The Jones Act and its impact of shipping between US ports

An article in Bloombergbusinessweek titled “Lots of Oil, Not Enough Ships ” (December 16, 2013) describes the Jones Act, a 1920 US law that restricts ships that ply between US ports to be US carriers with a US crew. Given the small number of such ships (32 tankers and 42 barges) and the substantial domestic oil production (8 million barrels per day), shipping from the Gulf Coast to The East Coast costs three times as much as shipping to Canada (which does not have such restrictions). Similarly ships from China cannot stop in Hawaii, they deliver goods to the West Coast and then need a separate trip back to Hawaii. Should the Jones Act and its costs be tolerated given that it creates volume for rail lines and work for US ship owners? Will the increased US oil production, and its need to be distributed, suggest the need for an exception to the. Jones Act for oil, as a starting point? Are there other such old laws that are a detriment to logistics costs?

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19 Responses to The Jones Act and its impact of shipping between US ports

  1. A barrier to do domestic business? How is this politically viable? It is obviously not economically good because it raises the cost of doing business. But what politician wouldn’t want the opportunity to create US sea shipping jobs?
    The fact that ships can’t stop at Hawai’i on their way to the mainland is just dumb. How does it benefit the people of Hawai’i to pay extra freight for their goods? Wherever the government sets up bad economic policy, look for a lobbyist.

    • Sarinah says:

      I agree, there is an existing lobbying group called the Jones Act Reform Coalition. They would have to present the argument in Washington by being able to show its effect in other industries, economic gains without the law, and how much would it really cost the consumers.

  2. Man Lu says:

    I don’t agree with the Jones Act.
    The Jones Act, its value is to protect America’s employment and maintain the capacity and strength of American maritime transport, but also bring benefits in other areas, including national security.
    However, the cost pressures to the domestic ship owner and cargo owner are increasing obviously. For example, Matson ordered two 3600TEU ships from Aker Philadelphia Shipyard, each weighing about $ 209 million. If the two ships are constructed in the Asian shipyard, the price is less than the one fifth of the original price. Looking ahead, last time, the average cost of the four 2890TEU ships delivered from 2003 to 2006, ordered from Aker Philadelphia Shipyard, is about $ 125 million, and this seemingly lower price is four times as much as the cost of the Asian shipyard. This shows that the cost gap between US shipyard and the Asian shipyard is widening.
    Moreover, according to the report on the operating costs of the ship in Drewry from 2013 to 2013, the salary of the 2000-3000 TEU crew has increased by more than 30% over the past 10 years, reaching $ 2306 per day. If it is not to increase the proportion of seafarers recruited from developing countries, Salary costs are even greater.
    The Jones Act promotes the development of railway transportation, which results in more carbon emission.
    Consolidated and Further Continuing Appropriations Act, 2013. The relevant provisions limit the US government departments to buy some of China’s information technology equipment. This Will cause significant international impact so that the US information technology companies in the global market in an unfavorable competitive position.

    • Jutong Cui says:

      I agree with you. The Jones Act is not rational in economics, even though it definitely has protected the employment and developing of railway transportation. It’s reduced the competition in maritime transportation, which further results in the increasing operating cost, such as salary as you’ve mentioned. It hindered the evolution of both maritime transportation and other international businesses.

  3. Murilo Siqueira says:

    Given the time the Act was created, it was nothing but a way to develop railroad business. However, in a modern world, where volumes are much bigger than in the 1920s, it promotes nothing but a increase in transportation costs, especially when it comes to oil, where the main transportation source is shipment.
    Investing in railways to increase capacity would take billions of dollars and decades to finish the expansion. Simply revising the Act would be enough to reduce transportation costs and facilitate the supply-chain as a whole.
    Talking about oil, customers would see the results almost immediately, be it in energy, fuels, heating and so on. Also, US fleet would see an incentive to grow.

  4. Sarinah says:

    Although the American Maritime Partnership (AMP) argues that the Jones Act is critical to national security and promotes jobs in domestic shipbuilding, this law affects those not in the mainland or are in Hawaii, Alaska, Puerto Rico and Guam. There are other ways to achieve national security without the Jones Act such as the Maritime Security Program of 1996 and 2004 National Defense Authorization Act. Furthermore, this act does not seem to affect shipbuilding since the fleets that are qualified has shrunk from 2006 – 2011 by 6.6 percent (http://www.grassrootinstitute.org/2017/04/the-jones-act-in-perspective/).

