Photo by Charley Myers
The following was originally published Dec. 6, 2021, by Cato at Liberty Blog.
Just two Jones Act carriers, Matson and Pasha Hawaii, have over 96% of westbound container capacity from the U.S. mainland to Hawaii
As inflation worries mount, the Biden administration has found a new villain to blame for rising prices: international ocean shipping companies. Shipping congestion, the White House stated in a recent email to reporters, “has been a source of price‐gouging by the ocean shipping cartel—price hikes that are part of the inflation.”
The remarks dovetail with a White House blog post last month:
Today a system of global alliances dominates global shipping where nine carriers that have been organized into three alliances control about 80% of the global shipping market and 95% on the critical East‐West trade lanes. Alliances only controlled 29% of the market as recently as 2011. This lack of competition leaves American businesses at the mercy of just three alliances.
That the Jones Act produces costly shipping is not in dispute. With Jones Act‐compliant ships three times more expensive to operate and four to five times more expensive to build than those in foreign fleets, high shipping costs are inevitable. A diverse set of government bodies including the Government Accountability Office, the U.S. Department of Agriculture, the U.S. International Trade Commission, and even the U.S. Navy have pointed out the expensive nature of such shipping.
As for evidence of limited competition, look no further than the U.S. maritime industry itself. A report commissioned by the American Maritime Partnership, a pro‐Jones Act advocacy group, noted that just two Jones Act carriers, Crowley and TOTE Maritime, account for 85% of the container capacity in the Puerto Rico trade lane.
Another AMP report, meanwhile, shows that two Jones Act carriers, Matson and Pasha Hawaii, have over 96% of westbound container capacity from the U.S. mainland to Hawaii.
The situation is little different in the Alaska market, where container ships operating between the Last Frontier and the U.S. mainland are limited to the duopoly of Matson and TOTE Maritime.
Guam is also served by just two ocean carriers—Matson and APL—but Matson is trying to gain a monopoly position by ousting APL from the trade through legal action.
It’s not just the small number of carriers that is a problem, but also the high barriers to market entry. Challenging incumbent operators requires acquiring U.S.-built ships, which are both expensive and take years to construct. Two ships ordered by Pasha Hawaii in September 2017, for example, feature a combined price tag of over $400 million and still haven’t been delivered. Such difficulty in obtaining ships is no small obstacle to challenging the shipping status quo.
Those with lingering doubts about the limited nature of Jones Act shipping competition should consider that in 2008 five shipping officials active in the Puerto Rico trade pled guilty for their roles in what the Department of Justice called “one of the largest domestic price‐fixing conspiracies ever investigated by the United States.” The ability of these shipping companies to engage in such price‐fixing, which lasted for years, was plainly aided by the restrictive nature of Jones Act shipping.
If the Biden administration wants to get serious about promoting ocean shipping competition and driving down freight rates it should first look to get its domestic house in order. And a logical starting point would be revisiting the costly burden that is the Jones Act.