Posted: October 6, 2017
Congressional hearing injects the facts about the Jones Act and Puerto Rico into Capitol Hill
In a hearing convened October 3 by the Subcommittee on Coast Guard and Maritime Transportation in the House of Representatives, the facts about the Jones Act and the Commonwealth of Puerto Rico, and the beneficial role the crucial American cabotage law is serving in the devastated island's recovery from Hurricane Maria, were placed in the public record and injected into the roiling debate in Congress.
At the time of the hearing, more than 11,000 containers of crucial supplies and construction materials had been delivered to Puerto Rico by Jones Act carriers. Because roads and other elements of the island's surface transportation infrastructure were blocked, damaged or destroyed by the hurricane, fuel could not be adequately distributed over land from terminals on the island, and trucks and drivers were in very short supply. As a result, the relief cargo that had already been delivered to Puerto Rico could not be readily distributed over land to the American citizens living there as Jones Act vessels continued to deliver more supplies to the island, filling cargo terminals to near capacity, and shipping fuel trucks directly to San Juan to help alleviate the bottleneck in moving cargo on the island.
Despite the reality on the ground, political interests aggressively and shamelessly capitalized on the crisis and the desperation of the island's leaders and residents, seeding media coverage and political debate with a fraudulent narrative that the Jones Act was to blame for essential supplies not reaching the people who needed them most.
On September 28, the Trump Administration issued a 10-day blanket waiver of the Jones Act for Puerto Rico. In a press conference, Homeland Security Advisor Tom Bossert explained Puerto Rico Governor Ricardo Rossello had called him the night before and requested the waiver as a 'just in case' measure. Bossert said there was no real need for the waiver and no shortage of Jones Act qualified vessels. The waiver was issued only because the governor requested it to ensure all steps that could be taken had been taken to bring relief to Puerto Rico.
On October 5, David Lapan, a Homeland Security Department spokesman, said the department does not believe an extension of the 10-day waiver is needed to support relief efforts for the hurricane-ravaged island, according to a Reuters report. Lapan said the department had not received any requests from commercial interests to waive the Jones Act and the Defense Department had not requested an extension.
"There is an ample supply of Jones Act-qualified vessels to ensure that cargo is able to reach Puerto Rico," Lapan told Reuters.
The hearing October 3, "Building a 21st Century Infrastructure for America: Coast Guard Stakeholders' Perspectives and Jones Act Fleet Capabilities," focused both on the budget needs of the U.S. Coast Guard for repairs, operations and facilities following three devastating hurricanes, and on the needs of the people of Puerto Rico and the service available and being provided by Jones Act carriers in dedicated trade with the U.S. territory. Witnesses at the hearing for the panel discussions were U.S. Coast Guard Rear Adm. William Kelly and Rear Adm. Melvin Bouboulis, Seafarers International Union Political and Legislative Director Brian Schoeneman, TOTE President and CEO Anthony Chiarello, Crowley Senior Vice President Michael Roberts, and Philly Shipyard, Inc. Government and Regulatory Advisor John Graykowski.
Subcommittee Chairman Duncan Hunter (R-CA) opened the hearing. "Hurricane Maria was a category 5 hurricane when it hit the Commonwealth of Puerto Rico. Massive relief efforts were immediate and included over 7,000 emergency response personnel from various departments and agencies, including the Department of Defense, the Coast Guard, FEMA, and the Army Corps of Engineers, among many others. Included in the response efforts were U.S.-flag vessels. There are 15 vessels that regularly supply Puerto Rico with cargo. These vessels were prepared with food and water, equipment and supplies to restore power, and emergency relief provisions for FEMA and the Red Cross."
Rep. Hunter continued: "Critics continue to assail the U.S.-flag fleet and the Jones Act as an antiquated industry and law, unnecessary in today's world. These critics promoted claims the law prohibited supplies from getting to Puerto Rico. However, as we know, that was false. Supplies have been getting to the island and have been backlogged at the ports, due to the devastation of logistics on the island. Foreign vessels are also bringing fuel and supplies to the island from foreign ports; the Jones Act does not prohibit that from happening.
"There are over 40,000 U.S.-flag vessels that work U.S. waterways. These vessels are U.S.-built, -owned and -crewed. These are good American jobs. This should be a positive thing, not critiqued as antiquated or expensive. The Jones Act also ensures that our country has U.S. merchant mariners available to man U.S. military support vessels. This is a point ignored by many and something that needs more attention."
Rep. John Garamendi (D-CA), ranking member on the subcommittee, also made opening remarks at the hearing. "There's been a lot of misinformation, especially about the Jones Act, that continues to float around in the media. This hearing provides a timely and valuable opportunity to set the record straight.
