Liquified natural gas is valuable as it provides electricity. But with the Jones Act, the U.S. has blocked itself from transporting this valuable resource.
Last year, Puerto Rico used imported liquified natural gas (LNG) to generate roughly 40% of the island’s electricity. A few hundred miles away, LNG export terminals in Texas, Louisiana, and elsewhere in the U.S. made America the largest LNG exporter in the world. Puerto Rico bought none of it, and won’t for the foreseeable future. Instead, the Commonwealth sources LNG from countries in South America and Asia, including Russia before the sanctions. The problem isn’t desire. Puerto Ricans would like to buy U.S. LNG. There’s just no legal way to get the fuel from the mainland to the island. Welcome to the Jones Act.
During World War I, American politicians were dismayed that the private, domestic shipping fleet was small, leaving them with few vessels to press into service. In 1920, Congress passed the Jones Act, which requires any goods shipped on water between U.S. ports to be moved on vessels built in the U.S., owned by U.S. firms, and staffed by domestic sailors. With the U.S. growing by leaps and bounds in the early 20th century, it seemed like a no-brainer that such a law would boost U.S. shipbuilding. It hasn’t quite turned out that way.
The U.S. Department of Transportation Maritime Administration reports that tens of thousands of vessels transport billions of tons of goods to and from U.S. ports. Of them, a whopping 99 qualify under the Jones Act. Of the 640 ships around the world that can carry LNG, exactly zero qualify under the Jones Act, which means no LNG can be shipped from one U.S. port to another, period. It’s incredible that one of our fastest growing exports, from an industry that helps us maintain energy independence, cannot be moved around the country by ship.
In another idiotic example, in 2014 the state of New Jersey was running short of salt for roads. State officials found 40,000 tons available in Searsport, Maine, and there happened to be an empty freighter about to leave the port, headed for Newark, New Jersey. It was perfect, except for one thing. The freighter was out of the Marshall Islands, so it didn’t qualify under the Jones Act. Instead, New Jersey had to use a barge that held just 9,500 tons of rock salt, which had to make four trips.
Shipwrights make few vessels in the U.S. because of permitting and regulations, and precious few ships operate under the U.S. flag and with American crews because of prohibitive costs. Consumers pay the price when they have to source goods from faraway places and American companies lose business, while a narrow group, American shipbuilders, protects its turf. It’s crazy to think that we give business to foreign competitors which often are our geopolitical foes. There’s a way to fix this, but don’t hold your breath waiting for it to happen. We need Congress to act.
With just 99 ships qualified under the Jones Act, it’s clearly not working. The legislation has not fostered a vibrant shipping domestic industry and has done nothing to spur domestic shipbuilding. Congress could make the terms of the Jones Act less onerous, revamp permitting and regulation surrounding domestic shipbuilding, do both of those things, or repeal the act altogether. But we know the most likely outcome. Nothing. Outside of the domestic shipbuilding industry, it’s hard to find anyone who defends the Jones Act, and yet the century-old, ineffective law remains on the books, raising the costs for consumers and driving U.S. industry to prefer foreign buyers over domestic customers.
When people seem exasperated with Congress for not tackling sticky topics like immigration, I like to point out that there is a lot of low-hanging fruit that we could pick but that our elected officials choose to leave on the vine. It’s almost as if they ’are more motivated by the next election than solving our national issues. All of it leaves me “Jonesing” for change, starting with a 100-year-old, failed law.
For other updates on the economy, watch this video about the dollar and gold, and how they are impacted by today's economic landscape.
Written by Rodney Johnson The Rodney Johnson Report
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