Jones Act Report Is No Game-Changer

This week’s Government Accountability Office analysis of the Jones Act and Puerto Rico landed with a dull thud. The long-awaited report won’t change many positions in Congress on the entrenched U.S.-flag cabotage law.

The GAO was asked to examine maritime transportation to and from Puerto Rico, and how it might be affected by modification of the Jones Act, which requires U.S.-flag, U.S.-built ships for U.S. domestic services.

The report’s main conclusion: Loosening Jones Act restrictions might lower shipping costs but would produce “highly uncertain” side effects, including the disappearance of U.S.-flag ships from the trade and harm to what’s left of the U.S. maritime industrial base.

And this: Deciding whether the changes are worthwhile “would require policymakers to balance complex policy trade-offs with the recognition that precise, verifiable estimates of the effects of the act, or its modification, are not available.”

GAO analysts said they were handicapped by sparse information and the difficulty posed by apples-to-oranges comparisons between the cost of U.S.-flag shipping to and from the mainland and of foreign-flag service between the island and other points.

“Freight rates are set based on a host of supply and demand factors in the market, some of which are affected directly or indirectly by Jones Act requirements,” the report said. “However, because so many other factors besides the Jones Act affect rates, it is difficult to isolate the exact extent to which freight rates between the United States and Puerto Rico are affected.”

Reaction broke along predictable lines, as Washington-based interests cherry-picked the sections most favorable to their cause.

Rep. Pedro Pierluisi, the Puerto Rico resident commissioner to Congress who requested the GAO report, cited the report’s finding that lower shipping costs prompt some shippers to buy oil, gas and agricultural products from foreign sources not covered by the Jones Act. Pierluisi said he will propose legislation to “relax” the law’s restrictions for those commodities.

The American Maritime Partnership, a Jones Act supporter, said the report’s review of bulk shipping markets to Puerto Rico was “anecdotal, incomplete, misleading, and one-sided.” The partnership emphasized shippers’ statements that they were satisfied with the quality and frequency of U.S.-flag service, and the report’s failure to show that the Jones Act raises rates.

The GAO report touched on a central issue in the Jones Act debate — the fast-approaching need for Puerto Rico carriers to replace their aging U.S.-flag ships and barges. Average ages for Jones Act vessels in the trade are 39 years for ships and 31 years for towed barges, although the vessels have been refurbished periodically.

The report said eliminating the U.S.-build requirement might encourage construction of new ships for the Puerto Rico trade, but that such a change would have an uncertain impact on rates and could cost U.S. shipbuilding jobs that are important economically and militarily. “Understanding the full extent and distribution of the costs that underlie these benefits is elusive,” the GAO said.

Jones Act carriers that have invested in higher-cost U.S.-flag vessels will fight any effort to loosen build-U.S. requirements. TOTE recently announced plans to build two LNG-powered container ships, which it says are for the Puerto Rico trade.

And shipbuilding consultant Tim Colton’s Maritime Memos blog reports that Crowley Maritime Corp. has been talking with shipyards about construction of two LNG-powered roll-on, roll-off ships to replace its multideck barges in the Puerto Rico trade.

TOTE, Crowley and the other domestic carriers probably can plan their futures without worrying about a Jones Act repeal. The GAO report is good fodder for debate, but it won’t change any minds.

Contact Joseph Bonney at jbonney@joc.com, and follow him on Twitter at twitter.com/JosephBonney.

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