The Jones Act Debate

The 106-year-old Merchant Marine Act of 1920, also known as the Jones Act, has sparked vigorous debate over the policy's performance during the Iran-U.S. conflict. The vigorous debate arose after the Trump Administration secured waivers of the Act's restriction on coastal trade to vessels exclusively American.

The debate has focused on whether the Jones Act's protectionism should be preserved to protect U.S. shipowners, shipyards and mariners, or whether U.S. consumers would be better served by embracing a free-market approach for our maritime industry.

It's an important debate as U.S. policymakers are discussing how to revitalize the nation's maritime industry, which has atrophied, risking national security and the economic power that comes with a vibrant merchant marine. Surprisingly, the past two years have shown bipartisan support for this revitalization effort. But unsurprisingly, policymakers can't decide on the exact actions needed and how to carry them out.

THE 1920 ACT

While times are different, many of the issues bedeviling our policymakers today are similar to those that drove the 1920 Act. At that time, a policy of heavy-handed regulation and government ownership of the fleet was weighed against a hands-off approach.

The 1920 debate was challenging as the U.S. government had built a large fleet of ships in anticipation of a long involvement in World War I, raising the question of what to do with the government-owned fleet when the war ended quickly. The debate came as the White House was occupied by progressive Woodrow Wilson, who wanted greater government involvement in the nation's economy.

Still, Congress ultimately extended the historical maritime policy of private ownership of the U.S. merchant marine fleet.

Today's Jones Act debate reflects similar sentiments, but they're presented as protectionism versus free-market policies. Jones Act supporters are demanding an end to the waiver, claiming it's undercutting investment in American shipping, shipyards and mariners. Critics, on the other hand, point to the policy increasing the prices consumers pay for goods.

However, this may be the wrong debate. We believe the debate should focus on how the U.S. can best build a larger, more flexible fleet of vessels that can better carry out the maritime policy initiatives outlined in the 1920 law.

Wesley Livsey Jones, a Republican senator from Washington, was steeped in U.S. trade and maritime history. He understood which policies had worked in the past and which hadn't. When the Commerce Committee he chaired began working on the 1920 legislation, it examined the history of maritime policy, tracing it back to English navigation law.

A 1381 law, enacted by King Richard II, imposed restrictions on English exports of gold, silver and other valuables, which had to be conducted by licensed merchants from specific ports and with the King's approval. That law also contained a restriction limiting all trade – exports and imports – to being carried in English ships. If goods were found to be moved on non-English ships, they were subject to confiscation by the Crown.

These laws were copied and enforced by other countries, and by 1558 Queen Elizabeth I struck down those restrictions as unworkable. Five years later, however, new navigation restrictions were introduced, which required that only English-owned ships carry "fish, victuals, wares, or things" between English "ports or creeks."

The Jones Act, like those of many other countries, has embraced such a restrictive maritime policy, known as cabotage.

The 1920 law actually addresses international trade more than domestic maritime restrictions. It also addresses the imbalances in the treatment of U.S. mariners and foreign ones. Actually, the term "Jones Act" refers to a collection of U.S. laws governing the nation's maritime industry, with the 1920 law being the first.

The Jones Act set forth the maritime policy of the U.S.: "It is necessary for the national defense and for the proper growth of its foreign and domestic commerce that the United States shall have a merchant marine of the best equipped and most suitable types of vessels sufficient to carry the greater portion of its commerce and serve as a naval or military auxiliary in time of war or national emergency, ultimately to be owned and operated privately by citizens of the United States;…"

Absent a strong Navy and a meaningful commercial fleet, the economic might of the U.S. would be diminished.

TWO DIFFERENT FLEETS

Today's U.S. Navy is second to China's in the number of warships, but we still have larger vessels with greater technology and firepower. However, our commercial blue-water fleet consists of just 190 oceangoing, self-propelled vessels with a gross tonnage of 1,000 tons or more compared with China's 10,000 ships.

