The Jones Act Explained: Understanding the Merchant Marine Act of 1920

The Jones Act, also known as the Merchant Marine Act of 1920, is a cornerstone of U.S. maritime law. It has significantly influenced maritime shipping regulations in the United States for over a century. Introduced to strengthen the U.S. shipping industry, it ensures a self-sufficient maritime presence. The Act mandates that goods transported between U.S. ports must be carried on U.S.-flagged vessels. These vessels must be built, owned, and operated by American citizens or permanent residents.

The Jones Act's importance goes beyond its economic benefits for the shipping industry. It is crucial for national security, fostering a robust domestic maritime capability. By requiring American-built and operated ships for coastal trade, it supports a skilled merchant marine workforce and a viable shipbuilding industry.

The Jones Act's impact on the U.S. economy and consumers is a subject of ongoing debate. Supporters believe it preserves American jobs, maintains a strong national maritime infrastructure, and ensures fair competition. Critics argue that the Act's restrictions lead to higher shipping costs, affecting communities like Hawaii, Alaska, and Puerto Rico. These increased costs are ultimately reflected in higher prices for goods, impacting consumers.

Key Takeaways

• The Jones Act requires goods shipped between U.S. ports to be transported on ships built, owned, and operated by U.S. citizens or permanent residents.

• The Act aims to stimulate the U.S. shipping industry and reduce reliance on foreign-built ships.

• It plays a vital role in maintaining a strong U.S. merchant marine and supporting national security.

• The Jones Act's impact on shipping costs and consumer prices remains a topic of debate.

• The Act's requirements have been in place for over a century.

Overview of the Jones Act

The Jones Act, also known as Section 27 of the Merchant Marine Act of 1920, has been a cornerstone of the U.S. maritime industry for over a century. It was created to boost the American merchant marine and revive the U.S. shipbuilding sector after World War I. The Act focuses on maritime commerce, enforcing cabotage laws that govern the movement of goods and passengers within U.S. ports.

Definition of the Jones Act

The Jones Act requires that all waterborne goods transport between U.S. ports must be on ships built, owned, and operated by U.S. citizens or permanent residents. It also mandates that the crew members be U.S. citizens or permanent residents. This ensures the U.S. maintains a strong and secure maritime transportation system, protecting and promoting domestic maritime trade.

History and Purpose of the Act

Passed after World War I, the Jones Act aimed to revitalize the U.S. shipbuilding industry and enhance maritime capabilities. It mandates that all domestic maritime trade be conducted by U.S.-built, owned, and operated vessels. This goal is to create a stable and self-sufficient maritime sector, boosting the nation's economy, job creation, and national security.

The Jones Act's influence on the U.S. maritime industry is profound, as shown by various statistics:

• The Act supports nearly 500,000 American jobs, according to the Maritime Administration (MARAD).

• The economic impact of the Jones Act is estimated to be almost $100 billion.

• Nearly 40,000 vessels operate under the Jones Act, engaging in domestic maritime trade.

• The maritime industry, under the Jones Act, generates billions of dollars in economic activity.

Key Provisions of the Jones Act

Let's explore the Jones Act's stipulations and their effects on maritime operations.

U.S. Ownership and Control Requirements

The Jones Act mandates that vessels in coastal trade between U.S. ports must be fully owned by U.S. citizens. This rule extends to corporate ownership, requiring at least 75% of shares to be held by Americans. This ensures U.S. control over maritime assets, preventing foreign influence in domestic shipping.

U.S. Built and Flagged Vessel Requirements

Vessels must be constructed in the United States and fly the U.S. flag to comply with the Jones Act. This supports American shipbuilding, ensuring a steady demand for domestically built vessels. Flying the U.S. flag also subjects these ships to American regulations, enhancing the U.S maritime industry's integrity.

Crew Nationality Requirements

The Jones Act requires the crew of vessels in coastal trade to be predominantly U.S. citizens or permanent residents. This rule protects American jobs and ensures a robust maritime workforce. By prioritizing U.S. citizens in ship crewing regulations, the act fosters a skilled domestic maritime labor pool.

