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Changes to the Jones Act could undermine Puerto Rico and its recovery effort

The following briefing was posted October 2 by the American Maritime Partnership, a coalition of which American Maritime Officers Service is a member and which American Maritime Officers supports. The Government Accountability Office in 2013 released a comprehensive study, "Puerto Rico: Characteristics of the Island's Maritime Trade and Potential Effects of Modifying the Jones Act," which is referenced in the briefing.

GAO has found that "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." Changes to the Jones Act in Puerto Rico, particularly during the recovery effort, could be highly disruptive and counterproductive.

Changing the Jones Act in the Middle of the Recovery Effort Would Disrupt a Stable, Reliable Element of Ocean Transportation in Puerto Rico at the Worst Possible Time.

The American maritime industry is working closely with stakeholders in Puerto Rico as part of hurricane recovery efforts, and, by all accounts, the ocean shipping efforts have been highly successful. Homeland Security Advisor Tom Bossert has publicly said that American shipping capacity is a key part of the recovery effort and that there are no Jones Act capacity issues. Domestic American companies have deployed 23 Jones Act vessels with multiple sailings each week to Puerto Rico. At least 11,300 containers with millions of pounds of relief supplies have already been delivered to Puerto Rico on American vessels. Over the next two weeks alone, Jones Act vessels will deliver more than 9,000 containers to Puerto Rico, including at least 3,300 FEMA loads full of food, clothes, medicines, and other relief cargoes. Because American carriers serve Puerto Rico even in non-emergency situations, they have the infrastructure, employees, vessels, specialized equipment, and systems in place to serve Puerto Rico most efficiently. Congress should not change a stable, reliable element of Puerto Rico's ocean transportation system in the middle of a crisis without precisely understanding the impact. Bossert and others have said that ocean cargo deliveries are not the issue. The primary issue has been distribution of these supplies once they arrive on the island. Government officials and others are working to solve the landside distribution issues.

GAO Has Found that the Jones Act Provides Important Benefits to Puerto Rico and Changing the Jones Act There Could Be Harmful to the Local Economy and National Security Readiness.

The definitive study of the Jones Act in Puerto Rico was prepared in 2013 by the U.S. Government Accountability Office (GAO), a rare unbiased, non-partisan analysis of this subject. GAO's study found that "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." (1) GAO said "modifying the Jones Act in Puerto Rico would have uncertain effects and may result in difficult trade-offs." Similarly, the U.S. Maritime Administration has said "the loss of U.S.-flag service would reduce their ability to ensure that maritime transportation serves the Puerto Rico economy." GAO particularly highlighted the potential negative effects of changes on Puerto Rico's northbound shipping service to the mainland United States, citing the possibility of "sporadic service and higher rates." In addition, the agency said that changes in Puerto Rico could affect American security because "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." Given those findings and others like them, at the very least, any proposed long-term changes should be carefully reviewed by Congress given the potential for unintended consequences.

A Long-Term Waiver of the Jones Act Would Outsource American Shipping Companies and American Jobs - Including Puerto Rican Jobs - to Foreign Interests.

A long-term Jones Act waiver is nothing more than a scheme to replace American companies and workers with foreign companies and workers in the Puerto Rican shipping trades. It seems particularly harsh to propose replacing the Puerto Rican workers, who have dedicated themselves to keeping cargo moving during the crisis, and American shipping companies that have invested hundreds of millions of dollars in Puerto Rico. In addition, a change in the law in one major Jones Act trade could have widespread ripple effects in shipbuilding and other domestic shipping trades throughout the United States, making America more vulnerable without a compensating benefit.

The Supposed "Cost" of Jones Act Shipping in Puerto Rico Has Been Wildly Exaggerated.

It appears that the primary argument against the Jones Act in Puerto Rico is that it adds to transportation costs by requiring American companies and workers. Some have gone so far as to say that the Jones Act doubles the cost of consumer goods in Puerto Rico, a preposterous statistic with no basis whatsoever. The "cost" argument ignores the basic fact that Jones Act vessels must compete every day against foreign ships for customers in the Puerto Rican marketplace; in fact, two-thirds of the vessels serving Puerto Rico are foreign. Even GAO has rejected the so-called "cost" findings. According to publicly available data, this summer a can of soup on the shelf of a big box store in Jacksonville, FL sold for $1 and the exact same can of soup cost $1.81 in Puerto Rico. The Jones Act shipping cost to move that soup can from the U.S. mainland to Puerto Rico was a small fraction of the 81-cent differential. Also, GAO said, one of the benefits that Jones Act companies provide is "just in time" delivery, which helps to minimize inventory storage costs, which are expensive in Puerto Rico. Of course, a business in any sector in Puerto Rico could likely reduce its expenses if it could operate exclusively within domestic commerce and yet be exempt from all U.S. tax, employment, workplace, safety, and other laws, which is exactly what those who suggest Jones Act repeal are proposing - to allow foreign shipping companies and workers to operate in purely domestic trade between the U.S. mainland and Puerto Rico without being required to comply with U.S. laws.

America Has the Jones Act for a Reason.

The Jones Act and the American domestic fleet provide economic, national, and homeland security benefits across the United States. The domestic maritime industry contributes to approximately 500,000 American jobs, including jobs in Puerto Rico, and nearly $100 billion in economic impact annually, according to PricewaterhouseCoopers. U.S. military leaders and homeland security officials are among the strongest supporters of the Jones Act because it makes our nation more secure. In addition, the Jones Act reduces massive federal costs that would be necessary if there was no strong American fleet to help monitor the U.S. maritime border, support the domestic commercial shipbuilding industry, and provide a pool of trained mariners that is called on to support America's sealift capacity requirements.

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(1) U.S. Gov't Accountability Office, GAO-13-260, Puerto Rico: Characteristics of the Island's Maritime Trade and Potential Effects of Modifying the Jones Act (2013).


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