In a recent blog post my colleague Scott Lincicome and I critiqued a Niskanen Center essay that called for addressing the Jones Act’s many shortcomings through heavy-handed industrial policy rather than repealing the century-old law. While the proposals offered were misguided, there is nothing objectionable about advocating for the law’s update and modernization rather than outright repeal. Indeed, the approach offers a more politically feasible path forward. Although scrapping the Jones Act and meeting U.S. national security needs through more targeted and purposeful measures represents the ideal policy outcome, it’s a near-term political long shot.
Fortunately, there are numerous possible modifications of the law well short of repeal that would still offer substantial gains to both the country’s economic welfare and national security. Notably, many of these options have already been successfully implemented in other countries or are long-standing policy norms abroad. American maritime policy should learn from and incorporate lessons based on these experiences rather than remain inert in a politically sealed time capsule.
Eliminate or modify the U.S.-build requirement. No aspect of the Jones Act is more damaging than its prohibition on the use of vastly less expensive foreign-built vessels. When the U.S.-build requirement—which predates the Jones Act—was first put in place during the country’s early days, U.S. shipbuilders were some of the world’s most competitive. Today the few remaining U.S. shipyards are the world’s least efficient with prices four to five times that of ships constructed abroad.
Despite U.S. shipbuilding competitiveness being turned on its head the restriction remains in place, amounting to a massive tax on new ships that discourages fleet expansion and modernization. It’s the antithesis of sensible maritime policy, particularly when measured against its meager benefits. Trading a smaller and older fleet than would otherwise be the case for the construction of fewer than three ships per year—all highly dependent on imported components and know‐how—is a terrible bargain whether viewed through the lens of economics or national security.
The build requirement’s counterproductive nature is underscored by the fact that no other country imposes such a draconian and self-defeating measure. Even U.S. policymakers tacitly recognize the build requirement’s folly through their refusal to apply such a requirement to other forms of transportation such as trucking and airlines. Far from radical, dispensing with this aspect of the Jones Act would simply bring the law in line with both U.S. and international norms.
But if even this modest step is deemed too bold, other reform possibilities include allowing the purchase of vessels from the shipyards of U.S. allies or only repealing the build requirement for large ships while maintaining it for smaller vessels such as tugboats that are constructed in larger quantities domestically.
The parameters governing what constitutes a U.S.-built vessel to comply with the Jones Act could also be revisited. Currently, such vessels must have all “major components” of their hull and superstructure as well as at least 98.5 percent of the hull and superstructure components’ steel weight fabricated in the United States. These restrictions could be modified to exempt key U.S. allies and trading partners, allowing for more work to be performed overseas by friendly countries before key components or parts of the hull are brought to the United States for final assembly and outfitting. This, in turn, would lower costs and boost the competitiveness of domestic shipyards.
Relax waiver requirements: Jones Act waivers are extremely difficult to obtain, subject to bureaucratically and politically fraught gauntlets, available for very limited durations, and restricted to those situations deemed in the interest of national defense. A process for obtaining waivers based purely on economic need is non-existent. This means there is no mechanism for utilizing a foreign vessel when no Jones Act-compliant vessel is available to perform a needed task (e.g., transporting liquefied natural gas to Puerto Rico or New England, something that is currently impossible given the complete lack of LNG tankers in the Jones Act fleet).
Enacting a more liberalized waiver system to address such situations would produce economic benefits while inflicting no harm to the domestic maritime industry, which does not include numerous important and highly specialized vessel types. That neighboring Canada and Mexico already have such mechanisms in place speaks to this reform’s proven record and commonsense nature. Declarations of disasters and national emergencies, meanwhile, should be accompanied by automatic waivers for the affected areas to ensure aid can be most quickly and efficiently provided.
Repeal the Jones Act’s U.S. ownership requirement: Perhaps the Jones Act’s most oft-overlooked requirement is that vessels must be at least 75 percent owned by U.S. citizens. While aimed at ensuring that U.S.-flagged vessels are not foreign-controlled, other observers have pointed out that ownership and control are distinct concepts and the benefits of this restriction are unclear. What’s perfectly obvious, however, is that this measure serves as a counterproductive restriction on investment in the U.S. maritime industry. To assuage possible security concerns this could also be limited to owners hailing from friendly nations.
Exempt the Non-Contiguous States and Territories: The high cost of Jones Act shipping falls most heavily on residents of the non-contiguous states and territories for whom alternative methods of transport such as trucking, rail, and pipelines are unavailable. This is not only economically harmful but unfair. Although Jones Act supporters insist the law is primarily meant to provide a fleet of merchant ships and mariners to meet national security needs, the burden of paying for something ostensibly meant to benefit the entire country is far from evenly spread. Instead, over half the Jones Act oceangoing fleet is employed serving the approximately 1.5 percent of Americans that reside in Alaska, Guam, Hawaii, and Puerto Rico and pay the tab for keeping these ships in service.
