Op-Ed: The Jones Act

Written by  //  July 1, 2013  //  Biz Views  //  No comments

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Author José Joaquín Villamil is founder of Estudios Técnicos analyst firm. (Credit: © Mauricio Pascual)

Author José Joaquín Villamil is founder of Estudios Técnicos analyst firm. (Credit: © Mauricio Pascual)

We knew that the recently completed study on Puerto Rico’s maritime cargo would be controversial because cabotage issues, part of the study, have been discussed for decades and have become an emotional and politically charged subject.

Our study evaluated Jones Act economic costs and benefits using reliable industry sources, including PIERS and MARAD (The U.S. Maritime Administration). Close to a year was devoted to the project and a great deal of time to understanding the global shipping industry, essential in analyzing Jones Act implications and in proposing alternatives.

Costs
Opinions on Jones Act costs have focused on southbound traffic, excluding northbound traffic, with rates significantly lower than southbound and international rates. Northbound ships use only 20 percent of their capacity and leave mostly empty, but on time and directly to their destination.

Comparing a weighted average of south (80 percent) and northbound (20 percent) rates with international rates, US/Puerto Rico rates are lower (Drewry’s Global Freight Rate Index).

Anyone with a minimal understanding of the maritime cargo industry would know that ships are not readily available, and certainly not on an agreed upon schedule, to come here and pick up “several hundred containers” and continue on their way.

The Jones Act applies to only two cost factors of Terminal-to-Terminal total costs: labor in the ships (11 percent) and depreciation (5 percent). Stevedoring, fuels (25 percent), and other costs are not Jones Act related. Obviously this makes a huge difference when estimating impacts since the other 84 percent of costs, impact all ships, whether Jones Law or not.

MARAD has indicated that should international lines enter the coastwise business they would be subject to federal laws and regulations that would eliminate most of the differential existing between Jones Act wages and international wages.

We estimated that the total cost of the Jones Act comes to a bit less than $50 million. To blame the Jones Act for the transshipment fiasco is at best disingenuous.

Benefits
Approximately 26 percent of the trailer cargo coming to the Island is in 53-foot trailers. Each 53-footer has 40 percent more capacity (cubic feet) than a 40-foot trailer. For local importers this is important because inland handling costs of a 53-footer are very similar to a 40-footer. International shippers do not handle 53-foot trailers and their ships are not designed to handle this size. The benefits are major and are in excess of $100 million when estimated against the cost of using 40-footers to handle the same amount of cargo.

Another positive of the Jones Act is what the GAO report and our study identify as “dedicated service”, that assures local shippers that their cargo will arrive or leave at an agreed upon specific time and hour, which happens 98 percent of the time.

The benefits from the dedicated service cannot be dismissed unless one assumes that timeliness, certainty, and stability in rates, have no value for local business.

One may like or dislike the Jones Act for many reasons. The study concludes that from a cost/benefit perspective the scale is tipped toward the benefits, not all mentioned in this brief note.

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