Jones act

What Is the Jones Act?

The Jones Act, formally known as Section 27 of the Merchant Marine Act of 1920, is a federal statute governing maritime commerce in the United States. It is a significant piece of protectionist legislation within the broader category of Maritime Law. The Act mandates that any cargo transported by water between two points in the United States must be carried on vessels that are built in the U.S., owned by U.S. citizens, and crewed primarily by U.S. citizens or permanent residents.⁵³, ⁵⁴ This law aims to support and maintain a robust American Shipping Industry and a strong merchant marine for both commercial and National Security purposes.⁵¹, ⁵²

History and Origin

The Jones Act was enacted on June 5, 1920, in the aftermath of World War I. At the time, the U.S. government sought to ensure the nation's maritime capabilities remained strong, particularly after a period where the U.S. economy suffered due to reliance on foreign ships that were engaged in the war effort.⁴⁹, ⁵⁰ Senator Wesley Jones of Washington introduced the legislation, which intended to establish a framework that would incentivize the development of a powerful and self-sustaining U.S. Merchant Marine.⁴⁸

The Merchant Marine Act of 1920, which contains the Jones Act, declared it policy 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."⁴⁶, ⁴⁷ While often associated with the 1920 Act, the concept of reserving domestic waterborne trade for U.S.-flagged vessels dates back to the First Congress in 1789.⁴⁴, ⁴⁵

Key Takeaways

• The Jones Act requires that cargo shipped between U.S. ports must be transported on U.S.-built, U.S.-owned, and U.S.-crewed vessels.⁴², ⁴³
• Its primary goals include bolstering the domestic shipbuilding industry, supporting American maritime jobs, and ensuring national defense readiness.³⁹, ⁴⁰, ⁴¹
• The Act is considered protectionist legislation, as it limits foreign competition in U.S. domestic waterborne commerce.³⁸
• Critics argue that the Jones Act increases shipping costs, particularly for non-contiguous U.S. regions like Hawaii, Alaska, and Puerto Rico.³⁶, ³⁷
• Waivers of the Jones Act are sometimes granted during emergencies, though these are typically temporary and limited.³⁴, ³⁵

Interpreting the Jones Act

The Jones Act is a cornerstone of U.S. Government Regulation in the maritime sector. Its interpretation is crucial for businesses involved in domestic shipping, transportation, and Logistics. Essentially, it means that if a company needs to move goods from one U.S. port to another—for example, from Florida to Puerto Rico—they must utilize a vessel that meets the specific requirements of the Jones Act: it must be built in the U States, owned by a U.S. entity (at least 75% U.S. citizen ownership), and crewed predominantly by U.S. citizens (at least 75%). Thi³², ³³s directly impacts Supply Chain management and determines the available fleet for domestic transport.

Hypothetical Example

Imagine a company, "Pacific Seafood Distributors," based in Seattle, Washington, that wants to ship a large consignment of frozen fish to Anchorage, Alaska. Under normal circumstances, Pacific Seafood Distributors must comply with the Jones Act. This means they cannot hire a foreign-flagged, foreign-built, or foreign-crewed vessel, even if it might offer a lower shipping rate. Instead, they would need to contract with a U.S.-based shipping company that operates a vessel meeting all the Jones Act criteria. For instance, they might contract with "American Marine Freight," a company that owns and operates U.S.-built ships with U.S. crews. This ensures compliance with the regulation governing domestic waterborne Trade Barriers.

Practical Applications

The Jones Act has widespread practical applications across various sectors of the U.S. Economic Activity. It directly influences:

• Commercial Shipping: It restricts coastwise trade, meaning merchandise transport between U.S. points is reserved for U.S.-built, U.S.-owned, and U.S.-documented vessels. Thi³¹s directly affects freight rates for goods moved between the mainland U.S. and non-contiguous territories and states such as Puerto Rico, Hawaii, and Alaska.
• ³⁰ Shipbuilding Industry: By requiring U.S.-built vessels for domestic routes, the Act aims to sustain American shipyards.
• Energy Sector: The Act affects the transport of energy resources, such as crude oil and liquefied natural gas (LNG), between U.S. ports. For instance, a lack of Jones Act-compliant LNG tankers means U.S.-produced LNG can often be sent to foreign countries but not easily to domestic markets like New England via sea.
• ²⁸, ²⁹ National Defense: Proponents argue that the Act is vital for national security, providing a ready fleet and skilled mariners that can be called upon in times of emergency. The²⁶, ²⁷ U.S. military relies on this domestic maritime capacity for strategic sealift.

