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Both the Senate and House have passed a disaster bill which is now waiting for President Trump’s signature. The bill includes substantial funds — $19.1 billion — to compensate farmers and other US businesses for losses caused by natural disasters including major hurricanes, earthquakes, and widespread flooding between 2017 and 2019.
Somewhat controversially, the legislation also provides an additional $600 million in food aid and $300 million in construction aid to Puerto Rico, which has been struggling since 2017 to recover from the devastating consequences of Hurricane Maria. However, because of the 1920 Jones Act which requires that all shipments of goods between any two ports in the United States be carried on US flagged ships, the value of aid to Puerto Rico will be undercut.
Shipping goods on US flagged vessels is expensive. In 2011, the Maritime Administration (MARAD) reported that it costs over 2.7 times more to transport cargoes on US flagged ships than on foreign ones. MARAD also reported that labor costs were five times higher on US vessels and government reports have documented that construction costs for US flagged vessels are more than double those for vessels constructed in other countries. Data from US food aid shows that carrying goods on US flagged vessels increases shipping costs by as much as $50-$60 per ton.
Shipping costs between US ports and Puerto Rico are substantially affected. For example, a recent quote for shipping a 20-foot container from Jacksonville, Florida to San Juan was $3,390, or about $3 per nautical mile. The quote for shipping a similar 20-foot container from Veracruz, Mexico to San Juan, a longer journey, was only $1,350, or $0.77 per nautical mile.
The Jones Act mandate to use US flagged vessels has had well-documented adverse impacts on Puerto Rico. It is now likely to substantially reduce the amount of on-the-ground resources that can be provided by the $900 million SNAP and reconstruction package in the disaster aid legislation being considered by Congress. Evidence from analyses of other US cargo preference programs indicates that between $100 and $200 million (between 10% and 20% of the total aid amount) is likely to be diverted for excess shipping costs to companies owning US flagged ships.
Most of those Jones Act costs will adversely affect the poorest families in Puerto Rico, where over 50% of the island’s population rely on food stamps. Around 85% of the island’s food is shipped from America and other countries. 71% of it comes from the United States, and 60% of all food consumed in Puerto Rico is shipped from the US under the provisions of the Jones Act. The Act also applies to shipments and imports of the machinery and equipment needed to repair the territory’s electrical grids, roads, houses, schools, offices and factories.
Today, the Jones Act delivers “hidden” subsidies to US maritime companies, at the expense of others, by guaranteeing much higher shipping rates on domestic routes between US ports. Supporters of the Act (and other systems) that benefit US mercantile marine companies argue that these programs are necessary to ensure that the US merchant marine can provide military sealift services in times of war. They also state that these actions strengthen the US shipbuilding industry so that it remains capable of delivering submarines, warships and other vessels needed for the nation’s defense.
In fact, even with the protective shield of the Jones Act (and the other forms of direct and indirect subsidies) the US merchant marine has not provided the sealift capacity needed to support operations or contribute to military shipbuilding. Only one commercially owned ship used in the Desert Storm and Desert Shield campaigns during the 1990-1991 Gulf War came from the Jones Act fleet. Foreign flagged ships carried more cargo for the operations than all the US commercial ships used by the military in those campaigns.
Moreover, the Jones Act generates only a small share of business for the companies that build US combat ships. A recent AEI study reported that, since 2000, building ships that are part of the current Jones Act fleet only accounted for 5% of all orders placed with shipyards that build government and military vessels. Furthermore, large military vessels are built in specialized yards that are almost entirely dependent on government contracts for their economic survival.
The Jones Act provides very little in the way of military support, but imposes substantial costs on the US economy. The legislation is also likely to sharply reduce the benefits of congressional disaster aid funds for Puerto Rico. So do the national defense benefits that stem from the Jones Act outweigh its costs? The evidence indicates that the answer is no!
Vincent H. Smith is Director of Agricultural Policy Studies at the American Enterprise Institute and Professor of Economics at Montana State University. Philip Hoxie is a research assistant at AEI.
The Jones Act mandate to use US flagged vessels has had well-documented adverse impacts on Puerto Rico. It is now likely to substantially reduce the amount of on-the-ground resources that can be provided by the $900 million SNAP and reconstruction package in the disaster aid legislation being considered by Congress.
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