What Is the Jones Act?
The Jones Act is a federal law that regulates maritime commerce in the United States. The Jones Act requires goods shipped between U.S. ports to be transported on ships that are built, owned, and operated by United States citizens or permanent residents.
The Jones Act is Section 27 of the Merchant Marine Act of 1920, which provided for the maintenance of the American merchant marine.
- The Merchant Marine Act of 1920, better known as the Jones Act, is a protectionist law that regulates maritime shipping in the United States.
- The Jones Act requires that any cargo traveling by sea between two U.S. ports must sail on an American-owned ship, that is built in the United States and have a crew where the majority are U.S. citizens.
- The Jones Act was passed in the wake of the first World War in order to boost the strategically important shipping industry.
- Today, the Jones Act is credited with supporting around 650,000 jobs in the shipping business and providing $150 billion in economic activity.
- Critics say that the Jones Act increases the cost of shipping for U.S. islands like Hawai'i and Puerto Rico.
Understanding the Jones Act
Considered protectionist legislation, the Jones Act focuses on issues related to maritime commerce, including cabotage, which is the transport of people or goods between ports in the same country. It also provides sailors with additional rights, including the ability to seek damages from the crew, captain, or ship owner in the case of injury.
Perhaps its most lasting effect is its requirement that goods shipped between U.S. ports be transported on ships built, owned, and operated by United States citizens or permanent residents.
The Jones Act increases the cost of shipping to Hawaii, Alaska, Puerto Rico, and other non-continental U.S. lands that rely on imports by restricting the number of vessels that can legally deliver goods.
The supply of American-built, -owned, and -operated vessels is relatively small compared to the global supply of ships, while the demand for basic goods tends to remain constant or grow. This creates a scenario in which shipping companies can charge higher rates because of a lack of competition, with the increased costs passed on to consumers. This may lead to consumers taking on more debt in order to finance purchases, which can have a negative effect on government finances.
The Jones Act is a piece of protectionist legislation that considerably increases the costs of shipping goods between two U.S. ports.
History of the Jones Act
The Jones Act was enacted by the United States Congress in order to stimulate the shipping industry in the wake of World War I. The requirement about shipping cargo between American ports only on American ships benefited the constituents of Wesley Jones, the U.S. Senator from the state of Washington who introduced the act.
Washington had a large shipping industry, and the act was designed to give the state a monopoly on shipping to Alaska. While the act benefited Jones’ constituents, it increased the shipping costs of other states and U.S. territories.
Goals of the Jones Act
The Jones Act was launched to revitalize the U.S. maritime shipping industry, which had been depleted after World War I. By requiring domestic cargo to use U.S. ships and American crews, the law was seen as a way to support the strategically-important shipping industry and prevent the country from becoming too reliant on foreign-built ships.
Nowadays, it is also seen as a way to generate jobs and business revenue. According to proponents, the Jones Act supports 650,000 American jobs, generating $150 billion in economic activity each year.
Jones Act Requirements
The Jones Act requires that any cargo shipped between two U.S. ports must be transported on ships that:
- Are owned by U.S.-based companies, with over 75% of the ownership stake held by U.S. citizens.
- Have a crew where the majority are U.S. citizens
- Are built and registered in the U.S.
However, there are some exceptions to the Jones Act that may be granted in cases of national emergency. The act also allows sailors to bring suit against their employers for injuries suffered at sea.
Jones Act Waivers
On several occasions, the U.S. government has granted temporary waivers on Jones Act requirements. This is typically done in the wake of a natural disaster, such as a hurricane, in order to increase the number of ships that can legally supply goods to an affected area.
There are two types of waivers for the Jones Act, both related to national defense. The Secretary of Defense can request waivers in the "interest of national defense," and there is a separate procedure for non-defense entities. In both cases, the final authority in granting a waiver is the Secretary of Homeland Security.
Criticism of the Jones Act
The act has been criticized for restricting who can conduct trade with Puerto Rico, and it has been cited as a factor leading to the island’s economic and budgetary troubles. A study released by the New York Federal Reserve in 2012 found that the cost of transporting a shipping container to Puerto Rico from the mainland was twice as high as shipping the same container from a foreign port.
A 2019 report prepared by the New York City-based economic consulting firm John Dunham and Associates found that for Puerto Rico "the differentials between U.S. and foreign-flagged carriers range from about 41% to as high as 62% for bulk cargo and between 29% and 89% for containerized freight.” It calculated the additional costs caused by the act for the island’s economy to be nearly $1.2 billion, which comes to roughly $374 per resident.
Opponents of the act want it repealed, hoping that this will result in decreased shipping costs, lower prices, and less strain on government budgets. Proponents of the act include states with owners of navy yards, defense firms, and shipping industries, as well as the longshoremen and other personnel who work in ports. Scrapping the law will likely reduce the number of U.S. maritime jobs while lowering shipping costs.
In early 2022, the Jones Act made headlines for its potential role in the U.S.-Russia oil business. Following Russia's invasion of Ukraine in late February, the U.S. banned Russian oil and gas imports on March 8. The U.S. has traditionally relied on imports from Russia. In particular, Hawaii has typically imported millions of barrels of Russian crude oil per year, accounting for up to a quarter of all Russian oil shipments to the U.S. Critics of the Jones Act suggest that it limits the viability of shipping oil and gas to remote areas like Hawaii, forcing the state to rely on imports from Russia.
How Does the Jones Act Affect Puerto Rico?
One consequence of the Jones Act is that it requires U.S. shipping for cargo between Puerto Rico and the U.S. mainland, increasing the cost of development for the island's economy. A 2012 study by the New York Federal Reserve Bank found that the cost of transporting a shipping container to Puerto Rico from the mainland was twice as high as shipping the same container from a foreign port.
How Did the Jones Act Affect the Philippines?
The 1916 Jones Act, or Jones Law, is an act of Congress that relates to the governance of the Philippines. It established the first elected Philippine legislature and granted a higher level of autonomy to the colonial government. This act is different from the 1920 Jones Act, which relates to maritime shipping.
How Does the Jones Act Affect Cruise Ships?
While the Jones Act does not cover passenger vessels, a related law has a similar effect for cruise ships. Under the 1886 Passenger Vessel Services Act, a foreign ship cannot transport passengers directly between two U.S. ports. This means that a foreign-flagged cruise ship (the vast majority of cruise ships) must include foreign ports in any itinerary that begins and ends in a U.S. port. This often results in confusion or even fines for passengers who disembark at ports that violate the Jones Act.
The Bottom Line
The Jones Act is a 1920 law that limits how cargo is transported by sea. It requires any cargo shipped between U.S. ports to be carried by U.S. ships, with American crews. Originally intended as a measure to support the strategically-important shipping industry, it is now considered a classic example of protectionism.