Th²⁵e Maritime Administration (MARAD) provides information on the domestic shipping framework, including the Jones Act, emphasizing its role in supporting U.S. transportation and national defense. MARAD - Domestic Shipping

Limitations and Criticisms

Despite its stated goals, the Jones Act faces significant limitations and criticisms, primarily concerning its economic impact. One of the most common critiques is that the Act leads to significantly higher Consumer Costs and increased freight rates for domestic shipping compared to international rates. Stu²³, ²⁴dies have indicated that the cost of building ships in U.S. shipyards can be two to four times higher than in foreign shipyards, which contributes to increased shipping expenses. Thi²¹, ²²s has a particularly acute effect on insular areas like Puerto Rico, Hawaii, and Alaska, which are heavily reliant on maritime transport for essential goods, leading to higher prices for residents.

Cr¹⁹, ²⁰itics also argue that the Jones Act stifles Market Competition by effectively creating a monopoly for a small number of U.S.-flagged vessels, which can lead to inefficiencies and limit innovation within the industry. Fur¹⁷, ¹⁸thermore, some suggest that far from bolstering the U.S. shipbuilding industry, the domestic-build mandate has led to a decline in its global competitiveness, as U.S. shipyards lack the need to compete internationally.

Th¹⁵, ¹⁶e frequent granting of Jones Act waivers during crises, such as natural disasters or energy shortages, further highlights perceived limitations, leading some to question the Act's necessity for national and economic security.

A ¹³, ¹⁴detailed analysis of the Act's economic burdens can be found in publications like "The Jones Act: A Burden America Can No Longer Bear." Cato Institute - The Jones Act: A Burden America Can No Longer Bear

Jones Act vs. Cabotage

The terms "Jones Act" and "Cabotage" are often used interchangeably, but it is important to understand their relationship. Cabotage refers broadly to the transport of goods or passengers between two points within the same country by a vessel. Many nations have cabotage laws to protect their domestic shipping industries, support national security, and maintain employment. The¹¹, ¹² Jones Act is, in essence, the primary U.S. federal cabotage law specifically pertaining to the waterborne transportation of merchandise. While "cabotage" is the general concept of restricting domestic transport to national carriers, the "Jones Act" is the specific legislative embodiment of that concept for cargo transport within the United States. Therefore, the Jones Act is a specific form of cabotage regulation.

FAQs

What does the Jones Act require?

The Jones Act mandates that goods shipped by water between two U.S. ports must be transported on vessels that are built in the United States, owned by U.S. citizens (at least 75%), and crewed by U.S. citizens or permanent residents (at least 75%).

##⁹, ¹⁰# Why was the Jones Act created?
The Jones Act was enacted in 1920 to promote and maintain a strong American merchant marine after World War I, ensuring the U.S. had adequate shipping capacity for both commercial purposes and national defense. It ⁸was also intended to support the domestic shipbuilding industry and protect American maritime jobs.

##⁷# Does the Jones Act apply to all U.S. territories?
The Jones Act applies to trade between U.S. points, including states like Hawaii and Alaska, and territories such as Puerto Rico. However, some specific U.S. territories, like the U.S. Virgin Islands, have historically been exempted from certain provisions.

##⁶# Can the Jones Act be waived?
Yes, the Jones Act can be temporarily waived, typically in times of national emergency or when required for national defense. The⁵se waivers are often granted to allow foreign-flagged vessels to transport essential goods, such as fuel, to affected areas during crises.

##³, ⁴# How does the Jones Act impact everyday consumers?
Critics argue that the Jones Act contributes to higher prices for consumer goods, especially in non-contiguous states and territories like Hawaii and Puerto Rico, because it restricts competition and increases shipping costs. The¹, ²se increased transportation costs are often passed down to the end consumer.