Jones Act drives up everyone’s costs

In the Aloha State, we’re used to sky-high prices for groceries and fuel because of an old protectionist shipping law known as the Jones Act. But the Jones Act is not just a Hawaii problem — it’s a national problem.

The Jones Act, also known as the Merchant Marine Act of 1920, adds costs by preventing waterborne merchandise from being transported between two points in the United States unless it’s done on an American-built ship. The ship also must fly the American flag, be 75 percent-owned by Americans and be 75 percent-crewed by Americans.

The law effectively imposes higher shipping costs from one American port to another American port. For example, shipping oil from Texas to New England costs about $6 a barrel, while shipping to Europe costs just $2 a barrel. This kind of protectionism costs the petroleum industry alone more than $158 million every year, according to a report released by the Grassroot Institute of Hawaii titled, “The Jones Act in Perspective.”

The report shows that industries across the nation could save millions of dollars if the Jones Act problem were fixed, including the water sector ($1.5 billion), chemicals ($103 million), air transportation ($91 million), steel ($50 million) and lumber ($32 million).

The Jones Act may soon drive the price of gasoline higher because of proposed changes by U.S. Customs and Border Protection. Previously, many oil firms had an exemption from the Jones Act for certain operations, but now U.S. Customs and Border Protection has proposed removing the exemptions. This imposition of the Jones Act could cost the oil industry $4.3 billion, and cause a loss of 30,000 jobs in 2017, according to a study by the American Petroleum Institute (API).

The larger impact would be $90 billion in lost gross domestic product, hitting states like Texas, Louisiana, Alabama, and Mississippi especially hard, according to the API study, which also showed that the proposed Jones Act imposition could lead to a reduction of 500,000 barrels of oil and natural gas production every day.

The Jones Act affects industries across America in different ways. In the timber trade, the Jones Act makes it almost prohibitively expensive to ship lumber from the Pacific Northwest to the East Coast. In the road salt industry, the mid-Atlantic states import road salt from Chile and Mexico rather than buying it from mines in Ohio and Louisiana, due to cheaper transport costs.

In addition, American companies lose out to foreign competitors on business deals because of America’s higher shipping costs. U.S. steel plants hungry for scrap metal, for example, avoid deals with American sellers because of the exorbitant costs of coastwise shipping.

Relaxing the Jones Act would lead to an economic boom for many industries across the nation, and provide more goods at lower prices for American consumers. However, many people are simply unaware of the impact that the extra shipping costs of the Jones Act has on their lives, and efforts to change the law have been rare.

Reform could lead to costs savings of between $5 billion and $15 billion annually for Hawaii, Alaska and Puerto Rico alone, according to a study by the International Trade commission. The total is estimated to be even greater for the contiguous U.S., but no study to date has quantified this.

Apologists for the Jones Act, including representatives of the American domestic shipping industry, argue that it’s impossible to estimate the costs of the law. The American Maritime Partnership, in particular, argues that numerous laws associated with domestic commerce, such as increased tax burdens, would add costs, diminishing any savings from relaxation of the federal law.

Even if this were the case, any economic costs of reforming the Jones Act would be more than offset by significant cost savings to industries and consumers. Doing so could still save the American economy hundreds of millions, if not tens of billions of dollars every year.

The Jones Act has raised prices for American consumers and distorted the U.S. economy for almost a century. It’s time to fix the problems associated with this outdated law and welcome a new era of economic prosperity and trade.

•••

Keli‘i Akina, Ph.D., is president and CEO of the Grassroot Institute of Hawaii (@GrassrootHawaii), a public policy think tank dedicated to the principles of individual liberty, free markets and limited, accountable government.

9 Comments
  1. MICHAEL WEHRLY June 8, 2018 6:09 am Reply

    wow


  2. manawai June 8, 2018 7:34 am Reply

    Well said, Keli’i. Hawaii is cursed with one of the highest costs of living in the nation. This unproportionately hurts lower income folks the hardest. There are few things that we can reasonably do to reduce our high costs but this is one of them. Where are our local Democratic leaders on this protectionist act? They talk a good story about representing working families but have done nothing to repeal the act or exempt Hawaii from its onerous conditions which are a material factor in making life in Hawaii unaffordable for all but the wealthy. Why do we hear nothing from those who claim to represent us? My view is that they are bought and paid for by the unions who stick together to defend any action against any union even though it doesn’t negatively impact their union. Remember, union workers are still a minority of workers in Hawaii, but their disproportionate influence on our elected officials are a significant factor in Hawaii’s highest cost of living. What are the unions doing for you other than keeping prices high? Why won’t the Democrats support the majority of Hawaii’s workers?


