Lots of Love for Jones Act at Subcommittee Roundtable on Its Effects on Puerto Rico

July 26, 2018

A House subcommittee was quick to embrace a new report finding that the Jones Act has had no negative impact on consumer prices in Puerto Rico.

Members on both sides of the House Subcommittee on the Coast Guard and Maritime Transportation praised the report, released July 18 by Reeve & Associates and Estudios Técnicos, Inc. “Impact of the U.S. Jones Act on Puerto Rico” found that the Jones Act—which requires merchandise and passengers being transported by water between two points in the U.S., including Puerto Rico, to be on vessels owned by U.S. citizens, built in the U.S., and crewed mostly by U.S. citizens—did not lead to a price difference in consumer goods between San Juan, Puerto Rico, and Jacksonville, FL on the mainland U.S.

The report was commissioned by the American Maritime Partnership after news reports blamed the Jones Act for delayed shipments to Puerto Rico following Hurricane Maria; President Trump waived Jones Act requirements for shipments to Puerto Rico after several Members of Congress and Puerto Rico Gov. Ricardo A. Rosselló asked him to do so.  It also comes in response to claims that consumer goods cost twice as much in Puerto Rico as they do in neighboring islands.

Subcommittee Ranking Member John Garamendi (D-CA) called the report “extremely important,” while Subcommittee Chair Duncan Hunter (R-CA) wondered who was behind the “political attacks without basis in fact or reality” that blamed slow hurricane response on the Jones Act.

John Reeve, Principal of Reeve & Associates and the lead economist on the study, was present at the roundtable—which only included stakeholders friendly to the law in question—to explain the main findings of the report, which largely fell into three categories:

1. Freight rates between the mainland and Puerto Rico are highly comparable to Puerto Rico’s foreign neighbors

 Reeve examined the price of a can of chicken noodle soup, finding that of the $1.58 retail price, three cents of that (or 2 percent) is the actual price of shipping the can from Jacksonville to San Juan.

“[The shippers] essentially eat that three cents, so there’s no actual cost to the consumer,” he said.

The report authors also examined a basket of goods purchased at Walmart, coming to a similar conclusion: the freight shipment did not add a significant amount to the total price of the goods.

As for how the freight rate compares to its neighbors, rates to the Dominican Republic are slightly lower, while rates to Haiti and the Virgin Islands are somewhat higher. (The U.S. Virgin Islands is exempt from the Jones Act.)

2. Jones Act carriers provide customized service to Puerto Rico

Reeve pointed out that Puerto Rico benefits from being in a “closed loop” with the mainland U.S. As compared to foreign ships making several stops on their way to Puerto Rico, domestic ships provide end-to-end service “at a high frequency with fast transit times.” Michael G. Roberts, senior vice president, general counsel and corporate secretary for Crowley Maritime—the largest American carrier serving Puerto Rico—praised this “efficient and reliable supply chain” as a direct result of the Jones Act.

“Shipping services between the mainland and Puerto Rico are customized and dedicated to that market because of the Jones Act,” Roberts said. He also pointed out that because inventory kept on the island for more than 30 days is taxed, shippers are incentivized to find the most efficient supply chain possible.

Additionally, domestic container shipments to Puerto Rico more likely come on the 53-foot trailers common on U.S. highways, which are larger than the 20- and 40-foot containers for which international ships are built. Roberts said that this difference alone drives $100 million in costs out of Puerto Rico trade, which “more than offsets the higher cost of American ships and crews” required by the Jones Act.

U.S. carriers have also invested over $1 billion in ships, improved terminals, intermodal equipment, and logistics systems in Puerto Rico, “enabling them to provide a high level of service,” according to Reeves.

3. Jones Act ships contributed to the hurricane response effort

Following Hurricane Maria, the American maritime industry mobilized immediately, with Jones Act ships bringing thousands of pieces of shipping equipment, hundreds of logistics professionals, and 10 million miles of electrical cable from the mainland to Puerto Rico in the direct aftermath of the storm. Additionally, domestic carriers worked with first responders to restore terminal operation at the Port of San Juan within a week after the storm hit (which is comparable to the restoration of the Port of New York-New Jersey following Hurricane Sandy in 2012).

Roberts said the American maritime mobilization was “among the most successful elements of the overall response” to Maria.

Members of Congress agreed. Rep. Don Young (R-Alaska) said that slow delivery of supplies to hurricane survivors “wasn’t the fault of inability of capacity [of the maritime industry], it was actually onshore… We couldn’t get the product out of the ports to where it was supposed to go.”

Read the report here. Watch a recording of the roundtable here, though there were audio problems for much of it.

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