What with everything going on in the world, stewing over an obscure, century-old maritime law might seem odd. But the Jones Act really does warrant such consternation. It’s not just a terrible law that hurts you, me, and everyone we know—especially if they live in Puerto Rico or drive to work on the East Coast. It’s also a cautionary tale against government industrial policies, which can have unintended consequences far beyond higher prices or budget overrun.
The Jones Act, formally known as Section 27 of the Merchant Marine Act of 1920, was ostensibly intended to ensure adequate domestic shipbuilding capacity and a ready supply of merchant mariners and ships in times of war or other national emergencies. Today, it requires that any domestic waterborne shipping of goods be conducted on vessels that are built, owned, flagged, and crewed by Americans. As a result, the U.S. has one of the most (if not the most) restrictive shipping systems in the world.
By effectively barring foreign competitors from transporting goods between U.S. ports, the Jones Act has predictably inflated the cost of shipping and shipbuilding in the United States. That’s the law’s seen cost, which many of its supporters acknowledge but claim is necessary for ensuring a thriving industrial base and sufficient supply of ships and mariners. But the unseen costs do the most notable damage and thus swamp any alleged benefits.
[From the April 2023 issue: The age of American naval dominance is over]
First, let me put the direct costs in perspective: We’re not just talking about a few extra bucks here and there. Building a container ship in the United States costs up to five times as much as it does abroad, and transporting crude oil on a Jones Act tanker can cost three times as much—an ever-expanding price differential driven by decades of insulation from foreign competition.
Because ships and shipping are so expensive, few companies use this method outside routes that offer no other alternatives, such as between the continental United States and Puerto Rico or Hawaii. Instead, they use land-based transport—mainly trucks and trains—to deliver goods that could have traveled by sea between the approximately 360 U.S. ports to service the 130 million people that live near our 95,000-plus miles of coasts. (Many other countries do this kind of “short-sea shipping.”)
In fact, the Congressional Research Service reports that only about 2 percent of all U.S. freight is carried by ships, and that—despite the massive growth in coastal U.S. cities since the 1960s—coastwise shipping tonnage has actually declined by roughly 44 percent over the same period. All other modes of freight transport, including international shipping, have either increased or remained steady.
“Ship American” might sound nice in theory. This is what it looks like in practice: not shipping much of anything in America at all.
Heightened use of trucks and freight trains means more wear on aging U.S. infrastructure and more traffic, especially on roads running parallel to U.S. sea lanes. It means a higher risk of accidents involving dangerous materials in or around urban centers, such as the recent propane-car derailment near Sarasota, Florida. And it means increased environmental harms, because surface transportation emits more carbon and uses more energy than ocean ships and barges. The law thus forces unwitting northeasterners to be stuck on I-95 surrounded by smog-producing 18-wheelers hauling trailers that could have been traveling between the Ports of New York and Boston on compact, low-emission ships that the Jones Act has made cost-prohibitive.
The expense of U.S. shipping and shipbuilding thus forces us to waste finite resources—work or leisure time, tax dollars, environmental efforts—that could be better used elsewhere.
It also denies us many other types of ships. For example, the U.S. has a grand total of zero Jones Act–compliant liquefied natural gas tankers, because producing these massive, complex vessels here would be so expensive as to defy any economic sense. Consequently, transporting LNG in bulk to New England and Puerto Rico is impossible, and these U.S. regions suffer from diminished energy security. Last fall, several New England governors, alarmed by Ukraine-related depletion of local energy inventories, begged the Biden administration for a winter-long Jones Act waiver, and local utilities warned that an unseasonably cold winter could produce rolling blackouts across the region. (The waiver was never issued.) A lack of LNG, propane, and oil tankers also forces these areas to import energy from Nigeria, Oman, Spain, (pre-sanctions) Russia, and other faraway places, even as U.S. energy is exported from Texas to China and dozens of other countries. Not only is that economically nonsensical, but it also means higher shipping emissions.
The environmental damage doesn’t stop there. The United States lacks specialized wind-turbine-installation vessels, used to build offshore wind projects, that meet Jones Act requirements. This means higher project and taxpayer costs, slower wind-energy deployment, and diminished progress on climate change. (The first Jones Act–compliant wind-turbine-installation vessel is supposed to be delivered in the fourth quarter of 2023 at a substantial cost, but we’ll still need four or five more to meet U.S. offshore wind goals. No other such vessels are in the pipeline.)
