GAO’s Jones Act Report Is Inconclusive

GAO’s Jones Act Report Is Inconclusive

Repealing or amending the Jones Act cabotage law might cut Puerto Rico shipping costs but would have “highly uncertain” impact on competition and the U.S. shipping industry, the General Accountability Office says in a new report.

The GAO report on the Jones Act and its impact on Puerto Rico was requested by Puerto Rico’s resident commissioner, Pedro Pierluisi.

Jones Act opponents hoped the report would support efforts to repeal or modify the cabotage law, which restricts waterborne commerce between U.S. points to move in U.S.-flag vessels built, owned and crewed by U.S. citizens.

The GAO report said its interviews with shippers indicated they were satisfied with the quality and frequency of service to and from the U.S. mainland, but believed that opening the trade to non-U.S.-flag competition could lower costs.

However, the GAO said it lacked enough information to say how rates, U.S. shipbuilding and seagoing jobs, and the military might be affected if Puerto Rico were exempted from the Jones Act or U.S.-flag carriers were allowed to serve the island with foreign-built ships.

“Ultimately, addressing these issues 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,” the report said.

The GAO said it gathered rate and service information from the four major Jones Act carriers serving Puerto Rico — Horizon Lines, Crowley Liner Services, Sea Star Line and Trailer Bridge — but that information from non-U.S.-flag carriers was sketchy.

Nine of the 10 foreign-flag carriers the GAO contacted declined to be interviewed, although two of the carriers participated in a larger meeting of stakeholders the GAO held in Puerto Rico.

“As a result, we were not able to gather detailed cost or rate information from foreign carriers that call in Puerto Rico,” the report said.

The report said some Puerto Rico shippers said the Jones Act causes them to spurn U.S. suppliers of certain goods, primarily bulk products such as oil and animal feed and fertilizer, in favor of non-U.S. suppliers not covered by the act.

But the GAO said the act’s impact on Puerto Rico rates is difficult to gauge.

“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.”

Those factors include global weakness in freight rates, weak demand resulting from Puerto Rico’s years-long recession and population decline on demand, and a six-year price-fixing scandal that has yielded guilty pleas by three carriers and six of their former officials.

U.S.-flag vessels serving Puerto Rico have average ages of 39 years for self-propelled vessels and 31 years for towed barges, although the vessels have been refurbished over the years, the GAO said.

Eliminating the U.S.-build requirement for Jones Act ships in the Puerto Rico trade might encourage recapitalization of the fleet, but could affect U.S. shipbuilders and shipbuilding jobs that are important to military preparedness, the report said.

“Understanding the full extent and distribution of the costs that underlie these benefits is elusive,” the GAO said.