Posted:
March 22, 2013
In a report released to the public this week, the Government Accountability Office (GAO) observed the Jones Act "has helped to ensure reliable, regular service between the United States and Puerto Rico - service that is important to the Puerto Rican economy."
This was one of several significant observations made by the GAO in its report, Puerto Rico: Characteristics of the Island's Maritime Trade and Potential Effects of Modifying the Jones Act. Although the GAO made no recommendations in the report, it offered conclusions highlighting, among other things, the important roles served by the Jones Act in nationwide commerce and national defense, the risks of potential modifications to the law and detrimental ramifications for U.S. sealift strategy, the lack of conclusive verifiable data linking the Jones Act to service gaps in the Puerto Rico trades, and the potential loss of beneficial transportation services for Puerto Rico under Jones Act modification or exemption.
The GAO also noted a pronounced decrease in freight rates charged by Jones Act carriers in the Puerto Rico trades - indicating responsiveness to market conditions and the economic recession affecting Puerto Rico - and the demonstrated willingness of Jones Act carriers to invest in new capacity and expanded transportation services based on shipper demand and emerging markets.
Jones Act carriers servicing the Puerto Rico trades participated in and provided data for the study. Conversely, the GAO pointed out that nine of 10 foreign carriers contacted by the agency in an effort to gather information on these topics declined to be interviewed. "As a result, we were not able to gather detailed cost or rate information from foreign carriers that call in Puerto Rico," the GAO noted.
American Maritime Partnership (AMP) - an organization of which American Maritime Officers Service is a member, and which American Maritime Officers supports - commented on the GAO report, which was compiled in response to a request from Puerto Rico Resident Commissioner Pedro Pierluisi and Northern Marianas Island Delegate Gregorio Kilili Camacho Sablan.
"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 stated, citing the GAO's observation: "It is possible that the reliability and other beneficial aspects of the current service could be affected if the law is changed."
"GAO disproved charges that the Jones Act raises prices for consumers in Puerto Rico," AMP stated. "GAO specifically said: 'So 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," AMP stated. "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 fact, container shipping rates in Puerto Rico for American companies dropped as much as 17 percent between 2006 and 2010, according to the study," AMP noted. "GAO said there is no guarantee that shipping rates would go down further if the Jones Act was changed."
In its report, the GAO noted Jones Act carriers in the Puerto Rico trades have tailored their services to accommodate shippers, "allowing shippers to meet 'just in time' delivery needs. In fact, many island importers' inventory management relies on prompt and regular shipping and receipt of needed goods to stock shelves, instead of warehousing goods."
The GAO also observed less reliable, less timely and less consistent service would be risks associated with Jones Act exemption, resulting in potential "difficult trade-offs," including the need for warehousing more goods for longer periods at higher expense to shippers. The GAO noted: "Foreign carriers that currently serve Puerto Rico as part of a multiple-stop trade route would likely continue this model to accommodate other shipping routes to and from other Caribbean destinations or world markets rather than provide dedicated service between the United States and Puerto Rico, as the current Jones Act carriers provide."
The GAO also highlighted existing uncertainty regarding the extent to which other U.S. laws would apply to foreign vessels spending "most of their time in U.S. waters" under Jones Act modification or exemption, and whether any related requirements under U.S. law would affect establishment of direct service tailored to shippers in Puerto Rico, as is made available under the Jones Act.
The refusal of foreign carriers to be interviewed or provide data underscores the uncertainty regarding any potential cost or service benefit to shippers if the Jones Act is removed from the balance in Puerto Rico, as well as uncertainty regarding willingness of foreign interests to accommodate the specific needs of local shippers, and the applicability of U.S. jurisdiction to the rates and practices of foreign carriers under modifications to the cabotage law.
More certain were observations regarding the potential response to changes in U.S. law from Jones Act carriers providing direct service between the U.S. and Puerto Rico - carriers for which rates and practices remain under the jurisdiction of U.S. authorities.
"According to MARAD officials, unrestricted competition with foreign-flag operators in the Puerto Rico trade would almost certainly lead to the disappearance of most U.S.-flag vessels in this trade," the GAO reported.
In the summary of its report, the GAO pointed out: "The general purposes of the Jones Act include providing the nation with a strong merchant marine that can provide transportation for the nation's maritime commerce, serve in time of war or national emergency, and support an adequate shipyard industrial base."
