Seattle

Eno Transportation Weekly

Puerto Rico Crisis Puts Spotlight on Jones Act

September 28, 2017 – 7:30 p.m.

The devastation wrought by Hurricane Maria in Puerto Rico has brought new attention to the Jones Act, a 97-year-old federal law that limits the ships that can travel between points in the U.S. (including Puerto Rico). The law requires any cargo transported point-to-point between such U.S. places to be transported on a ship that is U.S.-flagged, owned by U.S. citizens, crewed by U.S. citizens, and which was built in the United States.

Most such vessels are not really ships but are barges moving through the inland waterways systems. When it comes to oceangoing vessels that are compliant with the Jones Act, there are only 99 of them, the majority of which are oil tankers. (And most of the Jones Act non-tankers are in the Pacific, serving Hawaii and Alaska.) There are another 81 oceangoing ships that are U.S.-flagged but which were not built in the U.S. These cannot serve point-to-point within the US but they compete in the international shipping market with help from “cargo preference” laws enacted beginning in 1954.

The U.S.-Flagged Merchant Fleet As Of August 1, 2017
Jones ActInternational
FleetFleet
(99 ships)(81 ships)
U.S. – flagged?YesYes
U.S. – crewed?YesYes
U.S. – built?YesNo
Tankers586
General Cargo912
Containership2339
Roll On/Off721
Dry Bulk23

A 2003 Congressional Research Service report indicates that the Jones Act of 1920 was not really new policy, only a post-WWI revision of pre-war policy:

Prior to World War I, the domestic merchant fleet operated under an 1817 law, An Act Concerning the Navigation of the United States, 14th Congress. This law required that U.S. domestic shipping be conducted only with U.S. flagged vessels. Since only U.S. built ships could be flagged in the United States, the Act barred foreign competition. Earlier, in 1789 and 1790, the first session of Congress imposed duties and taxes on foreign built, foreign flag ships engaged in the U.S. Atlantic coast trade. These duties and taxes were significant and made it difficult for foreigners to compete in U.S. coastwise trade. Foreign built and owned vessels were charged 50 cents/ton at each U.S. port while U.S. built and owned vessels were only charged 6 cents/ton. The Acts of 1789, 1790, and 1817 were intended to counteract existing laws in England and France that protected their merchant fleets. The British Navigation Acts date back to the 1600’s and reserved England’s foreign and domestic commerce to British built, owned and crewed vessels. The Navigation Acts were aimed chiefly at Britain’s rival in merchant shipping – the Dutch.

In 1920, the WWI experience caused Congress to want to ensure that a steady supply of loyal (i.e. U.S.-flagged) ships would be available in time of war for national defense sealift service. In the years since, the Jones Act has stayed intact (despite a drafting shrinking of the U.S.-flagged fleet – see chart below) because of the dedicated lobbying of two groups: U.S. shipyards, and maritime labor unions. (The U.S.-domiciled shipping companies also support the Jones Act, of course, but the political power has always come from the shipyards (principally on the Gulf Coast) and the unions.)

Earlier this week, Reuters reported that the Acting Secretary of Homeland Security had denied a Jones Act waiver request for Puerto Rico. (Reuters later changed the headline to clarify that no formal request had been made but that DHS did not see the need for a waiver, but the original had already gone viral on Twitter.) DHS has authority over Jones Act waivers because the Coast Guard is currently located there. Earlier this month, DHS gave a temporary Jones Act waiver to allow foreign-flagged tankers to carry gasoline, diesel and jet fuel from New York, Pennsylvania, Texas and Louisiana to South Carolina, Florida and Georgia.

However, that waiver was requested by the Secretary of Defense on the grounds of national defense (the only grounds under which a waiver can be granted under 49 U.S.C. §501). Acting DHS Secretary Elaine Duke said in a Congressional hearing yesterday that: “We have no known Jones Act waiver requests. We did receive a congressional letter today. We are — we are double checking to make sure that isn’t true. If there are fuel shortages, you know, we are looking at Jones Act, like you said. We will use it appropriately.”

In response, several Democrats in the House of Representatives yesterday introduced a new bill (H.R. 3852) to allow Jones Act waivers for “humanitarian relief efforts” as well as for national defense.

