Key Takeaways:
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Definition: The Jones Act ensures that all goods transported between U.S. ports and Puerto Rico must be carried on U.S.-built, U.S.-owned, and U.S.-crewed ships.
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Economic Impact: The act significantly increases the cost of living in Puerto Rico. It limits the shipping competition and raises freight costs.
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Current Status: The Act is fully in effect for Puerto Rico. We have seen temporary waivers during Hurricane Maria to avoid humanitarian crises.
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Controversy: People argue that the Jones Act of 1917 for Puerto Rico should be abolished. It no longer holds significance. It also reduces the standard of living in Puerto Rico.
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Scope: The Jones Act applies to all "coastwise" trade between U.S. points, including Alaska, Hawaii, and Guam.
The ocean economy makes 10% to 12% of Puerto Rico’s economic growth. So, it’s important to notice the rights of the Puerto Rico people working in the oceans and on ships. And for their safety, the Jones Act was established over 100 years ago.
Although the Jones Act primarily serves the US people, for Puerto Rico, it is crucial. It is not connected to the mainland. So, it relies entirely on maritime shipping for its basic needs. It means people and goods are carried on the ships.
The Jones Act provides ship workers and other ocean workers, such as deep-dive welders, with protection during work and in unexpected events. It also creates an economic burden and sets rules for the transportation of goods between Puerto Rico ports and the US.
What is the Puerto Rico Jones Act?
The Puerto Rico Jones Act is under Section 27 of the Merchant Marine Act of 1920. The federal law sets rules for cargo moving between two U.S. ports. These cargoes must be transported on vessels that meet four strict criteria:
- U.S.-built: The ship must be constructed in a United States shipyard.
- U.S.-owned: At least 75% of the company must be controlled by U.S. citizens.
- U.S.-flagged: The ship must be registered under the United States flag.
- U.S.-crewed: The crew must consist of U.S. citizens or permanent residents.
For Puerto Rico, these four criteria mean three things:
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A company wants to ship goods from Jacksonville, Florida, to San Juan
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They cannot use a lower-cost foreign vessel
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They must use a U.S. ship
However, the freight rates for US cargos are increasingly high. So, it creates an economic burden for the Puerto Rico people.
A Detailed Overview on Jones Act Puerto Rico
We need to look back to 1920 to understand the Puerto Rico Jones Act. The then Senator Wesley Jones sponsored the act. It ensured the U.S. had a strong fleet of merchant ships. Also, it trained sailors available for national defense during times of war. The main purpose of the law was national security.
However, the geography of Puerto Rico turned the law into an “island tax. They are far away from the mainland US. So, the Jones Act meant they had to use US ships for carrying goods. These freight ships have higher rates. It increases the product pricing in Puerto Rico.
The Logistics of Trade
Puerto Rico is a small island with limited agriculture. So, it imports 85% of its food and nearly all of its energy resources. Under the Jones Act, any of these goods coming from the U.S. mainland must arrive on U.S. vessels. It makes the transport expensive.
Many times, a foreign ship drops off goods in New York. Then, on its way back, hypothetically, it can drop goods in Puerto Rico. However, it can’t legally pick up cargo in New York to deliver to San Juan. It creates “dead leg” voyages. Instead, the expensive US ships carry the goods. It increases the final price for consumers in Puerto Rico.
Comparison of Shipping Costs
We see that a U.S.-flagged vessel is significantly more expensive than a foreign-flagged one. U.S. ships have higher labor costs and stricter regulatory standards. Plus, the building cost of the US ships is often 3 to 5 times higher in international yards in Asia or Europe. These overheads are passed directly to Puerto Rican businesses and families.
The Legislative History: Jones vs. Jones-Shafroth
We must distinguish between the two “Jones Acts” in Puerto Rico.
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The Jones-Shafroth Act (1917): It granted U.S. citizenship to Puerto Ricans. The 1917 Act also organized the island's government.
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The Merchant Marine Act (1920): The 1920 Jones Act is the maritime shipping law. Today, we refer to it as the "Jones Act."
The National Security Argument
The labor unions and domestic shipbuilders are the main supporters of the 1920 Jones Act. They often argue that without the Jones Act, the U.S. would lose its ability to build ships. During a global conflict, the U.S. cannot rely on foreign nations.
It could be too risky to transport its military hardware or essential supplies in foreign ships. Also, the U.S. domestic fleet ensures safe, consistent, and reliable transportation service to Puerto Rico. The US ships had maintained supply chains even during the COVID-19 pandemic.
