Supply Chain News / Ocean / Ports

Cost of Jones Act Unproven

GAO says the Jones Act doesn’t raise prices for Puerto Rico consumers.

March 26, 2013

A General Accountability Office (GAO) study on the Jones Act in Puerto Rico shows that the U.S. domestic container shipping fleet has provided regular, reliable service while offering significant rate reductions, according to the American Maritime Partnership (AMP), an industry trade group.

"GAO disproved charges that the Jones Act raises prices for consumers in Puerto Rico," AMP said in a statement shortly after the release of the report. "GAO specifically said, '[S]o many factors influence freight rates and product prices that the independent effect and associated economic costs of the Jones Act cannot be determined.'"

"As such, GAO's report confirmed that previous estimates of the so-called 'cost' of the Jones Act are not verifiable and cannot be proven. The GAO report demonstrates that many of the most pointed criticisms of the Jones Act came from individuals or groups that did not offer data to back up their concerns. In many cases GAO cited allegations against the American fleet despite admitting that the claims could not be validated or verified."

AMP noted that, according to the study, "In fact, container shipping rates in Puerto Rico for American companies dropped as much as 17 percent between 2006 and 2010."

The group pointed out, "GAO said there is no guarantee that shipping rates would go down further if the Jones Act was changed."

Most satisfying, AMP said, was the finding that the American domestic fleet had provided reliable service in Puerto Rico.

"The GAO found that American domestic shipping companies have provided regular and reliable service that has been extremely beneficial to the economy in Puerto Rico and that changes to the Jones Act could result in a reduction in service to the Commonwealth," AMP said. "GAO said 'it is possible that the reliability and other beneficial aspects of the current service could be affected' if the law is changed."

AMP also said the GAO report highlighted the national security benefits of the Jones Act.

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March 27, 2013
How can the Jones Act's impact on rates not be verified whereas its impact on service and reliability can be? The GAO stated "the independent effect and associated economic costs of the Jones Act cannot be determined"? Then the AMP goes on to say "domestic shipping companies have provided regular and reliable service that has been extremely beneficial to the economy." I thought the associated economic impact couldn't be determined? The AMP is factually inaccurate when stating "the GAO disproved charges that the Jones Act raises prices for consumers in Puerto Rico". The GAO did not disprove the charges, but rather stated that the charges could not be verified. Someone at the AMP apparently needs to buy a dictionary. I also find it interesting that the AMP used the GAO's report to conclude it can't be proven that the Jones Act causes increased rates, yet they readily point to rate decreases during '06-'10 as if that was somehow the result of something other than the global recession. To be clear, I hold the GAO in very high regard and I think there are reasonable arguments that supporters of the Jones Act can make in order to defend it. I just think it’s unfortunate that the AMP would rather misconstrue information in order to further its own interests, instead of using the GAO's report to further discussions regarding the modern day objectives and impacts of the nearly century old merchant marine act.

Political Issue

Perry Trunick, editor
April 2, 2013
The Merchant Marine Act of 1920 (Jones Act) regulates market participation in maritime services between U.S. ports (and U.S. sovereigns). This means there has been little, if any, experience in market-driven rates in 93 years. Only a few waivers have been granted. Thus, there is little actual market experience to demonstrate how suspending the Act would affect pricing. Those waivers have typically been during times of crisis – Hurricane Katrina, Hurricane Sandy, etc., and they have typically involved specific commodities, so they are not likely to be representative examples. Would suspension of the Act encourage foreign carriers to enter the trades and offer competitive services (and prices)? The costs of complying with the work rules, safety and environmental requirements, and any other qualifications the U.S. government might establish in a post-Jones Act environment could increase the operating costs for a very limited amount of incremental cargo volumes. That may not fit the foreign carriers’ cost model and may not lead to competitive (lower) pricing. For those carriers currently providing Jones Act services, their operating model is built on a number of assumptions. The requirement to use U.S.-built vessels (and the restriction on the volume of foreign steel allowed for structural repairs and retrofits) means it would be more expensive to replace vessels with newbuild vessels than to continue to operate older vessels. This could exclude the aging Jones Act-compliant vessels from international service if they were to be unable to keep up with environmental and other international standards, not to mention the lower energy efficiency of older technology. New vessels would also add significantly to the carriers’ cost, assuming the shipping lines could raise the commercial capital to make such an investment. In the end, the Jones Act is a very political issue, receiving the support of six of the last seven U.S. presidents. The Open America’s Waters Act, introduced by John McCain and Jim Risch in 2010, would have repealed the Jones Act. The bill failed.



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