Even before the hurricane, Puerto Ricans chafed at the economic effects that the Jones Act had on the prices of imported goods. An op-ed this week in the New York Times cited an economic study that claimed Puerto Rico lost $17 billion in GDP over 20 years because of the Jones Act and called the law “a shakedown, a mob protection racket, with Puerto Rico a captive market.”

When the House of Representatives was debating the Puerto Rico financial assistance bill (PROMESA) last year, Rep. Gary Palmer (R-AL) filed an amendment with the Rules Committee that would have permanently exempted Puerto Rico from the Jones Act, but the Rules Committee (after a flurry of lobbying from the pro-Jones-Act umbrella organization) did not allow the House to consider Palmer’s amendment.

Earlier this week, President Trump was asked about a Jones Act waiver for Puerto Rico and responded that “a lot of people that work in the shipping industry… don’t want the Jones Act lifted.” (See the earlier statement about the shipyards and the unions being the prime political forces keeping the Jones Act intact.)

Indeed, if the Jones Act (a legislative preference for American-made products and laborers who are American citizens) isn’t the embodiment of President Trump’s oft-stated “Buy American, Hire American” agenda, then what is?

(Ed. Note: Back in January 2017, when we published a long history of Buy America laws and proposals for preferential hiring of Americans, a maritime source emailed us to criticize the article because it did not mention the Jones Act, which the source said was “the original Buy American law.”)

But after a day of fierce criticism, at 5 a.m. this morning, the White House announced (in a tweet, naturally) that a Jones Act waiver for Puerto Rico had been granted. The waiver document signed by the Homeland Secretary (under the grounds of national defense) is not specific to petroleum – it covers “all products to be shipped from U.S. coastwise points to Puerto Rico. This waiver applies to covered merchandise laded on board a vessel within the 10-day period of the waiver and delivered by October 18, 2017.”

Meanwhile, Senators John McCain (R-AZ) and Mike Lee (R-UT) introduced legislation today permanently lifting application of the Jones Act to Puerto Rico. (Ed. Note: One of the things that Arizona and Utah have in common – a shared lack of shipyards and lack of maritime labor union presence.)

To give a sense of what the Jones Act’s Senate supporters are about, here are the exchanges between Senators Roger Wicker (R-MS) and Brian Schatz (D-HI) and Transportation Secretary Elaine Chao at Chao’s confirmation hearing eight months ago:

WICKER:

Well, thank you very much.

And then just briefly because my time is fleeting, a, a vitally important part of our maritime industry is the Jones Act, which this committee has jurisdiction over. I hope you will be a strong supporter of the Jones Act and advocate for our domestic maritime sector, as a bipartisan majority of this committee has always done.

CHAO:

The Jones Act is a law of the land and it will be obeyed…


SCHATZ:

Thank you, Secretary.

Following up on Senator Wicker’s question regarding the Jones Act, it is a bipartisan consensus, as you know. It’s the foundation of the domestic U.S. flag maritime industry. And it is also essential to our national security. U.S. flag vessels and American merchant marines support our warfighters, transporting medical supplies, food, and other cargo to troops in combat.

The military’s confidence in a fleet of U.S. flag ships to move cargo to troops deployed in places like Iraq and Afghanistan allow the Navy to save limited cargo space for weapons, fuel, and other essential goods. And that’s why every secretary of defense, every secretary of the Navy for generations has supported the Jones Act, and with the usual caveats.

But understanding that you have a unique role as the former MARAD administrator, as the former deputy of transportation, and the former secretary of labor, and your private sector experience in the shipping context, can you talk about the importance of the Jones Act from both a national security standpoint and from an economic security standpoint?

CHAO:

The Jones Act is a very important program that secures national security. We have seen two wars now in the last 25 years. I’m of an age where I have seen two wars in pivotal areas of the world.

If we did not have the merchant marine assets to assist the gray hulls on these campaigns — military naval campaigns — our country would not have been able to supply our troops, bring the necessary equipment. All of that is not done on the gray bottoms, gray hull bottoms, but rather merchant Marine bottoms.

This is an area that I’m very familiar with, I have great interest in, as well. And the national security of the merchant Marine fleet of this country is part of the way that we are able to be effective overseas and protect this country. So I am a great proponent of the U.S. flag merchant Marine fleet.