US transportation secretary-designate expresses support for Jones Act

By The Star Staff

Pete Buttigieg, President Joseph Biden’s designated secretary of transportation, on Thursday came out in support of the Jones Act, the century-old Merchant Marine Act of 1920, which is widely blamed for artificially inflating the cost of shipping goods to Puerto Rico.

Buttigieg’s remarks were made after Sen. Maria Cantwell (D-Wash.) expressed support for the Jones Act during confirmation hearings.

“I share @SenatorCantwell’s support for the #JonesAct,” Buttigieg said via Twitter.

Last Friday, U.S. Rep. Ed Case (D-Hawaii) re-introduced three bills in Congress to reform the Jones Act. Like Puerto Rico, Hawaii imports 90% of its basic needs, mostly from the mainland United States.

The bills seek to end restrictions that require the use of U.S.-flagged vessels for the transportation of goods between two U.S. ports.

“Because the Jones Act severely limits the supply of shipping to and from our communities, it has allowed a very few companies to control our very lifeline to the outside world and as a result command shipping rates way higher than the rest of the world,” Case said.

“The Jones Act mandates that all cargo shipping between U.S. ports occur exclusively on U.S., not foreign, flagged vessels. Additionally, the law requires that these vessels are built in the U.S. and owned and crewed by U.S. citizens,” he noted. “Because Jones Act shipping has shrunken and international shipping has increased dramatically, especially in the last quarter-century, the Jones Act results in a very few carriers serving all domestic shipping needs.”

In 2019, several Puerto Rico businesses examined the Jones Act’s economic impact on Puerto Rico.

The first study, prepared by Puerto Rico-based Advantage Business Consulting, focused on the food and beverages sector where it found a Jones Act cost of $367 million. After surveying food industry companies in the territory about their transportation costs, the report’s authors found Jones Act vessels to have shipping prices two and a half times greater than non-Jones Act shipping from foreign ports ($3,027 versus $1,206) after adjusting for container size and distance.

Total maritime transportation costs, meanwhile, were found to be 12% of the value of imports. By multiplying 60% (the percentage differential between $3,027 and $1,206) by the 12% figure, the report’s authors were able to derive a de facto Jones Act tax of 7.2% (.60 x .12).

When this 7.2% tax was applied to the $4.154 billion estimated to be imported from the U.S. mainland in fiscal year 2018 ($4.615 billion in food and beverages were imported while survey data indicates 90% of this originated from the U.S. mainland), the result was a cost of nearly $300 million -- just for food and beverages.

The second report took a more comprehensive look at the Jones Act’s impact on Puerto Rico. Produced by John Dunham and Associates, it used a model of international shipping costs for 260 different commodities and compared it against six different estimates of Jones Act shipping cost differentials. After controlling for distance and terminal handling charges, the analysis estimated these differentials to range from 89% to roughly 30%.

Using the firm’s recommended model, the Dunham analysis finds the Jones Act raises the price of shipping cargo to Puerto Rico by $568.9 million and that prices are $1.1 billion higher than would be the case without the Jones Act. This, in turn, is estimated to mean 13,250 fewer jobs. Were they to exist, such jobs would mean $337.3 million more in wages and over $1.5 billion in increased economic activity. Tax revenue would be $106.4 million higher without the Jones Act, according to the report.

An immediate reaction from Gov. Pedro Pierluisi could not be obtained, but numerous local officials support the repeal or the easing of Jones Act restrictions.

As a U.S. senator, Biden expressed support for the Jones Act. He said “the Jones Act is a century-old act that has served America’s strategic defense needs well. It is crucial that we maintain domestic capacity — particularly in industries that are important to our national security.”

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