Shipping Under the Jones Act: Legislative and Regulatory Background

Summary

The Jones Act, which refers to Section 27 of the Merchant Marine Act of 1920 (P.L. 66-261), requires that vessels transporting cargo from one U.S. point to another U.S. point be U.S.-built, and owned and crewed by U.S. citizens. The act provides a significant degree of protection for U.S. shipyards, domestic carriers, and American merchant sailors. It is a subject of debate because some experts point out that it leads to high domestic ocean shipping costs and constrains the availability of ships for domestic use. The Jones Act has come into prominence amid debates over Puerto Rico’s economic challenges and recovery from Hurricane Maria in 2017; in the investigation into the sinking of the ship El Faro with 33 fatalities during a hurricane in 2015; and in discussions about domestic transportation of oil and natural gas. The law’s effectiveness in achieving national security goals has also been the subject of attention in conjunction with a congressional directive that the Administration develop a national maritime strategy, including strategies to increase the use of short sea shipping and enhance U.S. shipbuilding capability.

The Jones Act of 1920 was not the first law requiring that vessels transporting cargo domestically be U.S.-built, owned, and crewed. It restated a long-standing restriction that was temporarily suspended during World War I. Since 1920, Congress has enacted provisions that could be said to tighten Jones Act requirements as well as provisions that exempt certain maritime activity from the requirements. In 1935, Congress forbade Jones Act-qualified vessels that were sold to foreign owners or registered under a foreign flag to subsequently requalify as Jones Act-eligible (P.L. 74-191). This provides additional protection from competition for Jones Act carriers if coastal shipping demand increases, because it can take around two years to construct a new ship. In 1940, Congress expanded the Jones Act to include towing and salvage vessels (P.L. 76-599). In 1988, Congress specified that waterborne transport of valueless material required use of a Jones Act-qualified vessel, such that transport of dredge spoil or municipal waste would fall under the law (P.L. 100-329). Generally, dredging and towing vessels, as well as Great Lakes ships, have occasioned less debate about the Jones Act than oceangoing ships and offshore supply vessels.

Congress has enacted numerous exemptions or exceptions to the Jones Act. In some cases, Congress has enacted an exemption if there are no Jones Act-qualified carriers interested in providing service in a particular market (for example, passenger travel to and from Puerto Rico). Congress has allowed waivers of the Jones Act for national defense reasons, which most often have been executed to speed fuel deliveries to a region after a natural disaster disrupted normal supply lines.

Regulatory interpretations of the Jones Act have been significant in defining what constitutes a “U.S.-built” vessel, what constitutes “transportation” between two U.S. points, and what are “U.S. points.” The Coast Guard has determined that a U.S.-built vessel can be assembled with major foreign components such as engines, propellers, and stern and bow sections. This interpretation has been consistent from the late 1800s. Customs and Border Protection (CBP) has determined that cruise ship voyages that involve visits to foreign ports in addition to a domestic port are not domestic transportation and therefore not subject to the Jones Act. This interpretation also dates to the late 1800s. CBP’s interpretations of what constitutes domestic transportation and U.S. points are significant to the offshore oil industry, as some of the vessels supporting that industry must be Jones Act-compliant while others need not be.

By long-standing agreement, the military is to utilize U.S.-flag commercial ships for sealift before it utilizes government-owned vessels in its reserve fleet. Jones Act mariners are expected to crew sealift ships when needed, and thus the decades-long shrinkage of the oceangoing Jones Act fleet and mariner pool has been raised as a concern. The Department of Defense is planning to buy more used foreign-built ships for sealift rather than building them in the United States for cost reasons. It also has found that repairing its current fleet in U.S. shipyards is three times more expensive and has taken twice as long as estimated.

Much of the commercial fleet is relatively old, raising safety concerns. Some useful types of ships are missing from the Jones Act-qualified fleet, such as heavy-lift vessels, liquefied natural gas (LNG) tankers, and deepwater offshore construction vessels. Both situations appear to some observers to be contrary to the policy goal of the Jones Act, which is to “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 times of war or national emergency.”