"The response of the U.S. merchant marine and the fleet of U.S. Jones Act carriers has been nothing short of superb," Rep. Garamendi said. "These domestic carriers immediately re-routed and assigned additional vessels to carry emergency supplies - food, fuel, water, medical supplies and building materials - to Puerto Rico in its time of greatest need.
"The President yielded to the political pressure and granted a 10-day waiver," he said. "What remains clear, however, is that more vessels delivering more supplies without any improvement of the island's surface transportation infrastructure will do little to improve the recovery effort on the island. In fact, it may create even greater congestion and confusion, which regrettably will only add to the misery of United States citizens and others on the island."
During the hearing, several members of the subcommittee questioned the witnesses on the panels and commented directly on the Jones Act, its importance to the U.S., and on the misinformation being spread about the law and its impact.
Rep. Don Young (R-AK), whose state is also served by Jones Act vessels in non-contiguous trade with the U.S. mainland, said of the most recent attacks upon the cabotage law, and of the waiver: "As much as I like Puerto Rico, there's been a group of people over the years trying to subvert the Jones Act. This is not new, and they saw an opportunity.
"I'm a little worried about that nose under the tent right now."
"No one has justified it to me ... we do have the ships," Rep. Young said. "I know that they're trying to do this to Hawaii, and trying to do it to Puerto Rico, then they go down the line. That affects a large very viable section of our domestic industry and our national defense. The Jones Act is a great deal of that."
In an exchange with the Coast Guard officers, Rep. Garret Graves (R-LA) clarified that foreign ships carrying cargo from foreign ports are in fact allowed access to Puerto Rico and are not affected by the Jones Act.
"It's my understanding also, as of last week, there are more than 9,000 containers that were sitting at port facilities in Puerto Rico, and the challenge was not getting the containers there, the challenge was actually distributing the containers," Rep. Graves said. "And, if I recall correctly, the throughput, meaning the processing of these containers, into Puerto Rico for various commerce is in the hundreds per day ... You can do the math, and even if their logistical system (and) their transportation system were operating optimally, you would still be looking at several days before that capacity could be distributed.
"I am concerned that some folks believed that, by waiving the Jones Act for 10 days, we were going to provide some immediate relief to the logistical challenge of getting the relief supplies distributed around Puerto Rico, and I believe it's very clear that's not the case," he said. "I think we need to make sure that we stay focused on real solutions that are going to address these logistical problems, as opposed to solutions in search of problems."
Rep. Hunter commented directly on the media coverage of the issue, and reported on statements from the administration establishing there was no need to waive the Jones Act for Puerto Rico. "I've never seen a direct attack by the media, from MSNBC to Fox News, on an American institution like maritime - shipbuilding, ship repair, all American workers, all American made - I've never seen this," he said.
He read from a statement issued by the Maritime Administration one day before the Jones Act waiver was enacted: "Waiving the Jones Act now will not provide any additional relief to the hurricane victims on the island. The U.S.-flag fleet has the capability of carrying food, water, fuel, and emergency and recovery supplies that Puerto Rico needs from the rest of the United States. The problem for Puerto Rico in the next few weeks is not procuring enough ships to carry the cargo, it is the difficulty of unloading the ships and getting the relief supplies to where they are desperately needed, given the fact that the ports, the roads, the power grid and communications have all been heavily damaged by Hurricane Maria."
The statement concluded: "As Puerto Rico's infrastructure is repaired, the administration may ultimately decide that additional ships are needed to serve the people. If so, CBP and MARAD should be allowed to follow the established procedures for a case-by-case review of any waiver request. There should not be any blanket waivers of the Jones Act."
Rep. Hunter also cited statements made by Homeland Security Advisor Bossert: "If there are not U.S.-flagged vessels, the capacity in other words, to meet the need, then we waive the Jones Act. In this particular case, we had enough capacity of U.S.-flag vessels to take more than or to exceed the requirement and the need of diesel fuel and other commodities into Puerto Rico.
"The idea here is that we had provided as many commodities as were necessary to the island. The challenge became land-based distribution. That remains the challenge, that remains the priority today."
Rep. Hunter noted that Bossert was asked: "Had Governor Rossello not requested proactively a waiver of the Jones Act, would you have seen a compelling reason to initiate a waiver?"
Rep. Hunter read Bossert's response from the transcript: "No, I would not have. And I was not recommending to the President that he waive the Jones Act at the time, until I got the governor's request. And it may be a historical note of relevance, sometimes we'll see the carriers request the waiver, right, so you'll have foreign-flagged vessels or U.S.-flagged vessels, or carrier companies call us and say please waive it because there is an issue. We did not to my knowledge get any carrier requests."