The general purposes of the Jones Act have not changed since the law's enactment. In its report, the GAO noted that full or partial Jones Act exemption "could also reduce or eliminate existing and future shipbuilding orders for vessels to be used in the Puerto Rico trade, having a negative impact on the shipyard industrial base the act was meant to support."
Reporting on the background of the Jones Act, the GAO pointed out: "Although the Department of Defense does not administer or enforce the Jones Act, the military strategy of the United States relies on the use of commercial U.S.-flag ships and crews and the availability of a shipyard industrial base to support national defense needs."
In its concluding observations, the GAO noted: "A decline in the number of U.S.-flag vessels would result in the loss of jobs that employ skilled mariners needed to crew the U.S. military reserve and other deep-sea vessels in times of emergency. Furthermore, according to MARAD, the loss of U.S.-flag service would reduce their ability to ensure that marine transportation serves the Puerto Rico economy."
AMP highlighted these points in its commentary on the GAO report. "In fact, the study quoted the Defense Department and the U.S. Maritime Administration as saying the contributions of American commercial shipyards are more important than ever as the number of new military vessels being constructed is reduced by federal budget cuts," AMP reported.
AMP reserved its main criticisms for the GAO's analysis of transportation services for LNG and other bulk cargoes in Puerto Rico.
"In contrast to its analysis of the container shipping market, GAO's review of the LNG and other bulk shipping markets is anecdotal, incomplete, misleading and one-sided," AMP stated. "In fact, there are already fully compliant American vessels available to transport LNG to Puerto Rico, and of course, others can be built in plenty of time.
"If there is sufficient demand for LNG or other bulk cargoes, the American maritime industry will meet that demand, just as it has provided regular, reliable and cost-effective service for decades in other Puerto Rico shipping trades where a demand exists," AMP stated.
The GAO, in its report, noted the demonstrated willingness of Jones Act carriers to invest in new vessels and expanded services, citing, among other things, the construction order for new LNG-powered containerships to operate between the U.S. and Puerto Rico.
"Recent announcements from two Jones Act carriers concerning plans to build new containerships and tankers indicate that the U.S. flag industry is responding to the emergence of new market demand," the GAO observed.
American Maritime Officers will have additional commentary on the GAO report.
GAO: Jones Act ensures reliable, regular service between U.S. and Puerto Rico
In a report released to the public this week, the Government Accountability Office (GAO) observed the Jones Act "has helped to ensure reliable, regular service between the United States and Puerto Rico - service that is important to the Puerto Rican economy."
This was one of several significant observations made by the GAO in its report, Puerto Rico: Characteristics of the Island's Maritime Trade and Potential Effects of Modifying the Jones Act. Although the GAO made no recommendations in the report, it offered conclusions highlighting, among other things, the important roles served by the Jones Act in nationwide commerce and national defense, the risks of potential modifications to the law and detrimental ramifications for U.S. sealift strategy, the lack of conclusive verifiable data linking the Jones Act to service gaps in the Puerto Rico trades, and the potential loss of beneficial transportation services for Puerto Rico under Jones Act modification or exemption.
The GAO also noted a pronounced decrease in freight rates charged by Jones Act carriers in the Puerto Rico trades - indicating responsiveness to market conditions and the economic recession affecting Puerto Rico - and the demonstrated willingness of Jones Act carriers to invest in new capacity and expanded transportation services based on shipper demand and emerging markets.
Jones Act carriers servicing the Puerto Rico trades participated in and provided data for the study. Conversely, the GAO pointed out that nine of 10 foreign carriers contacted by the agency in an effort to gather information on these topics declined to be interviewed. "As a result, we were not able to gather detailed cost or rate information from foreign carriers that call in Puerto Rico," the GAO noted.
American Maritime Partnership (AMP) - an organization of which American Maritime Officers Service is a member, and which American Maritime Officers supports - commented on the GAO report, which was compiled in response to a request from Puerto Rico Resident Commissioner Pedro Pierluisi and Northern Marianas Island Delegate Gregorio Kilili Camacho Sablan.
"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 stated, citing the GAO's observation: "It is possible that the reliability and other beneficial aspects of the current service could be affected if the law is changed."
"GAO disproved charges that the Jones Act raises prices for consumers in Puerto Rico," AMP stated. "GAO specifically said: 'So 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," AMP stated. "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 fact, container shipping rates in Puerto Rico for American companies dropped as much as 17 percent between 2006 and 2010, according to the study," AMP noted. "GAO said there is no guarantee that shipping rates would go down further if the Jones Act was changed."