Political Resistance to Change
The Government Accountability Office (GAO) studies found that Puerto Rico’s people pay higher costs for their daily goods. It happens because of the increased freight rates. So, many people and think tanks have suggested abolishing or amending the 1920 Jones Act.
However, it isn’t easy due to political pressure. The domestic maritime industry has a powerful lobby in Washington, D.C. Also, many legislators view the act as a symbol of national sovereignty.
How does the Jones Act affect Puerto Rico?
The Jones Act affects Puerto Rico and its people in three sectors, including cost of living, energy, and disaster response.
Increased Cost of Living:
Everyday items, from cars to canned goods, cost more in San Juan than in Miami. The Jones Act has banned foreign competition. So, a few of the U.S. shipping companies have a monopoly in the market. They refused to lower the freight rates. Also, they face less pressure to lower prices without any competition.
So, Puerto Rico’s people pay the regressive tax. Puerto Rico has higher poverty rates than any U.S. state. So, this increased living cost has become a burden for them.
Energy and Natural Gas:
Puerto Rico has 90% higher electricity costs than the mainland US. The U.S. is a major producer of Liquefied Natural Gas (LNG). But due to the lack of Jones Act-compliant LNG tankers, the transportation becomes difficult.
Also, Puerto Rico often imports gas from foreign countries, including Russia or Trinidad and Tobago. Although American gas is cheaper, there are no legal U.S. ships to carry it. So, the island has no option but to buy cheaper American LPG or LNG.
Disaster Recovery Obstacles:
Hurricane Maria in 2017 and Hurricane Fiona in 2020 were eye openers. The Jones Act became a literal matter of life and death. After the hurricanes, the island needed immediate supplies of fuel and building materials.
Yet, due to the Jones Act, nearby foreign ships couldn’t deliver the U.S.-sourced goods. After a rising debate, the federal government eventually issued temporary waivers. But the delay was devastating as the primary response was delayed for it, too.
Feature | Jones Act Vessel | Foreign Vessel |
Construction Cost | Extremely High (U.S. Shipyards) | Market Rate (Global Shipyards) |
Labor Costs | U.S. Standard Wages | International Rates |
Regulation | International Maritime Org (IMO) | |
Availability | Limited Fleet | Massive Global Fleet |
Impact on PR | Higher prices for consumer goods | Potential for 15-40% lower freight |
FAQ
Frequently Asked Questions
Since 1920, the Jones Act has created a closed market in Puerto Rico. The island depends almost solely on the U.S. domestic shipping market. Also, the expensive shipping cost has had an economic disadvantage in Puerto Rico. So, the cost of living in Puerto Rico is higher than those in neighboring Caribbean islands.
The Jones Act of 1917 prevents foreign-flagged ships from carrying cargo between two U.S. points. For example, a Spanish ship can deliver goods from Spain to Puerto Rico. However, it cannot pick up goods in Florida and deliver them to Puerto Rico.
Puerto Rico has high inflation due to the Jones Act. It increases the import price from the US. Also, the export price increases due to the high freight cost. So, Puerto Rican exports have become less competitive. It has also reduced Puerto Rico’s food and energy sourcing capacity.
The Jones Act treats Puerto Rico, a non-contiguous island, the same as a mainland state. Puerto Rico must choose US-made and flagged ships to carry goods from the US to the island. It has no alternative for the transportation system. So, this limitation of choice has made Puerto Rico a "captive market."
Some economic studies suggest the 1920 Jones Act costs Puerto Rico between $500 million and $1.5 billion annually. It is responsible for significantly higher costs for groceries and utilities. In Puerto Rico, the energy cost is almost 60% to 90% higher than in the mainland US.
Yes, the Jones Act is still fully effective in Puerto Rico. Many people have argued about its validity and have wanted reformation. But the Federal law still governs the transportation between the US and Puerto Rico.
The Jones Act waiver allows foreign ships to transport goods between U.S. ports during emergencies. These are usually very short-term, ranging from 10 to 14 days. After the two hurricanes during COVID, this waiver was implemented.
The waivers were issued to ensure that enough fuel and emergency supplies could reach the hurricane-affected areas quickly. In these cases, the domestic fleet failed to meet the demands after the hurricane. So, temporarily, the federal government allowed non-US ships to carry the goods.
During his presidency, Donald Trump hesitated to waive the act after Hurricane Maria. He cited, “We have a lot of shippers and a lot of people... who work in the shipping industry that don’t want the Jones Act lifted". He eventually granted a 10-day waiver, but he did not support abolishing the law entirely.
No, the Jones-Shafroth Act was specific to Puerto Rico's governance. However, the Merchant Marine Act of 1920 (Jones Act) applies to all U.S. territories and states, including Hawaii and Alaska.
