In the past three years New Jersey, New York, and Massachusetts have announced plans to build offshore wind farms that would generate hundreds of megawatts of power. Massachusetts and New Jersey have already awarded building contracts to energy companies and New York is in the process of reviewing bids. With an energy sector that is facing more and more pressure to decarbonize, the expansion of offshore wind is likely. But there is a major hurdle in the way.
One rarely discussed law is the Merchant Marine Act of 1920 commonly referred to as “the Jones Act.” The Jones Act does two things: It extends the protections of the Federal Employer’s Liability Act to crew members on U.S.-flagged ships, allowing them to sue for damages due to injury and the like, and it restricts coastwise trade (trade between two ports within the United States) to Jones Act registered ships. The Jones Act is what is known as a cabotage law, which protects a shipping industry from foreign competition. These types of laws are found in other countries and often apply to intra-national shipping by sea, air, or truck.
There are four main requirements to be a Jones Act compliant ship. They must be built in the United States, controlled by a company that is 75% U.S.-owned, flagged (or registered) in the United States, and have a crew where 75% of the sailors are American.
The Jones Act most recently made news following the devastation of Puerto Rico from Hurricane Maria. Jones Act compliant ships were the only ones allowed to deliver aid from mainland ports to Puerto Rico because the island is a United States territory. Importantly for Puerto Rico, United States food aid data shows that carrying goods on U.S.-flagged ships increases costs by as much as $50-$60 per ton. In fact, some estimates found that Puerto Rico may have lost between 10%-20% of the aid they were allotted to shipping companies by being forced to use Jones Act vessels instead of foreign vessels.
So why does such a law exist? The Transportation Institute, a non-profit dedicated to upholding the Jones Act and government protection of the shipping industry, is one of the voices defending the Jones Act. This organization argues that it saves American jobs, it improves work conditions, and offers labor protections for sailors. It also argues that it is a successful law because its main purpose was to maintain a large U.S.-flagged fleet of ships that can be used by the Navy during war-time, and restricting access in the coastwise shipping market means there will always be a demand for Jones Act ships. In fairness, there is a justification for having ships that can be called on during war-time. But to suggest that the Jones Act is successful in this goal, one would have to prove that eliminating the Jones Act would substantially reduce the number of U.S.-flagged ships, that the Navy would have a need of such ships, and that the Navy would be unable to use foreign ships. Notably, the last time the Jones Act fleet was called upon in a significant way was to evacuate people from Manhattan after 9/11.
Even with this law, most of the big commercial vessels are built outside of the United States (America only builds 1% of them), and there is very little reason to assume that the fleet of U.S.-flagged ships would simply disappear, even slowly, if the Jones Act regulations were lifted. Even if the whole fleet disappeared, I would suggest that in times of war, the Navy could simply co-opt, or even contract foreign flagged ships in the United States for emergency use. Some may say that the quality of foreign vessels could be unreliable, so the Navy wouldn’t be able to use them. But if that is really the case then the U.S.-flagged ship industry is in no danger of disappearing because there will always be a demand for high quality vessels. Competition in this sector would force American shipbuilders and operating companies to become more efficient in order to compete with foreign ships, thus benefiting the consumers.
So why do domestic shipping companies need protection? The Maritime Administration (MARAD), an agency within the U.S. Department of Transportation dealing with waterborne transportation, reported in 2011 that it costs almost three times more to transport cargo on U.S.-flagged ships as opposed to foreign ships. MARAD reported that the costs for labor were five times higher on American ships; government reports have also found that it costs more than twice as much to produce a U.S.-flagged vessel than the same type of vessel in another country. So if the quality of foreign vessels is found to be comparable to American-built ships, and if the cost is cheaper, and if these vessels could still be used during wartime by the Navy, then why do we have such an inefficient law on the books?
Frederick Bastiat echoed these same concerns in an essay that he wrote titled “The Candlestick Maker’s Petition.” He speaks from the perspective of a candlestick maker who wants the government to restrict people from using the light of the sun because candles, of course, cannot compete with free natural light. His essay demonstrates the absurdity of policies like protectionist tariffs and embargoes against cheap foreign imports, or in this case foreign shipping, to prop up domestic businesses. He says, “for as long as you ban, as you do, foreign coal, iron, wheat, and textiles, in proportion as their price approaches zero, how inconsistent it would be to admit the light of the sun, whose price is zero all day long!” If foreign ships are cheaper to build, operate, and man then putting a ban on their presence in domestic markets is much the same as tariffs on foreign coal, iron, or textiles, and even more similar to banning the light from the sun.
Returning to offshore wind, the Jones Act has important implications into how these wind farms are built. As long as wind farms are placed on the Outer Continental Shelf, the sites are bound by Jones Act restrictions. This means that ships from Europe, which is where the vast majority of offshore wind ships and expertise come from, can’t transport any equipment from the mainland to the worksite. If a company wants to use European installation vessels, they must transfer all of the equipment and components to a Jones Act compliant vessel before transferring it to the European installation vessel. Essentially, this just adds in extra steps (and cost) to the process. For a country spending so much time talking about expanding the renewable energy sector, it’s crazy to me that we have policies on the books that make it more difficult to build wind turbines.
Until perceptions of free trade change, free market advocates must gently point out the economic reality behind policies like embargoes, tariffs, and subsidies. Americans deserve the benefits of competition in the shipping and wind sector, and it’s imperative that we realize that vision by repealing the Jones Act.
Home page photo Free Images.