Provision	Requirement	Impact
Ownership	100% U.S. owned, 75%+ U.S. citizen ownership	Maintains U.S. control over maritime assets
Construction	Built in the United States	Supports American shipbuilding industry
Flag	U.S. flagged vessels	Subjects ships to U.S. regulations and standards
Crewing	Majority U.S. citizens or permanent residents	Protects American jobs and develops skilled workforce

Impact on U.S. Maritime Industry

The Jones Act has profoundly influenced the U.S. maritime industry, offering vital support for domestic shipbuilding, shipping, and job creation.

Protection of U.S. Shipbuilding and Shipping Industries

The Jones Act has been crucial in safeguarding the U.S. shipbuilding and shipping industries from foreign competition. It has enabled American shipyards to flourish. In 2016, U.S. shipbuilders delivered more than 1,300 vessels, injecting billions into the economy. The Act's stipulations have also spurred significant investments in the U.S. maritime sector, with American Maritime Partnership (AMP) members investing over $30 billion.

Job Creation and Economic Benefits

The Jones Act has been a key driver of job creation and economic growth in the United States. The domestic maritime industry supports approximately 650,000 jobs, generating $41 billion in annual labor compensation. The maritime sector contributes over $150 billion annually to the U.S. economy, with the Jones Act crucial to this economic impact.

Economic Indicator	Value
Jobs Sustained	650,000
Annual Labor Compensation	$41 billion
Annual Economic Output	$154 billion
Indirect Jobs Created per Direct Maritime Job	5

Criticisms and Controversies

The Jones Act, a century-old U.S. shipping law, has faced growing criticism for its impact on maritime economics and perceived inefficiencies.

Higher Shipping Costs for U.S. Territories

Critics point out that the Jones Act controversies disproportionately affect U.S. territories like Hawaii, Alaska, and Puerto Rico. These regions heavily rely on maritime transportation and face significantly higher shipping costs than the mainland U.S. A 2020 study found that the Jones Act costs the average Hawaiian family around $1,800 annually.

Limited Competition and Market Efficiency

The Act's restrictions on foreign vessels operating between U.S. ports limit competition and market efficiency. Ships built under the Jones Act can cost up to five times more than those constructed abroad, with operating costs about 2.5 times higher. This lack of competition may contribute to the decline of the American shipbuilding industry.

Potential Impact on Consumer Prices

The Jones Act impact on consumer prices is a contentious issue. Supporters argue that the Act protects approximately 650,000 well-paying American jobs in the maritime sector. Yet, critics argue that the higher costs associated with Jones Act compliance are ultimately borne by consumers and businesses. This is evident in regions like Puerto Rico, where additional costs were nearly $1.2 billion, or roughly $374 per resident, according to a 2019 report.

Jones Act Waivers and Exceptions

The Jones Act provisions aim to safeguard the U.S. maritime sector. Yet, there are scenarios where waivers and exceptions are granted. These are usually for specific, time-limited needs, such as national defense or disaster relief.

National Defense Waivers

The Secretary of Homeland Security can waive the Jones Act for national defense reasons. This allows foreign vessels to participate in domestic trade, which is normally restricted. Yet, the waiver approval process can be slow, affecting non-DOD requests. In 2020, Congress tightened waiver rules. Now, waivers are only for immediate military needs.

Natural Disaster Relief Waivers

After natural disasters, like hurricanes, the Jones Act may be waived to aid affected areas. These waivers are usually granted for 10 days and have strict trade limits. During Hurricane Katrina and Rita, the U.S. issued blanket waivers, despite industry doubts. The industry worries that each waiver could destabilize the Jones Act's role in U.S. maritime infrastructure.

Waiver Type	Issuing Authority	Typical Duration
National Defense	Secretary of Homeland Security	Varies based on military needs
Natural Disaster Relief	Secretary of Homeland Security	10 days

Recent Developments and Proposed Reforms

The Jones Act, a century-old maritime law, has sparked intense debate in recent years. As the shipping industry evolves, calls for jones act reform and u.s. maritime law amendments have grown. These changes aim to address the Act's perceived shortcomings and its economic impact.

