OSG: Jones Act Waiver is Only Increasing Oil Companies' Profits

The Jones Act's defenders and opponents continue to debate the outcome of the Trump administration's sweeping 150-day waiver of America's landmark cabotage law. OSG, which has interests in both domestic and foreign-flag operations, has weighed in with a new perspective: the waiver has indeed created benefits, says OSG CEO Sam Norton - but only for petroleum refiners, who are already reaping outsize profits from runaway fuel prices.

"Perhaps the so-called champions of free markets who advocate Jones Act waivers — or even repeal — are not defending consumers at all. Perhaps they are defending the narrow economic interests of oil producers and distributors," said Nortond in a critique posted online.

Norton's suggestion is that the waiver allows oil companies to move their products at lower cost, increasing already-high margins without benefiting the consumer. He noted that the margin for refining a barrel of oil (in industry terms, the crack spread) has risen to roughly 75 percent - threefold compared to normal levels. This means that out of every $3 spent on a gallon of wholesale gasoline, the wholesaler is now paying more than $1 towards the refinery's operations and profits. The charge gets passed on to the consumer as an added cost.

"By many estimates, ExxonMobil and Chevron’s earnings are expected to have tripled in the April-to-June quarter compared with the first quarter. Meanwhile, U.S.-flagged vessels have sat idle while lower-cost foreign-flag vessels perform domestic voyages under a continuing Jones Act waiver," said Norton.

The Jones Act has been the defining feature of a century of U.S. domestic maritime trade, shielding American shipping from foreign competition and creating a protected market for high-wage jobs and high-value assets. Critics of the Act - some of whom are linked to a privately-held oil, chemicals and refining conglomerate - say that the cost of building and operating American ships is too much for consumers to bear, and have welcomed the waiver. Proponents say that the Act is essential for sustaining a degree of shipbuilding and sealift capacity for U.S. national security purposes, and that the waiver is hurting domestic shipping.

"The current extended — and still continuing — Jones Act waiver creates a rare opportunity to identify the real winners and losers of a policy promoted as consumer relief but functioning, in practice, as a subsidy to the oil industry," said Norton. "U.S. maritime jobs have suffered, and the long-term health of the broader U.S. maritime industry has been weakened on multiple fronts."