It’s called the Merchant Marine Act of 1920. The Act was introduced by Senator Wesley Jones from Washington, and thus carried his name.
The Jones Act is part of the post-World War I years, when the vulnerability of US shipping to German U-boats was still fresh in the public’s mind, to maintain a “dependable” merchant fleet for the next “national emergency” – as well as promote US shipping interests. (WSJ)
Part of the act deals with ‘coastwise (or domestic) trade’ – essentially the term applies to a voyage that beginning at any point within the US and delivering a type of commercial cargo to any other point within the US. (Maritime Law Center)
Another related term is ‘cabotage’ – this initially referred to shipping along coastal routes, port to port; now it is defined as the “transportation of passengers and goods within the same country” and “law or policy protecting transporters of passengers and goods within a country from competition from foreign carriers.” (American Heritage Dictionary)
The threshold question here is whether the carriage involves a move of an item of “merchandise” from one coastwise point to another when any part of the journey by sea or by land and sea occurs by vessel. If so, the movement is coastwise trade.
Merchandise is essentially any object, whether valuable or not, whether privately owned or owned by the US Government or by a state government or subdivision thereof, other than the carrying vessel’s own equipment and consumable supplies. (King)
The Jones Act was designed to protect the domestic shipping industry. It states that only ships made in the US and flying the country’s flags can deliver goods between US ports.
That means that a cargo ship filled with goods from China can only make one stop in the US at a time. It can’t stop in Hawaii to exchange goods before heading to Los Angeles. (Bussewitz)
This limitation is not new. After passage of the Constitution in 1789, the First Congress promptly exercised the sovereign powers of the US to protect the US merchant marine fleet from foreign flag competition in its domestic maritime trades.
The new Congress imposed a tax on foreign vessels operating in the domestic trades at a rate that, as a practical matter, precluded them from competing with the domestic merchant marine in those trades. Then, in 1817, Congress expressly prohibited foreign vessels from operating in the coastwise trades.
From 1817 to 1866, the US maritime cabotage laws prohibited the transportation of merchandise “from one port of the United States to another port of the United States in a vessel belonging wholly or in part to a subject of any foreign power.” (McGeorge)
The Jones Act revamped the US shipping laws governing cabotage, ship mortgages, seamen’s personal injury claims and more in the immediate aftermath of World War I. (King)
However, the bulk of the discussion on the Act deals with coastwise trade and cabotage and the fact that the law requires that all goods traded between US ports be transported by US-owned, US-built, US-flagged and at least 75 percent US-crewed ships. (Wilson)
The US is not alone in establishing and enforcing cabotage laws. Most trading nations of the world, according to Department of Transportation’s Maritime Administration (MARAD,) have or have had cabotage laws of some kind. (GAO)
But folks now-a-days, especially in the Islands, are suggesting the Act is inhibiting free trade – which results in higher prices for shipping (adding to the cost of almost everything we buy in the Islands.)
According to a 2014 report by the Congressional Research Service, the cost of a US-manufactured ship is about four times that of foreign competition, and crew costs for “Jones Act–eligible” vessels are several times higher than foreign counterparts. These higher operating costs make shipping between US ports as much as three times the rate of shipping to a foreign port. (Wilson)
The “significant measurable US import restraint on services is in the transportation sector. Complete liberalization of oceanborne domestic water transport (i.e. repeal of the Jones Act) results in a $656 million net welfare gain ….”
“More conservative estimates of foreign-cost advantages under free-trade conditions change the model results, showing significantly less import penetration in the US market and smaller welfare gains. Relaxing the domestic construction requirement alone is estimated to generate $261 million in net welfare gains …” (US International Trade Commission, 2002)
Another way to say the above is that “repealing the Jones Act would lower shipping costs by about 22 percent.” (Congressional Record)
By shutting out foreign competition, the law limits shipping capacity and inflates US freight rates. Like most forms of protectionism, it benefits a few (primarily labor unions and US shipbuilders) to the detriment of many.
US islands, such as Hawaiʻi (along with the state of Alaska,) feel the effects of the Jones Act more than most localities. (Bloomberg)
Jones Act waivers were granted during Hurricane Katrina due to the significant disruption in the production and transportation of petroleum and/or refined petroleum products in the region during that emergency and the impact this had on national defense. (USCG)
Some suggest waivers are evidence of the negative impacts of the law, but also say ending the Jones Act shouldn’t be a unilateral move. Dozens of other nations have similar protectionist laws, and the US should only allow competition from ships that are registered to nations that agree to reciprocal rollbacks. (Bloomberg)