One major concern is the high cost of U.S.-built merchant ships. They are four to five times pricier than those built abroad. This has led to a sharp decline in U.S.-compliant ships, from 257 in 1980 to 96 today. The result is higher shipping costs, affecting noncontiguous regions like Puerto Rico, Hawaii, and Alaska.

Reform advocates claim the Jones Act stifles economic growth and increases energy costs for Americans. The U.S. offshore wind industry faces challenges due to the high cost of Jones Act-compliant vessels. Also, the lack of Jones Act-compliant LNG tankers has driven up energy prices in New England, which imports LNG from afar.

• A study found that Puerto Rico paid an additional $568.9 million for shipping costs due to the Jones Act.

• Prices for goods in Puerto Rico were estimated to be $1.1 billion higher than they would be if the Jones Act were not in effect.

• The estimated annual cost of the Jones Act to Puerto Rico is nearly $1.5 billion.

Supporters of the Act argue it protects the U.S. maritime industry and ensures national security. They fear repealing the Jones Act could harm the domestic shipbuilding industry and weaken national emergency response capabilities.

The ongoing debate has led to various maritime policy changes and proposed amendments. Suggestions include exemptions for certain U.S. territories, allowing foreign-built ships in domestic trade, or offering incentives for Jones Act-compliant vessels. Finding a balance between reform and preserving a strong domestic maritime industry is key to the Jones Act's future.

Implications for U.S. Energy Industry

The Jones Act significantly impacts the U.S. energy sector. It mandates that vessels carrying goods between U.S. ports must be U.S.-flagged, built in the U.S., owned by U.S. citizens, and crewed mainly by U.S. citizens or permanent residents. As the offshore wind industry grows rapidly, the need for Jones Act-compliant vessels for offshore energy projects becomes more pressing.

The scarcity of specialized vessels, like wind-turbine installation vessels, that meet the Jones Act requirements poses challenges. These vessels are crucial for transporting and installing large wind turbine components. Their limited availability creates both opportunities and hurdles for the U.S. shipbuilding sector.

Offshore Oil and Gas Operations

The Jones Act is also vital for offshore oil and gas shipping. Currently, 72 Jones Act-qualified vessels operate, with no competition for nearly a century. The cost to man a Jones Act vessel is at least six times that of a foreign-crewed ship due to higher wage rates. This can affect the cost of goods transferred by these vessels.

Vessel Type	Number of Jones Act Vessels	Daily Manning Cost (USD)
Oil Tankers	30	$50,000
Offshore Supply Vessels	42	$25,000

Wind Energy Development

The Jones Act creates a complex regulatory landscape for the offshore wind industry. Ensuring compliance requires careful vessel and crew selection, affecting project timelines and resource allocation. Strategic planning is crucial to balance compliance with operational efficiency, unlocking offshore wind energy's potential in the U.S.

The Jones Act presents both challenges and opportunities for the U.S. energy industry, notably in the rapidly expanding offshore wind sector.

Domestic investment in offshore wind may increase due to the need for U.S.-built and -flagged vessels, benefiting local economies and supply chains. Yet, the limited number of Jones Act-compliant vessels for wind farm support can lead to higher costs and logistical challenges.

Role in U.S. National Security

Maintaining a Strong U.S. Merchant Marine

The Jones Act's provisions are vital for a robust U.S. merchant marine. During World War II, over two hundred thousand Merchant Mariners and hundreds of commercial ships served the nation. Yet, 75 years of peace have led some to question the Act's relevance. Without it, the American merchant marine and civilian shipping could face severe impacts from state-subsidized Chinese vessels.

Supporting U.S. Military Sealift Capabilities

The Jones Act ensures a merchant mariner and civilian cargo ship reserve for conflict. These resources are key for U.S. military sealift capabilities in war or emergencies. Without the Act, this reserve could dwindle, jeopardizing the nation's ability to respond to threats and protect interests abroad.

