Op-Ed: Against the Jones Act

Written by  //  June 28, 2013  //  Biz Views  //  1 Comment

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Author Vicente Feliciano is president of Advanced Business Consulting. (Credit: © Mauricio Pascual)

Author Vicente Feliciano is president of Advanced Business Consulting. (Credit: © Mauricio Pascual)

A recent study by the firm Estudios Técnicos, paid by Jones Act shippers, purports to show the benefits for Puerto Rico of the Jones Act.  The federal law requires all goods transported by water between U.S. ports be carried in U.S.-flag ships, built in the U.S. and crewed by U.S. citizens and permanent residents. The analysis, as described by a local business publication, makes for sad reading.

The study accepts that Jones Act shippers are more expensive compared with international shippers, particularly with regard to the cost of ships (U.S. shipyards are more expensive than their international counterparts) and the crews’ labor costs (U.S. employees are more expensive than equally competent international employees).

However, it argues that such disadvantages are offset by the benefits of direct routes between Puerto Rico and the U.S., along with the benefit of handling containers 53 feet in size instead of the international norm of 40 feet.

The first flaw in this argument is that without the Jones Act, companies could achieve the savings of lower capital and labor costs, and still provide the benefits of direct routes and 53-feet containers. In fact, the same Jones Act companies could provide the exact same service, only cheaper.

The second flaw in the argument is that the cost of inputs (capital and labor) is only one of the burdens that the Jones Act imposes on Puerto Rico. Another is the inefficiency of small obsolete ships. The Jones Act does not apply to cruise ships. Thus, there has been a symbiotic relationship between cruise ship companies and the P.R. Ports Authority: as cruise ships have gotten bigger, Ports has made the necessary accommodations to handle these larger ships.

No such thing has occurred in the Jones Act-protected container business. While the size of container ships all over the world has increased tremendously, Jones Act shippers still service Puerto Rico with ships originally built some 30 years ago.

The third flaw in the argument is that the closed nature of the Jones Act imposes the inefficiency of ships coming down south to Puerto Rico, mostly full, and going up north to the U.S., mostly empty. Low capacity utilization is passed on to consumers in the form of higher prices. Theoretically, an international ship going north could make a stopover in Puerto Rico, pick up several hundred containers and continue onward at full capacity. This may or may not happen without the Jones Act. However, it is a legal impossibility under the Jones Act.

The fourth flaw in the argument is the obstacle that the Jones Act entails to a transshipment operation in Puerto Rico. Why use the more expensive Jones Act shippers out of Puerto Rico, when international shippers can be used out of Panama, the Dominican Republic, Jamaica and the Bahamas? San Juan has never developed into a significant transshipment point. The Jones Act has been one of the key stumbling blocks in the efforts to develop Ponce as a transshipment port.

The fifth flaw in the argument is the job losses to the Puerto Rico economy as a result of the Jones Act impact on the competitiveness of local businesses. Inputs to local operations, from feedstock for dairy farms to inputs for manufacturing plants, carry the burden of the Jones Act. This burden leads to fewer jobs on the island.

The sixth flaw in the argument… we could go on and on.

While the costs to Puerto Rico of the Jones Act need to be properly assessed, to argue that the Jones Act is positive for the island is ludicrous.

One Comment on "Op-Ed: Against the Jones Act"

  1. DavidRMartinR June 30, 2013 at 5:25 PM · Reply

    Caribbean Business trumpeted this study in its last edition in May, saying the study should end the debate. In rebuttal, I wrote the following letter to the Editor. Regrettably, it was not published:

    Dear Editor,

    Despite the recent study by Estudios Tecnicos and your article, I am still agnostic as to whether Puerto Rico would be better off without the Jones Act.

    As you note, Hawaii – which is even more geographically isolated than Puerto Rico – is also subject to the Jones Act.

    Nevertheless, Hawaii has one of the lowest rates of unemployment in the U.S. Moreover, Hawaii’s per capita GDP is three times that of Puerto Rico. These facts suggest that the negative effects of the Jones Act on Puerto Rico’s economy are overstated.

    Even so, a study commissioned by the four U.S. carriers that control Puerto Rico’s shipping market under the Jones Act requires a more stringent review given its inherent bias in favor of the Jones Act.

    If U.S. carriers bring more value to Puerto Rico shipping with predictable schedules and accommodations for multiple container sizes, then these carriers should have no problem competing alongside foreign carriers.

    The recent study by the Government Accountability Office was incomplete, and the study by Estudios Tecnicos suffers from bias. Given the relatively modest sums involved in Puerto Rico shipping, an objective, empirically-supported study may not be worth anyone’s while. But the debate seems far from settled.

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