Keeping Up with the Jones Act

Link to article: https://stillwaterassociates.com/keeping-up-with-the-jones-act/

March 6, 2023
By Ryan Biggs

Chances are that you have heard about the federal statute officially known as the Merchant Marine Act of 1920; most people refer to it as the Jones Act. Below we look at the creation of the Jones Act and the philosophy behind it, discuss its potential penalties and benefits, and explore how it impacts commerce in the United States.

A Century of History

To understand the reasoning behind the Jones Act, one must look at the logistics of the World War I battlefield. The Great War required the largest mobilization in history of American troops, equipment, and supplies to points throughout the European theater. This unprecedented undertaking placed exceptional demands on America’s marine vessels and required the heavy support of foreign-flagged ships to complete this task. At the end of the war, however, critics pointed out the weakness in U.S. shipbuilding capacity as well as the importance of a robust maritime industry that could support a thriving economy.

After the Treaty of Versailles was signed, some members of Congress began to see reliance on a foreign entity for waterborne logistics as a weakness in U.S. national security. Senator Wesley Jones (R-WA), Chairman of the powerful Senate Commerce Committee, was the standard bearer of this position. Senator Jones introduced legislation in 1920 (now commonly referred to as the Jones Act) that required ships sailing from one American port to another American port to be at least 75% U.S. owned and at least 75% crewed by U.S. citizens. The legislation further required that the ship be assembled entirely within the U.S. The aim of the Jones Act was to generate the development of a national fleet, support the defense of the U.S., develop a powerful American maritime industry, and create jobs that would increase domestic economic growth. In Washington, the goal was to do all of this while keeping potential foreign competitors and adversaries at bay.

Cabotage Restrictions

Because of the Jones Act, the U.S. has some of the most restrictive cabotage(1) laws in the world. The U.S. is one of only thirteen countries that exclude all foreign vessels from transporting goods from one domestic port to another. According to the Organization for Economic Co-Operation and Development (OECD), the only countries that are ranked more restrictive for foreign operators are Indonesia and China. In the European Union (EU), which has mostly open cabotage between its members, around 40% of all goods travel by sea. The U.S. pales in comparison – less than 3% of U.S. freight travels via this method.

Status of U.S. Shipbuilding

The American shipbuilding industry has been on the decline for many decades, and just seven major shipbuilding yards remain, four of which produce ships exclusively for the military. By comparison, there are around sixty shipbuilding yards in Europe and hundreds in Asia. Global trade to and from the U.S. exceeds $1 trillion dollars per year, however, only about one percent of this transverses on U.S.-made ships.

There are currently less than one hundred ocean-going ships that meet Jones Act requirements. The cost of a newly built ship from an American shipyard is about four to five times that of a similar foreign-built ship. Furthermore, according to several studies, operating costs for a ship subject to the Jones Act are around two and half times those of a non-Jones Act ship. U.S.-based shipping companies’ fleets are rapidly aging as the companies work to rehabilitate and extend the life of existing vessels versus buying a new ship made in America.

Jobs, Security, and Defense

American shipbuilders attest that the Jones Act is an essential tool to keep America safe and its citizens employed during turbulent and competitive economic times. Proponents of the Jones Act talk about the protection and impact of 650,000 well-paying American jobs. National security concerns and ensuring a robust maritime workforce are at the top of the list for those supporting the maintenance of the Jones Act as is. Some have also cited the supply chain problems observed in the last two years as evidence that the U.S. needs to continue to “onshore” critical industries, including shipping and logistics.

As with most legislation, there are people on both sides of this issue. Backed with economic data, opponents of the Jones Act argue that the Jones Act makes the U.S. less competitive globally and raises costs for both business and ordinary Americans. Opponents also argue that, ironically, the Jones Act has actually caused the decline of the American shipbuilding industry even as its stated intent was to protect and grow this essential industry.

Recent Developments

The U.S. Customs and Border Protection (CBP), which enforces the Jones Act, recently ruled that ships providing support and transportation for the construction of offshore wind energy installations on the Outer Continental Shelf (OCS) are subject to the requirements of the Jones Act. Previously, advocates had urged Congress to exempt wind energy from Jones Act requirements, arguing that the application of the Jones Act to the OCS would restrict clean energy development. Another recent example of the Jones Act making news was a proposed amendment to waive Jones Act requirements to help alleviate the natural gas shortage in Europe after Russia’s invasion of Ukraine. In the face of these challenges, however, the Jones Act has remained unchanged. More than one hundred years since its passage, the Jones Act continues to regulate and influence America’s shipping landscape.

(1) According to the U.S. DOT’s Maritime Administration, cabotage is a water transportation term applicable to shipments between ports of a nation. Cabotage commonly refers to coastwise or intercoastal navigation or trade. Cabotage laws require national flag vessels to provide domestic inter-port services.

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