  5. Milind Patel says:

    I agree with the posts above in that the Jones Act should not be tolerated even though it creates work for US ship owners. The act supports the US shipping industry by allowing only US made ships to transport goods between US ports, benefiting ship owners and ship builders. Although this seems like its helping the economy, it actually eliminates (or substantially decreases) competition which drives up shipping costs, and the increased shipping costs pour over to increased oil prices. Adding on, the increased US oil production’s need to be distributed should be an obvious signal to policy makers to, at the very least, make an exception for oil. Oil’s price will not decrease since it’s a non-renewable resource, so simple changes such as lifting the Jones Act will help in avoiding price spikes.

  6. Christine Rasquinha says:

    I agree with the above statements that the Jones Act inhibits the pricing for products within the states because it creates inefficiency. However, an argument toward providing security for the state and country could also be formed because monitoring can be done at a higher level if there are limits on the total number of suppliers that can actively participate in the logistics process. With that being said, according to an article from the Grassroot Institute of Hawaii, the repeal could bring between $5 to $15 billion back to the economy. Consumers may see some of those returns; however, it is also a possibility the the repeal of this act would leave consumers with the same price. This is because industries who utilize shipping as a method of transportation may see that consumers are willing to spend that amount and decide that it is best to keep prices as is and retain a higher margin for themselves. This could leave room for pricing competition which may allow companies who are focused on self-interest to focus on the consumer instead.

    • Nathan Lowe says:

      I’ve got no argument that the Jones Act creates inefficiencies, but I do not necessarily think that its repeal would mean that customers would be no better off across the board. For some products, consumers have a willingness to pay that is quite wide. Take for example oil/gasoline. Consumers are willing to purchase gasoline at most any price, because even though their preferences are to purchase when prices are low, the necessity to purchase does not always line up with when prices are lowest. In Central Indiana, gas prices are plague by the endless cat and mouse game by gas stations to lower prices to the point of negative margins, which results in price hikes of $0.30 – $0.50 in a single day, kicking off another cycle of price declines. But, despite this pattern, customers who need gasoline when the price hikes will still purchase.

      Other products that do not have this same necessity are more likely to see cost savings from logistic systems change be passed on to consumers. As you mentioned, products of this nature are apt to price competition, and therefore the incentive rests to pass the cost savings onto the customer. On the whole, my estimation is that there are far more products and purchases made in this category than the “willing to buy at most any price” category. Hence, I believe that the $5B-15B in savings estimated by the Grassroot Institute is more likely to be achieved than not.

  7. Shashank Reddy Chinnolla says:

    It has been almost a century since the Jones Act was effective. 1920 was when there were 10000K automobiles and by the end of the century there were a staggering 200000K motor vehicles in the US (http://www.allcountries.org/uscensus/1027_motor_vehicle_registrations.html). This number is increasing by the minute at an unimaginable rate. The Jones Act might have been sufficient at the time of its effect and a few centuries down the line. Its purpose was to see to it that US trade boosted employment in the US. But today with all things going global, it might have reached a stage when the Act is actually causing a hindrance to the US trade affecting other businesses in turn. I feel that it is necessary to amend the Act and incorporate the current economic situation but keeping the interests of the US employment which was the original intent of the Act.

  8. Bryan Gissal says:

    As someone who used to live in Hawaii, I saw the first-hand how this legislation has affected the island economy. The Jones Act has allowed a virtual monopoly over shipping commerce coming to and from the island. The industry has consolidated into one major player: Matson, Inc. They wield extraordinary power and can pretty much name their own fee for shipping. This fee is partially reflected in the higher costs of goods within the islands. I can see both sides of the argument, however, for keeping the Jones Act alive or killing it dead. I think it would be nice to have uniform exceptions to the Jones Act for vetted overseas companies who are delivering commodities for consumption. I am not sure of any other antiquated logistics laws that may be hampering trade, but re-examining the Jones Act may be a good start.

