With U.S.-Iran Deal Signed, Jones Act's Defenders Call for an End to Waiver

Now that the U.S. has signed a ceasefire deal with Iran and tanker flows in the Strait of Hormuz appear to be back on the rise, American domestic shipping interests are renewing their call for the Trump administration to end its broad Jones Act waiver policy for energy cargoes. The 30-plus-90-day waiver is one of the most significant executive orders of its kind since the WWII era.

"With President Trump's signing of the Iran ceasefire agreement, the statutory basis for the Jones Act waiver is concluded. It's time to end the waiver, put Americans back to work, and resume the task of Restoring America's Maritime Dominance. Let's do this, Mr. President!" said the American Waterways Operators' President and CEO, Jennifer Carpenter, in a statement last week.

Since its entry into force on March 18, the administration's Jones Act waiver has been used for about 110 voyages to move about 25 million barrels, equivalent to 1.4 percent of American consumption, according to the American Maritime Partnership. The biggest beneficiaries so far have been motorists and commercial aircraft operators in the state of California, where refinery closures and a dearth of pipeline interconnections make the energy market unusually dependent upon seaborne supplies. Shipments from the Gulf Coast to the Golden State since March total about eight million barrels of gasoline, jet fuel and other products; in May, Reuters estimated that Texas was supplying about six percent of California's fuel and blendstock needs using waivered tankers.

In normal times, California fuel markets are usually topped up with imported products from Asia; the long Texas-to-California route through the Panama Canal rarely happens at scale on Jones Act tonnage, according to the American Petroleum Institute. Shipment volumes from the Gulf to the mid-Atlantic states have also been notable, API says. The waiver activity did not appear to have an appreciable impact on U.S. fuel prices, which rose throughout most of the period in all regions.

While fuel prices may not have come down, there are other foreseeable outcomes. Act's defenders have long warned that without its legal protections, foreign operators would enter U.S. coastwise commerce - with potential implications for U.S. national security. AMP tallied up the waivered voyages and determined that about one quarter were performed by Chinese-owned or Chinese-subsidized ships, including one tanker operated by state-owned giant China COSCO.

"AMP members continue to report canceled contracts and lost business opportunities as foreign vessels take domestic cargoes from Americans," the group said in a statement. In addition, the Federal Reserve has warned that investments in America's maritime industry are being put on hold because of the waiver and the uncertainty it injects into business decisions.

If the waiver were made permanent by an act of Congress, U.S.-built ships would lose the protected legal status that underpins their valuation. Domestic shipowners would be exposed to competition from lower-cost ships manned with lower-cost labor, Jones Act advocates warn, with effects on asset value, revenue, employment, newbuild ordering and fleet size.