The Jones Act: Economic Friend or Foe?

The Jones Act (formally known as Section 27 of the Merchant Marine Act of 1920) has been discussed at the Longshore Insider (formerly AEU Longshore Blog) on several previous occasions. The context has been problematic insurance coverage issues. These arise at the point where the Jones Act coverage overlaps with the Longshore and Harbor Workers’ Compensation Act. The broadening definitions of what is a “vessel” and who is a “crewmember” have resulted in uncertain status for many maritime workers.

There is another aspect of the Jones Act that is of keen interest to all employers in the shipbuilding and ship repair industries. This is the cabotage provision that requires that all cargo transported between U.S. ports be carried on U.S. flagged, U.S. owned, U.S. built, and U.S. crewed vessels.

Note: For our purposes, the term “cabotage” means the transport of goods or passengers between two points in the United States.

The Jones Act Preamble states:

“It is necessary for the national defense and for the proper growth of its foreign and domestic commerce that the United States should 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.

And it is declared to be the policy of the United States to do whatever may be necessary to develop and encourage the maintenance of such a merchant marine, and, in for as far as may not be inconsistent with the express provisions of the Act, the Secretary of Transportation shall, in the disposition of vessels and shipping property as hereafter provided, in the making of rules and regulations, and in the administration of the shipping laws keep always in view this purpose and object as the primary end to be attained.”

You might think that support for the cabotage provisions of the Jones Act would be strong and uniform based on the vital national security implications. A primary impetus for the passage of the Jones Act in 1920 was a lesson learned during World War I – that there were too few U.S. vessels available to support the war effort. A nation needs a domestic shipbuilding and ship repair industry and merchant marine.

But, in fact, the Jones Act is controversial. Consider what has occurred just during the past few years:

• A bill was introduced by Senator John McCain in 2015 to repeal the Jones Act in its entirety.The bill was defeated.
• The Act survived a constitutional challenge in a lawsuit filed by residents of Hawaii. The federal Ninth Circuit Court of Appeals ruled that the Jones Act is an appropriate exercise of Congressional power under Article I Section 8 (Interstate Commerce Clause) of the U.S. Constitution (Patrick Novak; Daniel Rocha; Larry Kenner, DBA Kenner, Inc., a Hawaii corporation; Ken Schoolland; Bjorn Arntzen; Philip R. Wilkerson; William Akina, Ph.D., Individually and as Representatives of a Class of Similarly Situated Persons, v. United States of America Does 1-1000, 9th Circuit, July 30, 2015)
• The Act became front page news in the aftermath of recent hurricanes as pressure mounted to grant temporary waivers. In fact, waivers were most recently granted following Hurricanes Irma and Harvey for seven days in September 2017 for the movement of oil from the Gulf Coast to the northeast, and for ten days in the aftermath of Hurricane Maria that left the entire island of Puerto Rico without electrical power. This last waiver was particularly controversial, as it was based on widely reported (but egregiously inaccurate) reports of insufficient Jones Act vessels available to deliver relief to the island. Each of these waivers expired at the end of its term.
• A White House study is currently underway with regard to the question of a permanent waiver of the Jones Act for Puerto Rico.

Note: The cabotage provision of the Jones Act applies to Puerto Rico, Hawaii, Alaska, and other non-contiguous parts of the United States. The Virgin Islands are exempt, as are American Samoa and the commonwealth of the Northern Mariana Islands.

The Jones Act is a political football kicked back and forth across the lines of competing economic theories. There are ardent supporters and persistent critics, each side armed with statistics and data. Interestingly, several Government Accounting Office (GAO) studies have discredited the most frequently cited claims of Jones Act opponents, and have confirmed the importance of the domestic U.S. shipbuilding and ship repair industries for the overall U.S. economy.