What is the Jones Act?

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Definition:

The Jones Act requires that goods shipped between two American ports travel on ships owned and staffed primarily by US citizens and registered in the US.

🤔 Understanding the Jones Act

The Jones Act, or Merchant Marine Act of 1920, is a federal law that regulates maritime shipping in the US. Congress enacted it to ensure the country had a well-equipped merchant marine — a civilian fleet that transports goods during times of peace but can mobilize to support the military if needed. The law requires all goods shipped between US ports to travel on American vessels primarily operated by US citizens. The Jones Act is considered a protectionist measure, since it restricts access to a domestic market and favors domestic companies. The statute also gives sailors certain rights, including the right to seek compensation if they are injured.

Example

Imagine a fictional company, Acme International Shipping, imports products from Europe. It uses a Singaporean-flagged, South Korean-built ship primarily staffed by Philippine citizens to ship goods from the Netherlands to New York City. This is legal under the Jones Act.

Acme also needs to ship goods from New York City to Miami. The Jones Act prevents the company from using the same ship, since it wasn't built or registered in the US and is staffed by foreigners.

Instead, Acme uses a US-built ship owned by an American company that flies the American flag. All officers and at least three-quarters of the crew are American. This ship meets Jones Act requirements for shipping products between two US ports.

Takeaway

The Jones Act is kind of like the Department of Motor Vehicles (DMV)…

Instead of regulating travel on local roadways, this law controls commercial traffic on domestic waterways. The DMV determines who can drive commercial trucks, regulates the transport of goods on roads, and issues license plates. The Jones Act sets requirements for which ships can ferry goods between domestic ports, among other things.

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What is the Jones Act?

The Merchant Marine Act of 1920, known as the Jones Act, is a federal statute that regulates maritime shipping in the US.

The Jones Act requires companies to use ships that are built and registered in the US when transporting goods between two US ports. It also mandates that the vessels be owned by US companies (where at least 75 percent of shareholders are US citizens) and that at least three-fourths of the crew (and all officers) be American citizens.

Foreign ships can still ship products to and from the US and foreign countries, but not between domestic ports. So a British ship could ferry goods from Spain to New Jersey, but not from New Jersey to Florida.

The law is often called the “Jones Act” because Sen. Wesley R. Jones was its lead sponsor. His home state of Washington boasted a large shipping industry. The act would allow Washington to control much of the trade between the continental US and Alaska.

The Jones Act is a type of cabotage law. “Cabotage” is derived from the French word “caboter,” which refers to someone sailing along the coast. Cabotage laws apply to coastal territories and domestic waterways.

Jones Act shipping restrictions apply only to vessels transporting goods of commercial value. This can include merchandise, natural resources (like oil), and more. The Jones Act doesn’t apply to transport of worthless cargo, like sewage sludge.

What does the Jones Act do?

The Jones Act was designed to encourage the growth of the American maritime industry and the Merchant Marine. By requiring the use of ships built and registered in the US, as well as owned by American companies and staffed primarily by Americans, this maritime law ensures a steady demand for US-made ships and American sailors. As a result, domestic shipbuilders can rely on regular demand for their services.

The military can also call upon the domestic fleet in a time of war. During World War II, for example, the American merchant fleet transported troops and supplies to Europe and across Asia. Nearly 10,000 civilians in the US Merchant Marine died during the war.

While the Jones Act is best-known for restricting trade between domestic ports, it also contains other provisions. The Jones Act formalized sailors’ rights, allowing them to sue their employers if injured at work. Only a “seaman” can file for damages under the Jones Act. To be considered a seaman, the employee must generally spend at least 30 percent of his or her time on a ship that travels in navigable waters.

The Jones Act also empowered federal officials to oversee the domestic shipping industry. For example, the secretary of transportation can determine the sale price of American ships to foreign buyers and can establish and operate steam lines between ports.

What is the history of the Jones Act?

Before the Merchant Marine Act, US shipbuilders struggled to compete internationally due to high labor and registration costs. The UK, in particular, dominated shipbuilding with its superior iron and steel industries.

As World War I unfolded, the US shipbuilding industry expanded to meet a sudden increase in demand. The US and its allies needed ships to transport troops and supplies from North America to Europe. But there was no guarantee that American shipbuilders would continue to thrive after the war. Given high labor costs, it would be hard for them to compete.

In order to protect the shipbuilding industry, and ensure that a merchant marine could act as a naval reserve, Sen. Wesley Jones introduced the Merchant Marine Act of 1920. The law would protect Washington’s large shipbuilding industry and allow it to control trade to Alaska, which would benefit Jones’ constituents. Jones quickly found support among other lawmakers, since World War I showed how important a large domestic merchant fleet was.