In its report, the GAO noted Jones Act carriers in the Puerto Rico trades have tailored their services to accommodate shippers, "allowing shippers to meet 'just in time' delivery needs. In fact, many island importers' inventory management relies on prompt and regular shipping and receipt of needed goods to stock shelves, instead of warehousing goods."
The GAO also observed less reliable, less timely and less consistent service would be risks associated with Jones Act exemption, resulting in potential "difficult trade-offs," including the need for warehousing more goods for longer periods at higher expense to shippers. The GAO noted: "Foreign carriers that currently serve Puerto Rico as part of a multiple-stop trade route would likely continue this model to accommodate other shipping routes to and from other Caribbean destinations or world markets rather than provide dedicated service between the United States and Puerto Rico, as the current Jones Act carriers provide."
The GAO also highlighted existing uncertainty regarding the extent to which other U.S. laws would apply to foreign vessels spending "most of their time in U.S. waters" under Jones Act modification or exemption, and whether any related requirements under U.S. law would affect establishment of direct service tailored to shippers in Puerto Rico, as is made available under the Jones Act.
The refusal of foreign carriers to be interviewed or provide data underscores the uncertainty regarding any potential cost or service benefit to shippers if the Jones Act is removed from the balance in Puerto Rico, as well as uncertainty regarding willingness of foreign interests to accommodate the specific needs of local shippers, and the applicability of U.S. jurisdiction to the rates and practices of foreign carriers under modifications to the cabotage law.
More certain were observations regarding the potential response to changes in U.S. law from Jones Act carriers providing direct service between the U.S. and Puerto Rico - carriers for which rates and practices remain under the jurisdiction of U.S. authorities.
"According to MARAD officials, unrestricted competition with foreign-flag operators in the Puerto Rico trade would almost certainly lead to the disappearance of most U.S.-flag vessels in this trade," the GAO reported.
In the summary of its report, the GAO pointed out: "The general purposes of the Jones Act include providing the nation with a strong merchant marine that can provide transportation for the nation's maritime commerce, serve in time of war or national emergency, and support an adequate shipyard industrial base."
The general purposes of the Jones Act have not changed since the law's enactment. In its report, the GAO noted that full or partial Jones Act exemption "could also reduce or eliminate existing and future shipbuilding orders for vessels to be used in the Puerto Rico trade, having a negative impact on the shipyard industrial base the act was meant to support."
Reporting on the background of the Jones Act, the GAO pointed out: "Although the Department of Defense does not administer or enforce the Jones Act, the military strategy of the United States relies on the use of commercial U.S.-flag ships and crews and the availability of a shipyard industrial base to support national defense needs."
In its concluding observations, the GAO noted: "A decline in the number of U.S.-flag vessels would result in the loss of jobs that employ skilled mariners needed to crew the U.S. military reserve and other deep-sea vessels in times of emergency. Furthermore, according to MARAD, the loss of U.S.-flag service would reduce their ability to ensure that marine transportation serves the Puerto Rico economy."
AMP highlighted these points in its commentary on the GAO report. "In fact, the study quoted the Defense Department and the U.S. Maritime Administration as saying the contributions of American commercial shipyards are more important than ever as the number of new military vessels being constructed is reduced by federal budget cuts," AMP reported.
AMP reserved its main criticisms for the GAO's analysis of transportation services for LNG and other bulk cargoes in Puerto Rico.
"In contrast to its analysis of the container shipping market, GAO's review of the LNG and other bulk shipping markets is anecdotal, incomplete, misleading and one-sided," AMP stated. "In fact, there are already fully compliant American vessels available to transport LNG to Puerto Rico, and of course, others can be built in plenty of time.
"If there is sufficient demand for LNG or other bulk cargoes, the American maritime industry will meet that demand, just as it has provided regular, reliable and cost-effective service for decades in other Puerto Rico shipping trades where a demand exists," AMP stated.
The GAO, in its report, noted the demonstrated willingness of Jones Act carriers to invest in new vessels and expanded services, citing, among other things, the construction order for new LNG-powered containerships to operate between the U.S. and Puerto Rico.
"Recent announcements from two Jones Act carriers concerning plans to build new containerships and tankers indicate that the U.S. flag industry is responding to the emergence of new market demand," the GAO observed.
American Maritime Officers will have additional commentary on the GAO report.