Rep. Hunter said: "Those are two things from the administration saying there was no need to waive the Jones Act. They had plenty of capacity. You have plenty of everything that you need. This was pure politics."
Rep. Peter DeFazio (D-OR) questioned witnesses regarding the potential service of foreign vessels operating between the U.S. mainland and Puerto Rico. Chiarello explained that information circulating informally was that one foreign carrier probing the possibility of moving cargo from Jacksonville to Puerto Rico had quoted a transit time of 15 days. This contrasts with TOTE's transit time of 2 1/2 days.
Rep. DeFazio asked how that could be possible and Chiarello explained Puerto Rico would be a very small market for a foreign carrier and they would probably try to fit a port call on the island into a larger multi-national cargo route, rather than providing direct service to Puerto Rico from the U.S. mainland, as is provided by Jones Act carriers.
Rep. DeFazio ascertained from the witnesses the Jones Act does not apply to the U.S. Virgin Islands. He then commented: "I've been to both Puerto Rico and the U.S. Virgin Islands and I didn't observe any discrepancy. In fact, it seemed to me that things were more expensive in the U.S. Virgin Islands than they were in Puerto Rico."
Roberts responded: "When we've looked at this in terms of the shipping rates, for example, we've found that the rates - and we did this a couple of years ago - the rates in the ... Virgin Islands trade, again a non-Jones Act trade, were 20 to 40 percent higher than in the domestic ... Puerto Rico trade. And it has to do with market size and other factors like that, but that's the reality in those markets."
Rep. DeFazio said: "That's essentially reinforcing what Mr. Chiarello just said, which is Puerto Rico would sort of be like a comma in a paragraph in terms of interest of major foreign fleets and directly serving them, versus trying to squeeze it in somewhere in the schedule that makes sense for their other routes."
Rep. Rick Larsen (D-WA) asked if there would be a practical effect of extending the 10-day waiver after it expires.
Chiarello responded: "It didn't make sense to us why the waiver was put in place the first time, so an extension of the waiver would make even less sense. We have the capacity. We're moving the freight. There isn't a bottleneck of cargo to get to the island. The bottleneck is on the island."
Roberts added: "Let me emphasize that our primary priority, our top priority, is to help the people of Puerto Rico get the supplies they need. And if there was a particular movement that couldn't be satisfied with a Jones Act vessel, we would not stand in the way of getting that done quickly. That's just not the case now."
Rep. Alan Lowenthal (D-CA) raised the point that Jones Act carriers provide inexpensive backhaul rates to businesses on Puerto Rico, carrying cargo manufactured or grown on the island to market in the U.S. mainland at a discount. The congressman emphasized getting help to Puerto Rico was a priority, but the long-term economic recovery of the commonwealth is also very important.
"I'm also concerned about the reconstitution of the industries and the businesses in Puerto Rico, and getting those goods back to the mainland," he said. "I would like ... to discuss the backhaul rates your companies offer from Puerto Rico back to the mainland and how these inexpensive rates help Puerto Rican manufacturers and other businesses serve the American markets. Because, unless we're also concerned about that, how we're going to help the Puerto Rican economy, we are only doing half the job here."
Chiarello responded: "The export rates from Puerto Rico back to Florida are significantly less than the rates going from Florida down to Puerto Rico, just because of - number one - the demand, and for us, because we move so many empty containers coming out of Puerto Rico in a two-to-one trade, there are opportunities to help support that exporting community.
"There should be more opportunity for freight, and from a carrier perspective, we're trying to work with the government and the shippers to support that."
Roberts said: "The backhaul rates are a competitive advantage that Puerto Rico has that the other islands in the Caribbean don't have. I would estimate, and it's only an estimate, that you could probably get a container load of cargo from Puerto Rico to Jacksonville cheaper than you can get it from Atlanta to Jacksonville.
"They have built industry around that, and around the tax breaks that unfortunately expired, and that's an issue," Roberts said, referring to tax incentives for U.S. companies to locate manufacturing operations in Puerto Rico and other U.S. territories, which were phased out over a period of 10 years, resulting in an exodus of industry from the island.
Rep. Hunter concluded the hearing with powerful remarks on the extreme importance of maritime cabotage to the national and homeland security of the United States, and to other nations around the globe, which have cabotage laws similar to the Jones Act. He expressed his hope and expectation the Trump Administration would learn from this experience that the Jones Act waiver was not necessary, and supporting the law is essential for the U.S. in many ways.
Rep. Garamendi's closing questions to the panel focused on the significant capital investments Jones Act carriers have made in providing dedicated service between the U.S. mainland and Puerto Rico - approximately $500 million for TOTE and approximately $600 million for Crowley.
"We do have a challenge out ahead, and that is to push back against all of the 'fake news' surrounding the Jones Act," Rep. Garamendi said.