The Jones Act provided enough protection to allow the US shipbuilding industry to prosper. The federal government later supported the industry through subsidies and other measures. After the Reagan administration eliminated subsidies in 1981, the industry shrank.

How many Jones Act vessels are there?

There are roughly 40,000 ships that meet Jones Act requirements on domestic waterways at any given time. As of 2019, only 99 ships capable of carrying 1,000 gross tons or more were eligible under the law. In 2012, 1,200 qualifying ships were built, representing $20B in domestic investments.

Without the Jones Act, the American shipbuilding industry would be at risk of collapsing completely. Many countries, such as South Korea, China, and Japan, have larger, more productive shipbuilding industries. It would be difficult for American shipbuilders to compete internationally without support.

How does the Jones Act affect Puerto Rico?

The Jones Act requires any goods shipped from an American port to Puerto Rico to meet its requirements. As a small island, Puerto Rico imports much of its food and supplies from the mainland US or foreign countries.

If Puerto Rico’s demand for shipping suddenly increases, this could result in bottlenecks. In Sept. 2017, Hurricane Maria struck the island, causing serious damage. Food, water, building materials, and other supplies were in high demand. There were plenty of supplies in the continental US, but getting them to the island was difficult, in part because only a limited number of ships could transport the goods.

President Donald Trump authorized a waiver to the Jones Act in order to allow foreign ships to transport goods from the mainland to Puerto Rico. Goods could arrive more quickly and at a more affordable price, helping alleviate shortages.

Critics of the Jones Act argue that the law makes it more expensive to ship goods to Puerto Rico. Ultimately, costs are passed onto consumers in the form of higher prices. A study by Puerto Rico-based Advantage Business Consulting, found that the Jones Act increased food and beverage prices on the island by $367M a year.

The study also found that shipping costs under the Jones Act were 2.5 times more expensive than shipping from foreign ports, accounting for container size and distance. The study concluded that the Jones Act resulted in a de facto 7.2 percent tax.

Critics of the Jones Act also argue that it increases the cost of shipping goods to Hawaii and Alaska.

What is a Jones Act violation?

A Jones Act violation occurs when a foreign vessel transports goods between American ports without prior authorization or a waiver. Customs and Border Protection agents can fine companies that violate the law an amount equal to the value of goods shipped.

In 2011, Furie Operating Alaska, a natural gas and oil exploration company, was fined $15M for using a Chinese shipping company to transport a jack-up drill rig from the Gulf of Mexico to Alaska. The company ultimately settled with the Department of Justice for $10M after filing a lawsuit.

The Jones Act applies to passengers on cruise ships, which can be fined $762 per passenger for violations. Some cruise lines require passengers to cover the penalty as part of their terms of service.

If a cruise ship’s itinerary includes a stop at a distant foreign port, such as Aruba, it can take on or leave passengers at two different American ports. Under the Jones Act, the US Virgin Islands and Puerto Rico are not considered American ports when it comes to passengers.

What are some criticisms of the Jones Act?

Detractors argue that the Jones Act artificially distorts competition and prevents the functioning of a free market. This may result in higher prices and inefficiency. There is evidence that domestic maritime shipping in the US is more expensive because of the Jones Act. In a deregulated market, increased competition and supply could result in lower prices.

Critics also argue that the Jones Act encourages overreliance on less sustainable forms of transport. Since only American ships can transport goods between domestic ports, many companies often rely on trucks and railroads to transport products. These methods result in more carbon emissions and pollution than maritime shipping, so the Jones Act may be contributing to climate change.

Critics also note that the Jones Act doesn’t seem to be achieving its principal aim of promoting a sizeable American shipbuilding industry. The US shipping industry still lags behind that of South Korea, Japan, and other leading shipbuilding nations.

Additionally, the Jones Act may encourage American shipping companies to rely on older, less efficient vessels. Even American-owned companies can’t use foreign ships to transport goods between domestic ports. They have to rely on American ships, which are in limited supply and more expensive than many foreign ships.

The law may also encourage companies to keep their American-built ships in use longer. Older ships may be less fuel-efficient and may require more maintenance.

Should the Jones Act be repealed?

Some critics argue that the Jones Act should be repealed. Doing away with the law would likely make shipping goods between American ports and on waterways cheaper. This would allow businesses and consumers to save money.

Repealing the Jones Act might also be good for the environment if companies started using maritime shipping more instead of road freight. Some critics also claim that shipping via waterways is safer, causing fewer accidents and spills.

Defenders of the Jones Act argue that the US shipbuilding industry will disappear without protection. This would cost thousands of jobs and billions in lost revenues for American businesses. The US could end up entirely reliant on foreign ships.

Some supporters also claim the law is essential for national defense. Without it, the Merchant Marine might shrink, reducing its ability to support the military in a time of war.

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