeal the Jones Act. The reversal of this policy would end the harmful practices that the Biden administration is concerned with, and encourage economic growth and competition.