By Colin Grabow
Last week the president and chairman of the Transportation Institute, James L. Henry, claimed that Jones Act carriers (shipping companies) were 27 times more affordable than non‐Jones Act carriers during the pandemic. The basis for his statement was a new report released by the Transportation Institute—which lists the Jones Act’s preservation among its top objectives—touting the 102‐year‐old law’s alleged benefits to Puerto Rico. Even by the loose standards of Jones Act advocacy it’s an astonishing piece of misdirection and obfuscation. Most people would probably interpret Henry’s statement to mean that Jones Act shipping was 1/27th the price of non‐Jones Act shipping in recent years. But that’s not what is going on here. Indeed, the study’s executive summary (curiously, no copy of the full report has been made public) explicitly states that the survey its findings were based on “did not directly assess price level differences between Jones Act and non‐Jones Act routes.” Rather, the 27x figure comes from comparing the rate of increase in shipping prices during the pandemic for Caribbean routes—with Jones Act and non‐Jones Act shipping routes in the region all lumped together—to a global average. In other words, the claim is based on an apples‐to‐oranges comparison and utterly unmoored from reality. That it was nonetheless made is perhaps explained by the far less eye‐catching result from a more sensible comparison. When the report compared rate increases on Jones Act shipping to Puerto Rico with increases in non‐Jones Act rates to the neighboring islands of Jamaica and the Dominican Republic it found them to be similar. In the report’s own words, “…rate increases on domestic [Jones Act] routes the prior three years are comparable to rate increases on other [non‐Jones Act] Caribbean routes.” It seems doubtful that was the result the Transportation Institute was hoping for, particularly during a time of turmoil in international shipping. In evaluating these percentage increases, meanwhile, it must keep in mind that Jones Act rates begin at a significantly higher number. For example, a 2012 Federal Reserve Bank of New York report noted that shipping a twenty‐foot container from the East Coast to San Juan, Puerto Rico was twice as expensive as to nearby Santo Domingo, Dominican Republic ($3,063 versus $1,504) and nearly twice that of shipping to Kingston, Jamaica ($1,687). If one takes these rates and applies them to the percentage increases listed in the report for San Juan (19 percent from Jacksonville and 27 percent from Philadelphia), Santo Domingo (27 percent and 33 percent), and Kingston (20 percent from both), the price difference between Jones Act shipping and non‐Jones Act shipping actually increases. No wonder Jones Act shipping firms are so adamant about keeping out foreign competition. Beyond its discussion of cost increases, meanwhile, the report also cites survey data indicating the superior performance of Jones Act‐compliant carriers compared to their foreign counterparts in such areas as “customer service” and “ease of booking.” But there’s one true test for assessing which companies offer the better deal: competition. Determining product or service superiority is a task best left to consumers registering their votes through market forces, not industry‐funded studies. And that’s really the heart of the matter. Claims that Jones Act shipping is competitive or offers a good value ring hollow so long as the market is shielded from foreign competition. If Jones Act shipping was truly competitive then firms operating under the law wouldn’t cling to such protectionism. There are also a few other items worth keeping in mind:
It’s instructive that the Jones Act‐exempt U.S. Virgin Islands, a U.S. territory that neighbors Puerto Rico, have not clamored to be placed under the law. Indeed, they have resisted past efforts in Congress to subject the island to the Jones Act.
Some of the same companies that serve Puerto Rico with expensive U.S.-built and U.S.-flagged Jones Act vessels choose to employ foreign‐flagged shipping on their routes to foreign ports in the Caribbean. Crowley, for example, operates Jones Act‐compliant shipping to Puerto Rico but opts for foreign-flagged vessels to destinations in the Dominican Republic, Haiti, Jamaica, and other Caribbean ports. Saltchuk, meanwhile, serves Puerto Rico via its Jones Act‐compliant TOTE Maritime subsidiary while another subsidiary, Tropical Shipping, offers foreign‐flagged service throughout the Caribbean. If Jones Act shipping offers a compelling value proposition, why aren’t these vessels employed on all Caribbean routes?
Jones Act shipping is sufficiently expensive that it appears to strongly deter Puerto Rico’s purchase of fuel from the U.S. mainland, even as neighboring Dominican Republic turns to the United States as one of its top suppliers. In the case of liquified natural gas (LNG) and liquefied petroleum gas (LPG), transporting these fuels from the U.S. mainland to Puerto Rico is simply not possible due to the complete lack of appropriate Jones Act‐compliant vessels. That forces to Puerto Rico to purchase these fuels at higher cost from elsewhere, a burden that officials have placed in the hundreds of millions of dollars for LNG alone. Such costs and the non‐existence of certain types of shipping merit inclusion in any discussion regarding the Jones Act and Puerto Rico.
The Jones Act has been hurting Puerto Rico for a long time. That’s the inevitable result of shipping protectionism that thwarts competition and requires the use of ships significantly more expensive to build and operate than their internationally‐flagged counterparts. While the law harms the entire country, it is a particular hardship for an economically struggling island that is heavily dependent on ocean transport. That reality cannot be wished away or ignored, no matter how many unsupported claims or flawed studies Jones Act advocates release.