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MIDA: Jones Act has ‘devastating effects’ on P.R. economy, with losses of up to $1.5B

The cost of transportation of goods between Puerto Rico and the U.S. mainland has a “devastating impact” on the local economy estimated at $1.5 billion in lost activity, according to two independent investigations unveiled today.

The study to determine the “real and
transparent data” on the effect of cabotage laws in Puerto Rico, was commissioned
jointly by the Chamber of Marketing, Industry and Food Distribution (MIDA)
together with the Puerto Rico Chamber of Commerce, the Restaurant Association
(ASORE), the United Retailers Association (CUD), Puerto Rico Products
Association and the Puerto Rico Bar Association.

“Despite the large number of studies
that exist on the issue of cabotage and the Jones Act, last summer there was a
debate surrounding the government’s report for the recovery of the island after
María,” said MIDA Executive Vice President, Manuel R. Reyes-Alfonso.

The draft version of this report, which was
prepared with the participation of FEMA, Homeland Security Operational Analyst
Center (HSOAC) and RAND Corporation, recommended the need to exclude Puerto
Rico from the cabotage laws, he said.

“Unfortunately, after some opposition based
on a study commissioned by the American Maritime Partnership and curiously published
a few days after the draft was made public, the final version was edited,” Reyes-Alfonso

“And although the recommendation was
maintained, the need for more information was indicated. That is why this group
decided to collaborate to clear up any doubts that may remain about this
matter,” he said.

The local firm selected was Advantage
Business Consulting, which designed a strategy to fill the lack of official
information on the cost of transportation.

Economist Vicente Feliciano said ABC decided
to prepare a questionnaire and go directly to a representative sample of
importers of food, beverages and general products to obtain real data on
transportation costs. In that questionnaire, the firm requested transportation
information to Puerto Rico not only from the U.S. mainland but also from
various international ports with which Puerto Rico frequently trades.

The sample response percentage was
extremely high at 70 percent representing 32 companies that imported around 40,000
containers in 9 months.

“This is the first time that this type of
information is available, making the value of this analysis unquestionable. The
high participation also demonstrates the interest of importers with this issue,”
Feliciano said.

From left: Vicente Feliciano and Manuel Reyes-Alfonso

For the economist, although a significant
difference was expected, the result was surprising. According to the data
obtained, transporting containers from the U.S. mainland, costs on average 2.5
times or 151 percent more than transporting from non-US ports ($3,027 US vs.
$1,206 non-US). This after having made the corresponding adjustments for size of
container and distance.

With the data collected, the firm
calculated an impact equivalent to a Jones Act Tax of 7.2 percent on food and
beverages alone, which translates into an increase of $367 million on the
economy only on beverages and food to Puerto Rico.

“Individually, families pay $300 more or
$107 per person for food and beverages only,” Feliciano noted.

To validate the impact on product prices, Juan
Lara, a partner at ABC, explained that the firm used the same model as the
study commissioned by the American Maritime Partnership last summer where they
concluded there were no differences in prices among the items sold at a
national retailer in its stores in Jacksonville, FL and in Puerto Rico.

That exercise looked for prices for a small
basket of 12 items on the retailer’s website.  By changing the sample 12 products, the
difference in prices averaged 22 percent more expensive in San Juan than in
Jacksonville, he said.

This in turn was compared with the Cost of
Living Index Model used by the Puerto Rico Institute of Statistics, whose most
recent report placed the difference in the cost of food in both cities at 19.7

“It is evident that the sample used by
that study was not representative of the typical purchase of Puerto Rican
households,” said Lara.

Although the impact of ground
transportation was not calculated, Lara explained that they were able to obtain
enough data to present an example to showcase the importance of this cost,
which the island could possibly save if there were no cabotage laws deterring
maritime service from the U.S. mainland’s west coast.

For this, they analyzed the cost of
bringing a container from California by land, because there is no maritime
service, and compared it with a port of similar distance if it were by sea.
Chile was chosen for this exercise, because ships pass through the Panama Canal
and have a similar distance if there was a maritime service from California to
Puerto Rico.

