GAO-13-260: modifying the Jones Act in Puerto Rico would have uncertain effects

On March 14, 2013 the U.S. Government Accountability Office published report GAO-13-260, Puerto Rico: Characteristics of the Island’s Maritime Trade and Potential Effects of Modifying the Jones Act (publicly released Mar 20). It is a report to congressional requesters on the Island’s maritime trade and the possible impact of modifying the Jones Act, not an island press note.

The Jones Act (Merchant Marine Act of 1920, §27) requires that maritime cargo transport between U.S. points use U.S.-flagged and -owned vessels, built in the U.S. and mostly crewed by U.S. citizens. Puerto Rico is subject to those requirements. The report describes a discrete U.S.–Puerto Rico market dominated by four Jones Act carriers with dedicated weekly containership and container-barge service; some vessels operate beyond expected useful life, though there are rebuilds.

Shippers using Jones Act carriers have alleged the Act raises freight rates to/from the Island and has an adverse economic impact given dependence on maritime transport. GAO notes that average rates of the four major carriers were lower in 2010 than in 2006, partly from weaker demand. Foreign-flag carriers to or from foreign ports often have lower operating costs and rates that are frequently — though not always — lower than Jones Act freight to the U.S.

Effects of modifying or exempting Puerto Rico from the Jones Act are highly uncertain and involve trade-offs: more competition vs. erosion of the merchant marine and shipyard base the Act seeks to sustain. A partial or full exemption could spur fleet recapitalization or new carrier entry, but also reduce future demand for U.S.-built vessels. GAO makes no policy recommendations. DOT generally agreed and provided technical clarifications. Primary: gao.gov GAO-13-260. Cousin: none.

Source: U.S. Government Accountability Office. https://www.gao.gov/products/gao-13-260