  9. Senthil says:

    The cost incurred by the Jones act has a significant impact on the economy. Some articles published in the same topic points out an estimate by U.S. International trade commission shows that by modifying or canceling the Jones act could generate a huge financial gain for the country (5 – $15 billion dollars).
    The restriction has effects nationwide, especially in the noncontiguous territories such as Hawaii, Alaska, Guam, and Puerto Rico. These places depend more on the other parts of the US for getting their goods from other countries. These add additional transportation cost between these territories and other states.
    Although, the Jones act was imposed to protect the domestic shipping industry and for national security, these can be achieved through other ways. On the other hand, even having Jones act in place, the domestic industry is facing decline in growth. An exception to the Jones act would generate more financial benefits, which can be utilized to develop the national ship yards. In summary, there have been lot of debates that supports both sides; however, it can’t be ignored that benefits from lifting the restrictions will yield considerable benefits for the country.
    There are various cabotage laws being practiced internationally which are similar to Jones act and these have to be renegotiated properly to uncover the hidden money in the global supply chain and logistics.

  10. Huaijing Lin says:

    Although Jones Act is inefficient by any economic sense, especially for Alaska and Hawaii, it helps to maintain a small but useful size of American commercial shipping capacity, a group of US civil crew and precious shipbuilding capability for national security and foreign policy reasons such as using US ships to freight strategic materials or military supplies to overseas under defense contracts. (Shipbuilding Industry Study Report by National Defense University “American sea power is worth saving, and can continue to provide the US with both economic through commerce and protection through national security”)

    US civil shipbuilding industry has lost global competition to shipyards in Japan, S. Korea and China. In 2014, total tonnage constructed in US is merely 293,000, 0.5% of Japanese, Korean and Chinese shipyards combined. Moreover, civil ships have only account <10% value of US shipbuilding since 2006. Therefore, Jones Act has no way to boost profitability of US shipbuilding, but at least could help the civil shipbuilding industry to survive on few domestic orders.

    From logistics perspective, ships docked at US west coast are mainly from Japan, S. Korea, China, Taiwan, Vietnam and other ASEAN countries, the major sources of US trading deficits. Hence, this ships return to those countries with lots of empty space. Asian shipping companies would very happy to do Milk-runs between west coast ports, Alaska and Hawaii, or to ship some goods from US continent to Alaska or Hawaii by utilizing those empty space. This would drive US shipping competitors out of Pacific, which is unacceptable from government’s point of view.

    In general, Jones Act is not only a logistics issue, but also a political topic.

  11. Saravana says:

    This situation resembles a mismatch between supply and demand, favoring national ship owners. Exclusivity provided by Jones act, results in shortage of vessels for transportation, absence of competition with foreign flag carriers and hence, national shipping owners have a concrete advantage. A directive is essentially needed to regulate transportation prices, thereby benefiting both suppliers and buyers. Even though, Jones act safeguards national ship building industries, the act certainly failed to take inflated costs of living at Puerto Rico and Hawaii into consideration.
    Cargoes that are to be discharged at Puerto Rico, Hawaii are offloaded in the nearest ports and then loaded back in national built vessels and are delivered to the above mentioned ports. For cargoes transported in bulk carriers and barges, these offloading and loading costs are enormous and these activities are certainly redundant. Oil drilling efficiency in the United States has improved over the years, records-high crude oil production numbers are in the forecast and hence, efficiency in crude oil supply chain is a definite need.
    https://www.cnbc.com/2017/06/12/us-shale-oil-output-to-rise-by-127000-barrels-a-day-in-july-eia.html

  12. Xin Wen says:

    As I think, the Jones Act increases the shipping cost. Geographically, ships from China should go to Hawaii first and then West Coast, which could save a lot of transportation cost for both China and the U.S. Also, if international shipping could first to Hawaii, it will increase the market competition so that the customers have more negotiate power and the money you pay for the shipping might decrease. However, the Jones Act may create some additional job opportunities and protect the employment of the U.S Citizens, since the ships and railway should be controlled by labors. Some people’s life gets improved because of increasing employments. The government should protect the employments but should need to consider about the logistics. They need to find a balance between these.