According to the example, bringing a container
by land from California to Jacksonville currently costs around $7,000, which is
then added to the maritime cost of $2,404 for a total of about $9,404. This
contrasts greatly with bringing a container from Chile by sea at a cost of
$2,483, for a difference of 279 percent.

“With these results there can be no doubt
that the land cost should be part of the list of damages caused by the Jones
Act and should be expanded in future studies,” Lara said.

study includes six exercises
The second study was
conducted by the New York firm, John Dunham & Associates (JDA), whose chief
economist John Dunham, has extensive experience in the maritime transport
sector, having worked for the Port Authority of New York and New Jersey, the
Port Authority of Philadelphia and the Ports and Commerce Department of the
City of New York.

According to Dunham, his firm used data
from various sources such as PIERS, published rates and previous studies to
feed the well-known econometric input-output model, IMPLAN, which calculates
the impact through the economy.

Using the model and the data from various
sources, the firm performed six exercises to calculate the impact of cabotage
on the economy of the island. One of the exercises used the RA/Estudios
Técnicos July 2018 report.

“All the calculations concluded that there
was a significant impact. From this analysis, the firm chose and adapted the
sources to make their own recommendation, concluding water transportation costs
to Puerto Rico are $568.9 million higher, and prices are $1.1 billion higher
than they would be without the Jones Act limitations,” according to the study.

If this is the case, Puerto Rico has 13,250
fewer jobs than it would have were there a free market for ocean freight. These
jobs would pay residents $337.3 million more in wages, and would result from
nearly $1.5 billion in increased economic activity, the report showed.

“Higher prices in Puerto Rico would cost the
average resident nearly $375 per year, or $1,050 for a typical family of 2.8
members. Finally, overall tax revenues would be $106.4 million higher were the
island be exempted from the Jones Act’s provisions,” the report noted.

Dunham concludes that the Jones Act is also
harmful to the U.S. mainland and has not met its intended objectives.

The study documents the dramatic reduction
in employment on U.S.-flagged vessels and on shipyards since the 1950s and how stateside
producers have lost the Puerto Rico market in terms of bulk merchandise in
which they have strong export markets due to the lack U.S.-flagged ships.
Specifically, commodities such as: Oil (91 percent from outside the US), grains
(97 percent), cement (99 percent), “beet sugar” (95 percent) and
“Oilseed farming” (98.6 percent foreign).

“With the results of these two
economic studies, we have enough data to demand that we be heard here as well
as in the U.S. Congress. The numbers are clear, the impact is devastating for
the economy of our island and even more so being as vulnerable to natural
disasters such a as Hurricane María,” said Chamber of Commerce President
Kenneth Rivera.

Puerto Rico’s food security is directly
tied to the “extreme dependence” on food imports, so the issue of maritime
transportation is key, said Restaurants Association President José Salvatella.

“Particularly after what happened with
María, where we had great difficulties in meeting our client’s needs to the
point that one of our partners had to import food by plane at a cost ten times
higher than what it would have cost by sea due to the lack of service,” he

In addition to the usual
requests to repeal or give total or partial exemptions to the island, Feliciano
made an analysis of the Shanghai Containerized Freight Index, saying the local
government should evaluate having a similar index that would add transparency
to transportation costs, allowing importers and future investors to have
updated data on transportation costs.

The group sent a copy of the documents to Gov. Ricardo Rosselló,
and Omar Marrero, executive director of the Central Office of Recovery, Reconstruction and
Resiliency, known as COR3, with the
expecation that the government will use the new reports to expand the efforts
already being made in Washington to exempt the island from the Jones Act, as in
the case of the transportation of natural gas.

“All of us support this request for natural gas, but we believe
that the weight of the cabotage laws falls on everything and when thinking
about long-term recovery, Puerto Rico being an Island must have a
cost-efficient and transparent maritime service.” said Rivera.        

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This story was written by our staff based on a press release.

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