The Jones Act's role in national defense was underscored by the 2021 Colonial Pipeline cyber-attack. This attack blocked a major gasoline artery for the East Coast, prompting seventeen governors to declare emergencies. Without the Jones Act, Chinese-flagged vessels could gain unrestricted access to American economic infrastructure, threatening U.S. maritime security.

Conclusion

The Jones Act, a cornerstone of U.S. maritime policy, has profoundly influenced the shipping industry since 1920. It mandates that cargo between U.S. ports must travel on ships built, crewed, and flagged in the U.S. Despite its aim to bolster domestic shipbuilding and a robust merchant marine, it has been criticized for increasing shipping costs and reducing market efficiency.

As of May 2022, only 93 out of 178 U.S.-flagged oceangoing vessels met the Act's requirements. This shows the industry's ongoing challenges. The high costs of U.S. shipbuilding have led companies to prefer foreign-built vessels. This preference has caused the U.S. Jones Act-eligible fleet to shrink from 1,072 ships in 1955 to just 90 by 2014. This decline has raised concerns about the nation's ability to respond to emergencies and support military operations.

The Jones Act's effects are not limited to the shipping industry. Noncontiguous states and territories, like Hawaii and Puerto Rico, face high shipping costs and frequent disruptions due to the lack of compliant vessels. As the debate over the Act continues, policymakers must weigh the need to protect the U.S. maritime industry against the need for reforms. A detailed maritime law analysis is essential to ensure the shipping industry's future aligns with national economic and security interests. This must be done while minimizing harm to consumers and domestic energy producers.

FAQ

What is the Jones Act?

The Jones Act, also known as the Merchant Marine Act of 1920, is a federal law. It regulates maritime commerce in the United States. It mandates that goods shipped between U.S. ports must be on ships owned and operated by U.S. citizens or permanent residents.

What is the purpose of the Jones Act?

Introduced after World War I, the Jones Act aimed to boost the shipping industry. It was designed to prevent U.S. reliance on foreign ships. It also ensured a robust U.S. merchant marine for national security.

What are the key provisions of the Jones Act?

The Jones Act stipulates that cargo ships between U.S. ports must be owned by U.S. companies. These companies must have over 75% of their ownership held by U.S. citizens. The ships must be built and registered in the U.S., with a crew majority being U.S. citizens.

How does the Jones Act impact the U.S. economy?

The Jones Act supports 650,000 American jobs and generates $150 billion annually. It protects the U.S. shipbuilding and shipping industries from foreign competition. This ensures U.S. ownership and control of ships in domestic trade.

What are the criticisms of the Jones Act?

Critics say the Jones Act raises shipping costs for U.S. territories like Hawaii, Alaska, and Puerto Rico. These areas heavily rely on imports. The Act's restrictions limit competition, potentially raising consumer prices.

Can the Jones Act be waived?

Yes, the Jones Act can be waived in certain situations. The Secretary of Defense can request waivers for national defense. There's also a procedure for non-defense entities. After a natural disaster, the Act may be waived to increase supply ships to affected areas.

How does the Jones Act compare to cabotage laws in other countries?

Many countries have cabotage laws similar to the Jones Act. These laws protect domestic maritime industries. Yet, the specifics and enforcement vary, with some countries having more relaxed or restrictive policies than the U.S.

What is the Jones Act's impact on the U.S. energy industry?

The Jones Act significantly affects the U.S. energy industry, notably in offshore oil and gas and wind energy. It requires vessels for these activities to be U.S.-owned, U.S.-built, and U.S.-crewed. This can increase costs and limit vessel availability for energy projects.

How does the Jones Act affect U.S. national security?

The Jones Act is vital for U.S. national security. It ensures a strong U.S. merchant marine. The Act's provisions maintain a domestic fleet and skilled American seafarers. These are crucial for U.S. military sealift capabilities in war or emergencies.