In 1920, Congress passed a law designed to encourage American prosperity after World War I. Unfortunately this act has, since, had the opposite effect and in few other places is this detrimental effect felt more profoundly than the unincorporated American territory and island nation of #PuertoRico.
The Jones Act as it was called – named after its sponsor, Senator Wesley Jones, from Washington State – has allegedly done immeasurable damage to Puerto Rico’s economy. If a figure were to be supplied, it would be in the region of $1.5 billion, according to an article by Caribbean Business.
In this article, we’ll take a closer look at the #JonesAct, its economic and environmental impact, and what’s currently been done to undo this outdated legislature.
What is the Jones Act and why is it Damaging Puerto Rico?
Almost 100 years ago, the Merchant Marine Act of 1920 was passed by Congress and enacted into law. Section 27 of the Merchant Marine Act is known as the Jones Act and it stated that all goods transported by water between ports in the United States and its territories (of which Puerto Rico is one), be carried on American-flagged ships that are American-built, American-owned, and are substantially crewed by American citizens.
The intention of this act was to encourage American trade, commerce, prosperity and naval prowess after World War I, which makes sense in theory. However, #theJonesAct has had several unintended consequences. Predominantly, the costs of transporting merchandise from the U.S. mainland to Puerto Rico in American built, flagged, owned, and run vessels are much higher. Additionally, Jones Act ships aren’t always available and are not always able to supply the goods/volume of goods Puerto Rico requires.
Overall, the Jones Act has:
- Reduced waterborne coastwise trade (because it’s ships are so expensive)
- Harmed the environment (because there is a preference for cheaper land freight, as well as trade originating from further afield, from foreign countries),
- Measurably harmed the economy of Puerto Rico, not only because of steeper consumer prices but also because there aren’t always Jones Act vessels available to ship the goods Puerto Rico needs to import.
In spite of this, this outdated law remains in effect and continues to limit the ability to ship products by water throughout the United States and Puerto Rico.
Steep price tag for Puerto Ricans
Where other U.S. states have the option to transport produce by land, Puerto Rico, being an island, is forced to make use of Jones Act ships, should it wish to ship produce in from the mainland. According to two independent investigations, this has cost Puerto Rico $1.5 billion in higher prices for goods, as well as in its effect on competitiveness and lost jobs.
One study titled The Impact of the Jones Act on Puerto Rico was the first on the Jones Act following Hurricane Maria and was commissioned by a coalition of Puerto Rican government, hospitality, legal, and other institutions, including the Chamber of Marketing, Industry and Food Distribution (MIDA in Spanish acronym), the Puerto Rico Restaurants Association, the United Retailers Association, and the Puerto Rico Bar Association.
The report was compiled by Advantage Business Consulting (ABC), which was hired to investigate the true cost of transportation from both the mainland United States and the various international ports with which Puerto Rico frequently trades. ABC sent out a survey and of the companies contacted, a significant 70 percent responded, which demonstrates the keen interest of importers with this issue. The results of the survey were surprising, although not entirely unexpected.
Puerto Rico pays 151% more to transport goods from American ports than from foreign ports
What it found was that transporting containers from the United States costs, on average, 2.5 times or 151 percent more than transporting from foreign ports. For example: shipping a container from the U.S. East Coast to Puerto Rico costs $3,063 but shipping the same container to nearby Santo Domingo in the Dominican Republic costs only $1,504; and to Kingston, Jamaica, $1,607. This is because they’re not using Jones Act ships. These figures were arrived at after corresponding adjustments for size of container and distance.
Using this data, ABC then calculated an impact equivalent to a Jones Act tax of 7.2 percent on food and beverages alone, which translates into an increase of $367 million in additional costs to the local economy. In other words, food and beverages on Puerto Rico cost $300 and $107 more respectively per person, thanks to the Jones Act.
Further Jones Act limitations
The second independent study performed was done by the New York firm, John Dunham & Associates (JDA). Having worked for the Port Authority of New York and New Jersey, the Port Authority of Philadelphia, and the Ports and Commerce Department of the City of New York, Chief economist John Dunham has extensive experience in the maritime transport sector.
Their report read: “All the calculations concluded that there was a significant impact. From this analysis, the firm chose and adapted the sources to make their own recommendation, concluding water transportation costs to Puerto Rico are $568.9 million higher, and prices are $1.1 billion higher than they would be without the Jones Act limitations.”
A further impact of this is on jobs for Puerto Ricans.
“If this is the case, Puerto Rico has 13,250 fewer jobs than it would have were there a free market for ocean freight,” says John Dunham. “Those jobs would pay residents $337.3 million in wages and would result from nearly $1.5 billion in increased economic activity.”
He also said that overall tax revenue would be $106.4 million more were the island to be exempt from the Jones Act’s provisions.
The Jones Act doesn’t only deliver a blow to business’, consumers’, and the economy’s pockets… owing to this legislation, Puerto Rican businesses have limited viable shipping options, which has compelled them to purchase more from foreign countries. In fact, many Puerto Rico companies opt to import goods from Canada rather than from the United States in order to avoid the cost premium from the Jones Act. Additionally, the island, imports almost no heavy cargo from the U.S. since ships are not available to carry it. And with goods having to cover longer distances by other modes of travel, particularly land transport, Puerto Rico’s #carbonfootprint is unavoidably large.
The road forward
“With the results of these two economic studies, we have enough data to demand that we be heard here as well as in the United States Congress,” says president of the Puerto Rico Chamber of Commerce, Kenneth Rivera. “The numbers are clear, the impact is devastating for the economy of our island and even more so being as vulnerable to natural disasters such a as #HurricaneMaria.”
José Salvatella, president of the Puerto Rico Restaurants Association, has also said that Puerto Rico’s food security is directly tied to its “extreme dependence” on imports: “We had great difficulties in meeting our clients’ needs, to the point that one of our partners had to import food by plane at a cost 10 times higher than what it would have cost by sea due to the lack of service.”
And so, rather than achieving any of the goals set forth in 1920, the Jones Act has severely hampered the development of the merchant marine and shipbuilding industries in the United States. It’s time for change.
It is Fusion Farm’s mission to bring about change by re-establishing local agriculture (in hurricane-protected facilities) and reducing Puerto Rico’s dependence on food imports.