Puerto Rico’s Financial Troubles Revive Discussion of Jones Act Reform

The Journal of Commerce reports that the Puerto Rico financial crisis has revived the Jones Act debate and meanwhile the withdrawal of Horizon Lines from the Puerto Rico trade has led to rising freight rates being charged by the remaining carriers.

Quote from the Journal of Commerce (JOC) (Subscription)
Puerto Rico debt crisis revives Jones Act debate

Joseph Bonney, Senior Editor | Jul 06, 2015 4:27PM EDT

Puerto Rico’s fiscal crisis has rekindled criticism of the Jones Act, the cabotage law requiring the use of U.S.-flag vessels for shipments between the commonwealth and the U.S. mainland.
A paper by three economists led by Anne O. Krueger, a Johns Hopkins University professor and former chief economist at the World Bank, last week urged that Puerto Rico be exempted from the Jones Act in order to reduce transportation costs.

The paper’s recommendation has been echoed on the New York Times editorial page and by the conservative Heritage Foundation in Washington following Puerto Rico Gov. Alejandro Garcia Padilla’s warning that the commonwealth cannot pay its $72 billion in outstanding debt and will need to restructure it.

“Exempting Puerto from the U.S. Jones Act could significantly reduce transport costs and open up new sectors for future growth,” said the economists’ paper. “In no mainland state does the Jones Act have so profound an effect on the cost structure as in Puerto Rico.”

This isn’t the first call for amending or repealing the Jones Act, which retains strong congressional support from U.S.-flag maritime interests. A 1990s campaign to modify the law went nowhere. Earlier this year, Sen. John McCain, R-Ariz., was rebuffed in his effort to attach an amendment to repeal the Jones Act to legislation authorizing the Keystone XL pipeline.

The economists’ paper included transportation law changes — the Jones Act and Puerto Rico Public Service Commission regulation of ground transportation were among recommendations for rebuilding Puerto Rico’s economy, which has been contracting for a decade amid a continuing population outflow from the island.

The U.S. mainland-Puerto Rico shipping market has been in flux of late. Horizon Lines’ departure from the trade at the end of 2014 has tightened southbound capacity and allowed remaining carriers to raise rates that had slid for several years while volume fell. Northbound rates and volume remain low in the heavily imbalanced market.

Crowley Liner Services and Sea Star Line have added container-on-barge capacity to compete for Horizon’s market share, which totaled 28.8 percent of the market in the first nine months of 2014, according to PIERS, a sister product of JOC.com within IHS Maritime & Trade. Trailer Bridge is the market’s third-ranking carrier.

Crowley and Sea Star are also building new ships that will operate on liquefied natural gas in the Puerto Rico trade. In April, TOTE launched the first of two LNG-powered container ships that will carry up to 3,100 twenty-foot-equivalent units. Crowley is building two combination container/roll-on, roll-off ships that will carry up to 2,400 TEUs and 400 vehicles.

The boomlet in orders for U.S.-built ships has bolstered Jones Act defenders’ arguments against changes to the law. Maritime Administrator Paul “Chip” Jaenichen told a congressional hearing last February that mere discussion of Jones Act repeal could discourage financing plans for vessel orders at U.S. shipyards.

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