Time to toss the shipping killer overboard.
Imagine, for a moment, that there was a law that required goods moved between two American ports be transported on American ships that were built within the United States. Not a restriction on what ships could transport goods from a foreign port to an American port, simply a restriction on what ships could move cargo between two American ports. You would likely wonder why such a pointless law exists, and you would be right to do so. Unfortunately, this law does exist, and has since 1920. It’s called the Jones Act, and it continues to linger because of powerful, well-connected corporations, and their defenders in Congress.
The Jones Act, as with so many other protectionist measures, was originally justified on the basis of national security. Domestic shipbuilding, the argument went, needed to be protected to guarantee that a private merchant marine would be available to the government in case of war. No matter the merits of that argument at the time, today they are outdated. Even with the Jones Act in place, only 20 private shipyards remain in operation in the United States, and only 93 ships are Jones Act-eligible. Of those 93 ships, a mere 73 could be qualified as “militarily useful.”
The Jones Act is much more than simply outdated, however. It is economically harmful to all Americans. The requirement that goods be shipped from one American port to another on American-built and crewed ships artificially drives up costs and shields domestic shipping businesses from innovative, cheaper foreign competition. A recent study by the Mercatus Center estimated 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. These costs are passed on to the American businesses that rely on transported goods, making it more expensive for them to purchase needed materials. This, in turn, results in higher prices for everyday products such as food. The Jones Act is a favor politicians grant a tiny domestic shipbuilding industry at the expense of every other American.
Just as it is more expensive to ship from Los Angeles to Honolulu than from Los Angeles to Shanghai, the reverse is true as well. The added expense of shipping between two American ports can often make it less expensive for a business to purchase foreign-imported goods than to transport domestically produced goods along the coast. This places a strain on domestic businesses, making it more difficult for them to compete with foreign corporations.
One American territory that is especially hard-hit by the Jones Act is Puerto Rico, which relies a great deal on U.S. imports. A 2012 study by the Federal Reserve Bank of New York found that the price to ship to Puerto Rico was nearly double that of the price to ship to nearby locations in the Dominican Republic and Jamaica, largely due to the Jones Act. A 2012 study by the University of Puerto Rico found that, in total, the island was losing $537 million annually to the Jones Act. Given the ongoing economic crisis in Puerto Rico, this is not money that Puerto Ricans can afford to give to fatten the wallets of special interests.
As if this weren’t enough, the Jones Act is also partially to blame for American traffic congestion. American highways are glutted with trucks that cause disproportionate amounts of highway maintenance costs and slow down traffic. Traffic congestion costs Americans, on average, $1,200 each year in wasted gas and lost time. Yet according to a study by Tufts University, many of the U.S. highways that are hit hardest by traffic congestion could easily be avoided through the use of coastal shipping routes if the Jones Act did not exist.
Fortunately, not all members of Congress are enamored with the Jones Act. Senator John McCain submitted legislation last month to repeal the Jones Act, calling it “an archaic and burdensome law.” The Jones Act survives because of Congressional inertia, not compelling justifications for the policy. Congress should finally take action on the Jones Act, and toss it overboard.
Port of Los Angeles (Wknight94/Creative Commons)