  3. PauloT June 8, 2018 10:47 am Reply

    The estimated cost savings cited for removing the Jones Act are just that, estimates. Besides the fact that the act cost is pennies on the shipping dollar, it allows U.S. citizens maritime jobs including ship building that will be lost if the act is not in place. The main reason goods are profoundly more expensive in Hawaii is that we are isolated. For that reason we are captive to whatever pricing merchants choose to demand.

    An example would be the cost of gas in past decades, which sometimes was twice the price of the west coast which was still above the national average. Why was our price double? Because the gasoline companies colluded to keep the price high as we had no choice to pay whatever was demanded. Even now if you compare grocery prices to that charged on the mainland you can still find some items are almost double. That is not due to shipping costs as anyone who has ever shipped a container to or from the mainland can tell you.


  4. harry oyama June 8, 2018 3:27 pm Reply

    Matson and other American owned shipping companies like the Jones Act and would fight tooth and nail to keep their monopoly on Hawaii’s routes. Time to get rid of it, if only the politicians such as Ed Case supports it.


  5. Valerie June 8, 2018 3:56 pm Reply

    Since shipping amounts to only a fraction of the retail costs we pay, don’t get your hopes up that if the Jones Act were to be repealed that consumer prices would be cut by any noticeable amounts. Additionally the act provides good maritime shipping jobs and ship building jobs for U.S. citizens. Prices are determined by what the public will pay and since we are isolated in the middle of the Pacific we don’t have much choice and the retailers know that. Competition in the last 15 years or so has helped lower prices provided by companies such as Costco.


    1. Hank Jeffries June 14, 2018 4:24 pm Reply

      And just how many maritime shipping jobs are created vs. how many citizens of the state are impacted by high costs for groceries and gasoline and other goods that must be imported?
      Of course one could ask why not import gasoline from China or vegetables from Mexico or Chile (like they do in California!)?
      The Unions run the State of California just like they do Hawaii – where do the politicians get their re-election funding?
      Aren’t you proud to be a Democrat/Socialist?


  6. Scott Goold June 9, 2018 6:37 am Reply

    Author, Keli‘i Akina, Ph.D., seeks Free Markets. As CEO of Grassroot Institute of Hawai’i, he advocates ending the Jones Act. Simply put, the Jones Act protects American shipping and American workers in the shipping industry. This protects American jobs. Mexico compensates a worker about $3/hr. Vietnam and other nations offer even less. Can you compete against workers who get $3/hr? Keli’i wants to save HIMSELF money — nothing unusual about his. We’re all self-interested. Yet he doesn’t care about your job or family income.

    Keli’i stated it costs $6 for a barrel of oil to be shipped between U.S. states, due to the Jones Act, and about $2 from the U.S. to Europe. Assuming a standard 42-gallon barrel, this comes to $0.14/gallon compared to about $0.05/gal — or about $0.10/gallon higher due to the Jones Act.

    Are we willing to “tax” ourselves $0.10/gallon to protect American shipping and related jobs?

    The narrow-minded and self-interested will likely say, “NO!” Be careful. This is the same reason there are no more major pineapple or cane production in the islands. It’s cheaper to grow in foreign countries. It’s cheaper to manufacture nearly everything outside the U.S. This is why most Americans now work in poor-paying service industry jobs.

    If you’re a Free Market thinker, condemn Gov. Ige for signing affordable housing legislation this week. The bill provides a total of $570 million to generate over 25,000 affordable units by the year 2030. The governor is “protecting” local families by restraining the exploding cost of housing. Left to the market — even the least expensive home on Kaua’i will one day cost a billion dollars — this is what limited supply and high demand does.

    If we want paradise, we must accept prices will be higher. By lowering costs, we reduce the number of good-paying jobs on the one hand, and encourage over-crowding and too many people on the other. High prices are “the market’s way” of limiting the flood of human beings in this limited space.

    The people of Hawai’i are caring, compassionate folks. Take time to see the larger picture. Cost cutting agendas without regard to the BIG picture creates a Race to the Bottom. Do you want paradise or hell?


  7. Reverend Malama Robinson June 9, 2018 8:10 am Reply

    Dr. Akina,
    Surely we must take this before the International Court on War Crimes…
    MAHALO KE AKUA
    HAWAIIANKINGDOM.ORG


  8. Robert Edwards June 9, 2018 11:43 am Reply

    The economic benefits greatly outweigh what short-term costs to domestic shipping. This is a protectionist policy that hurts Hawaii & many others.

    I am frankly flabbergasted that President Obama didn’t take any action at all considering that he grew up in Hawaii and allegedly had our interests at heart.

    We missed a golden opportunity to get rid of the Jones Act while President Obama was in office.


Your email address will not be published. Required fields are marked *

*

By participating in online discussions you acknowledge that you have agreed to the TERMS OF SERVICE. An insightful discussion of ideas and viewpoints is encouraged, but comments must be civil and in good taste, with no personal attacks. If your comments are inappropriate, you may be banned from posting. To report comments that you believe do not follow our guidelines, send us an email.