Thanks to the Jones Act and another antiquated law (the Foreign Dredge Act of 1906), the U.S. fleet also suffers from a dearth of top-notch dredging vessels, which excavate seabed material for port expansions and other projects. (In fact, the largest hopper dredge in the United States wouldn’t crack Europe’s top 30.) Dredging U.S. ports and waterways is therefore costly and slow, imperiling much-needed projects that would boost supply-chain efficiency, job numbers, and economic growth.
The general lack of Jones Act vessels also inhibits emergency-response efforts for Puerto Rico, Hawaii, Alaska, and other U.S. regions without easy land-based access. When Hurricanes Maria and Fiona devastated Puerto Rico in 2017 and 2022, respectively, more than 99 percent of the world’s cargo ships couldn’t immediately participate in the relief efforts, because they didn’t comply with the Jones Act’s restrictions. At one point last year, a tanker moving diesel from Texas to Europe rerouted to Puerto Rico to boost the island’s depleted fuel supply, but the Jones Act blocked it from offloading this much-needed cargo. The ship finally docked days later, but only after massive public outcry prodded the Biden administration to issue a legally dubious Jones Act waiver.
Bureaucratic delays and bottlenecks are costly annoyances in normal times, but they become life-threatening problems following a natural disaster, when every second counts.
High costs mean not only fewer ships but also older ones, because they’re so expensive to replace. The average age of a Jones Act ship in 2019 was 20 years—more than seven years older than ships that don’t meet the law’s requirements. And the previous 15 Jones Act ships that were scrapped had an average age of 43. Having decrepit rust buckets cruising right off U.S. coasts raises more safety and environmental concerns.
The Jones Act’s unintended harms even extend to the U.S. shippers and shipbuilders it’s supposed to protect. The law encourages American shipyards to turn away from the competitive international market and toward a captive, but much smaller, domestic one. Their reduced output (averaging just three oceangoing ships a year), in turn, means that high fixed costs are spread across fewer vessels, and that economies of scale, volume discounts from suppliers, and specialization are extremely limited. The result is a vicious cycle where prices go up and the quantity demanded goes down, placing further upward pressure on prices. Rinse and repeat until you have the zombie industry we see today.
The Philly Shipyard offers a troubling example of this cost death spiral. In 2013, the shipping company Matson ordered two container ships from the shipyard for $209 million each; last year, Matson ordered three of the same ships from the same company for roughly $333 million each. Even accounting for inflation and some technological upgrades, this deterioration in competitiveness was so notable that it prompted a Danish maritime magazine to wonder whether the ships were going to be built with gold plates.
[Derek Thompson: Don’t ‘buy American’]
Supporters claim that reforming or repealing the Jones Act would destroy the domestic industry and imperil national security, but these doomsday scenarios are far-fetched. For starters, government orders account for almost all U.S. shipbuilding output and revenue, and repealing the law wouldn’t touch these transactions. The availability of cheaper and better vessels, moreover, would boost domestic demand for coastwise shipping, improving the industry’s financial prospects. A recent OECD study estimates, in fact, that nixing the Jones Act would increase domestic shipbuilding output and final value added by hundreds of millions of dollars a year.
And it’s not like current law is doing a bang-up job protecting the industry. The Jones Act fleet has dropped from around 250 ships in the 1980s to just 91 today. No use protecting something that’s already dead.
Industrial policy is once again hot in the United States. Federal subsidies and trade restrictions—fueled by pandemic- and China-related security risks and intended to boost strategic commercial industries such as semiconductors and batteries—have proliferated dramatically since 2020. Collectively, the Infrastructure Investment and Jobs Act, the CHIPS and Science Act, and the Inflation Reduction Act will funnel hundreds of billions of taxpayer dollars to favored companies in the United States, marking one of the biggest U.S. industrial-policy pushes since the ’80s.
The ribbon-cutting ceremonies and golden shovels that will accompany commercial projects supported by these laws will make for great photo ops and generate lots of political excitement. But the cameras won’t catch the invisible knock-on effects and unintended harms. And if the Jones Act is any guide—which, really, it should be—they’re going to be worth stewing over.