  13. Amitesh Mishra says:

    Jones Act was passed to promote and maintain the American merchant marine. Given the rising oil production and costs associated with it, according to me this act should be repealed totally. Not just because there are not enough ships and barges to manage oil transportation in future but also to reduce the additional costs associated with it. It does not make sense to pay more for any product be it oil or not if there are alternatives present for the problem at hand. Example of shipment to Hawaii and for a matter of fact, shipment to Puerto Rico is raising the prices on these islands by substantial rate. Because of Jones Act, Puerto Rico cannot import anything directly nearby, rather than it has to order from the US, leading to billions of debt and rising taxes for the people of the island with a high unemployment rate. The act not only increases the logistics cost but also the time it takes for a product to reach the destination point, making it totally not optimized.
    The negative of repealing the act might result in loss of few jobs but there are ways to take care of that such as taking the whole merchant navy under the government.
    What is important is that we need to see from the point of view of a bigger picture and counter the numerous negatives the Jones act is bringing onto the end customers.
    As for giving benefit to companies in business who might take this opportunity to not reduce costs and continue to take advantage over consumers, there are ways that competition will slowly take care of such a situation by driving prices down.
    A century year old act, today’s world is changing and so should the ways business is done. It is necessary to evolve and tweak the rules when necessary.

  14. Adam Davis says:

    Though the Jones Act was a well-intentioned law to protect the U.S. shipbuilding industry, in the interconnected world of global commerce, it has become an albatross. First, the U.S. shipping industry is a mere vestige of what it used to be: the country only has five public and 20 private shipyards. The Act also raises the cost of products. For example, the cost for Hawaiian farmers to ship cattle to the mainland is so expensive that many cows are simply flown in. In addition, the Jones Act adds to traffic on highways, which exacerbates air pollution. One estimate is that repealing the Jones Act would allow the U.S. to save between $5 and $15 billion.

  15. Vinay Gundam says:

    Originally the Jones act was justified on the basis of national security and the argument was private ships should be available to the government in the event of war. Looking at today’s scenario the law looks outdated. The law drives up costs artificially and doesn’t expose the US ship building industry to competition and doesn’t encourage innovation. A recent report by Mercatus Research shows that a 40-foot container could be shipped from Los Angeles to Honolulu for $8,700 on a Jones Act-eligible ship, but that the same container could be shipped from Los Angeles to Shanghai for $790 on a ship that did not qualify for the Jones Act. As a result the prices of everyday products such as food is increasing. One argument is that it will protect the ship building industry as well as encourage railways infrastructure but the reality is, businesses import more from other countries as it is cheaper to get the same product from a different state. This puts way more pressure on domestic industry to compete against cheaper foreign companies. As ocean freight is not competitive, there are more number of trucks on roads leading to traffic congestion and high highway maintenance. Senator John McCain from Arizona has put up an effort 4 times in the last 8 years to repeal Johns Act but the current political landscape is not in favor of repealing Jones Act. In conclusion, I would say that the Jones act should be amended after taking in consideration all of its unintended effects on the economy.

  16. Amer Nasrawi says:

    “WASHINGTON – The U.S. government on Friday said it was temporarily waiving a law that limits the availability of cargoes on the U.S. coasts, a step that will ensure enough fuel reaches emergency responders during Hurricane Irma and in the wake of Hurricane Harvey.” (Reuters)

    Desperate times call for desperate measures, I see this as a good exception to the Jones Act, and although I believe it’s outdated and must be amended, I don’t think it should be completely abolished. For the many reasons it was founded, the economic impact of such change to the sea logistics activity might jeopardize the local U.S. sea logistics and have further effects on the economy overall, on micro and macro levels.

    To illustrate my point further, take international flights that come into the U.S. for example, more specifically, take Emirates Airlines. Emirates makes international trips to more than 15 U.S. cities, a government subsidized airliner like Emirates can out perform local airlines not because of efficiency, but due to the subsidy factor, which will put local airliners at a disadvantage in the face of Emirates Airlines. For the very same reason, protecting local economy drivers no matter how big or small they are is very critical for the well being of the economy overall.

    Abolishing Jones Act will make available to oil companies a much cheaper option, and since U.S. fleet run on a higher working capital due to wages, it will not be able to compete with foreign ships and tankers, eventually all local ships will be out of business.

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