This unfairness is compounded in the cases of Puerto Rico and Guam, which as U.S. territories do not have voting representation in Congress and thus a more direct say in the Jones Act’s application. They also must bear the Jones Act’s burden while all other inhabited U.S. territories—American Samoa, the Northern Mariana Islands, and the U.S. Virgin Islands enjoy exemptions. All U.S. territories should be free of the law.
A Jones Act exemption for the non-contiguous states and territories, or even just one of them, would not just help address these inequities but also offer a valuable natural experiment allowing for a study of the Jones Act’s effects. Unfortunately, the insight and transparency that such a natural experiment would provide regarding the benefits of a Jones Act exemption is also a key reason any such exemption would be vociferously opposed by maritime special interest groups.
Allow international cargo relay: A potentially more efficient means of moving containerized exports and imports into and out of the United States is the use of what is known as international cargo relay or transshipment. Under this model, containers for export are moved by smaller “feeder” ships from smaller ports to larger ports for placement on giant cargo ships for export abroad while imports would flow from larger ports to smaller ones closer to their ultimate destination. The approach is analogous to a hub-and-spoke model employed by airlines. The high cost of Jones Act shipping for moving cargo between U.S. ports (and U.S. port inefficiency), however, makes such transshipment unattractive.
As the Congressional Research Service points out, while international containerized cargo transshipment is prevalent abroad it does not occur in the United States. As a result, “essentially all movement of containers between ports in the contiguous United States, including import and export containers, occurs by truck or train.”
One way of spurring such transshipment, and thus relieving congestion on the country’s highways and rails, would be permitting the transport of containers on efficient internationally-flagged ships. Notably, the gains from such liberalization are sufficiently attractive that even China is currently allowing foreign ships to engage in international cargo relay on an experimental basis.
Allow other limited cabotage rights: U.S. coastal waters are home to scores of foreign ships sailing between U.S. ports dropping cargo off from abroad or picking up cargo for export or before proceeding to foreign ports. The Congressional Research Service likens this steady procession of ships to an “almost continuous conveyor belt of vessel space along each coast”—a conveyor belt that Americans are denied access to by the Jones Act.
One means of harnessing this underutilized resource would be allowing ships already plying U.S. waters to engage in limited domestic cargo transport. Under such a system, a foreign ship discharging cargo in New York, for example, could pick up cargo and drop it off in Miami (or any other U.S. port) before proceeding to a foreign port.
This isn’t untrodden ground. In the early 1990s, New Zealand reformed its own cabotage laws to allow limited cargo transport by foreign ships between the country’s ports before the vessels depart for abroad. The results were impressive, with a 20–25 percent reduction in freight rates and improved service.
Relax Foreign Crew Restrictions: Foreign mariners on U.S.-flagged vessels must comprise no more than 25 percent of the vessel’s unlicensed crew, are limited to permanent residents and students of the U.S. Merchant Marine Academy, and are barred from serving in key positions such as the ship’s master or chief engineer. Such restrictions, imposed as part of U.S. vessel registration requirements rather than directly by the Jones Act, drive up labor costs and contribute to a mariner shortage that is currently hampering U.S. vessel operators. Expanding access to skilled and properly credentialed foreign mariners—particularly from friendly countries—would expand the labor pool, reduce costs, and improve the operating efficiency of U.S. vessels.
Conclusion
These proposals are just a sampling of the many possible reforms that could be undertaken to reduce the Jones Act’s burden and make it better reflect 21st-century maritime realities. There is plentiful room for creative thinking and one can readily imagine even more possibilities, such as Jones Act exemptions linked to certain environmental goals (for example, exempting the offshore wind industry or the transportation of machinery and equipment designed to assist Puerto Rico’s transition to renewable energy) or reciprocal market access by U.S. trading partners (who have long indicated their desire for Jones Act restrictions to be placed on the table as part of free trade agreement negotiations).
A realistic path to reform will also have to include some kind of compensation for U.S. maritime interests that will be reluctant in the extreme to surrender their captive markets (in the case of a permanent exemption for Puerto Rico and/or other non-contiguous parts of the United States) or face new competition from vessel operators with access to vastly less expensive foreign-built ships (should the U.S.-built requirement be repealed).
Similarly, reforms could and should be accompanied by innovative approaches to ensure that U.S. national security needs are met—something the Jones Act has manifestly failed to achieve. Such possibilities include an expanded Maritime Security Program and Tanker Security Program to meet sealift requirements as well as the establishment of a Merchant Marine Reserve or subsidy program to ensure a sufficient pool of American mariners. In addition to repealing the Jones Act’s U.S.-built requirement, other measures to encourage the expansion of the U.S.-flagged commercial fleet include repealing the 50 percent tariff on foreign ship repairs, use of a tonnage tax more in line with international shipping norms, or even the establishment of a second registry with less burdensome conditions for placing ships under the U.S. flag.
The Jones Act is the world’s most restrictive example of a cabotage law. While the downsides of operating under such an onerous regime are many and well documented, it also means that there are numerous opportunities for changes to the law well short of repeal that could still produce significant gains for the well-being of U.S. citizens. The only debate the country should be having is not whether to change the Jones Act, but the scale and exact contours of the reforms to be implemented.