However, if all vessel types and sizes are considered, the U.S. flag fleet had nearly 46,000 vessels as of 2023 (latest available data).

Which fleet should we be focused on? Each should be weighed against its fulfillment of our maritime policy.

Pro-Jones Act supporters claim the waiver was enacted to lower gasoline prices rising due to the closure of the Strait of Hormuz and the loss of 16-20 million barrels a day of oil from the Persian Gulf. However, the White House justified the waiver to prevent disruptions in the energy supply chain, not to reduce pump prices.

Supporters claimed there were sufficient vessels to carry all the energy trade subsequently transported by foreign-flag ships under the waiver. But when U.S.-flag shipowners were queried about tanker availability, they reported that all were under contract and operating or in drydock undergoing maintenance. What was supposedly available were barges and tugs, which carry less fuel than ships, travel more slowly, are often weather-dependent and are more expensive.

Last year, California depended on foreign crude oil for 61 percent of its refinery supply. With the end of the oil flowing from the Middle East, the state faced a crisis. The Trump Administration acted. By July 15, 120 days into the waiver, 12 million barrels of oil and refined products had moved from the Gulf Coast to the West Coast, easing the West Coast's oil supply shortfall. More jet fuel reached the West Coast than in the last 36 years combined.

While the foreign tankers hauling additional petroleum to California may not have lowered gasoline prices, these cargoes prevented a price spike and potential rationing due to supply shortages. They also ensured that the 50 West Coast military bases, which depend on California's refineries, were adequately supplied with fuel.

What can we learn by examining the vessels in the U.S.-flag fleet?

Between 1991 and 2023, the fleet grew by 16 percent, an increase of 6,400 vessels to 45,740. The portion of the fleet represented by dry barges, liquid barges and towboats, the workhorses of the coastal trade, increased by 5,100 vessels, but its share of the fleet fell from 92 to 90 percent. The passenger and offshore support vessel fleet added nearly 1,300 vessels, increasing its share from five to nine percent.

However, the cargo and tanker fleet fell by nearly 840 vessels from 1,157 to 320, and its share declined from about three percent to 0.7 percent.

Looking further back, today's oceangoing U.S.-flag tanker fleet is less than one-quarter the size of the 1960 fleet, having declined from 400 to 76. Therein lies the problem for our energy industry that the Jones Act's 106 years have created.

DICHOTOMY IN FLEET PERFORMANCE

The Act's restrictions have done a great job of generating growth in our river and coastal trade but have not supported fleet growth for our international trade.

U.S. international trade has grown fivefold since 1991 while the oceangoing fleet has declined. With 85 percent of global trade moving by ships, our tiny 190-vessel fleet barely registers in the world shipping fleet.

Waiver benefits include 90 percent cuts to some voyage costs. Additionally, they've allowed Puerto Rico to receive U.S. propane for the first time. Amazingly, the U.S. is one of the world's largest propane exporters. However, without a Jones Act-compliant propane tanker in the fleet, no cargoes could reach the island. This new supply has enabled the territory to stop buying propane from countries such as Chile.

The dichotomy in fleet performance relative to the U.S. maritime mission has also impacted our shipyards. We have many small shipyards capable of building barges, towboats and other small vessels, but few large shipbuilders. Therefore, the U.S. barely registers in the world's annual ranking by new tonnage built while China, Japan and Korea account for 95 percent of new tonnage built.

WHAT WORKS & WHAT DOESN'T?

Rather than debating whether to maintain the Jones Act or scrap it, we should examine which provisions have worked for our coastal trade and which have failed our blue-water fleet.

We need a serious analysis of the law with openness to revising it to create a larger, more flexible fleet, more shipyards and repair facilities, and additional mariners to deliver on the mission of the U.S.'s maritime policy more effectively.

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We must do this quickly to avoid a greater national and economic crisis than we already face.

Energy analyst and commentator Allen Brooks is a Senior Fellow at the National Center for Energy Analytics and author of the widely read "Energy Musings" newsletter.