The report “Impact of the U.S. Jones Act on Puerto Rico,” sponsored by the American Maritime Partnership (AMP) representing Jones Act carriers (JACs) has just been released. Far from being a comprehensive study, the newly released report is apparently an effort to provide selective data; thus, the study is incomplete and reaches erroneous conclusions.
The elephant in the room that the report does not even mention is the 10-day waiver to the Jones Act granted to Puerto Rico in the aftermath of Hurricane Maria, which slammed the island on Sept. 20, 2017. During this 10-day period, Puerto Rico importers needed to immediately find vessels that were available that offered an advantage over JACs in terms of price and/or availability, as well as U.S. suppliers that had the merchandise readily available to be shipped.
Even with these stringent limitations, according to U.S. Homeland Security, 10 non-JAC ships serviced Puerto Rico during this waiver period, bringing important goods such as drinking water, generators, diesel, gasoline and baby products, among others. This event is such an obvious element to analyzing the impact of the Jones Act on Puerto Rico, but for whatever reason, it was ignored by the study’s researchers.
The study’s comparisons of freight rates among several Caribbean ports in the report are disingenuous. The study reaches the conclusion that JAC freight rates from the U.S. to Puerto Rico are similar or cheaper than rates to neighboring Caribbean ports. It states that the source for the information are the JACs since they also serve these Caribbean ports. However, there is no way to validate this self-reported data. It is not submitted in U.S. dollars but as an index. Moreover, there are many other factors that impact revenue per container. For instance, serving an island of 50,000 people such as St. Thomas has different limitations on scale than Puerto Rico with over 3 million residents.
A more interesting discussion would be how the companies of the JACs serve these Caribbean ports. The study states that JACs operate vessels and intermodal equipment that are uniquely designed to closely integrate with the advanced logistics systems of the U.S. mainland, providing cargo owners with major economic and service advantages over international shipping. If this is the case, then it stands to reason that JACs would use Jones Act ships to serve the Dominican Republic, Haiti, St. Thomas and St. Croix. The fact that they use international ships means that the previous statement is just self-serving propaganda.
No discussion of the subject of price collusion by JACs, either actual in the past or potential in the future, is made in the study. Only four companies provide regular service to Puerto Rico. The U.S. Virgin Islands, which are exempt from the Jones Act, experiences no issues of collusion because attempts to increase prices would lead to undercutting by other shippers.
The grapevine in Puerto Rico provides stories of price gouging by JACs in the aftermath of Hurricane Maria. Unless there is a legislative investigation, this cannot be confirmed. As the study itself states, “almost all cargo shipped in the Continental US/Puerto Rico trade moves under confidential contracts.” The lack of publicly available data results in a huge advantage to carriers at the time of negotiating freight contracts with importers and opens the door to possible price coordination among shippers. In contrast, the behavior of shipping rates from China to different locations around the world can be traced through the use of the China Containerized Shipping Index.
In terms of availability, many Puerto Rico importers complained about bottlenecks in shipping from the U.S. and specifically from Jacksonville, FL, months after Hurricane María. These included MIDA, the local food-distribution association. There was no complain regarding shipping from foreign jurisdictions, those not subject to the Jones Act, which had no issues of merchandise delays.
In a 2012 report, the Federal Reserve Bank of New York (FRBNY) concluded that the Jones Act is a major handicap to the economy of Puerto Rico and recommended a five-year temporary exemption to evaluate whether the Jones Act is a substantial cause of elevated shipping costs. The study criticized the position of the FRBNY by stating that since JACs control the price information through confidentiality agreements imposed on their clients, the FRBNY does not have enough information to reach its conclusions.
However, the FRBNY stated in 2012: “to the extent that it inhibits free trade, the Jones Act does indeed have a negative effect on the Puerto Rican economy, although the magnitude of the effect is unclear.” The fact that a sudden 10-day temporary exemption in 2017 brought 10 non-JAC vessels to Puerto Rico speaks volumes as to what a five-year temporary exemption would do.
The newly released study reviews all the wonderful things that JACs did in the aftermath of Hurricane Maria. It fails to mention that according to press reports, JACs lobbied against the waiver of the Jones Act during this emergency. The AMP has failed to deny these reports. At a time when JACs were running at full capacity, some local hospitals were dark due to a lack of diesel and the majority of the population had no access to potable water, JACs lobbied against emergency aid to Puerto Rico. This callous behavior by JACs literally put their profits ahead of the lives of Puerto Rico residents. There is no better argument for the repeal of the Jones Act.