Liberate Puerto Rico From Jones Act Shackles

U.S. Navy

The Trump administration belatedly did the right thing for the wrong reasons last week when it granted a short-term waiver of an archaic, destructive protectionist law to speed disaster relief to Puerto Rico.

Tens of thousands of Puerto Ricans were still without power from Hurricane Irma when the island suffered a direct hit from Hurricane Maria, the fifth-strongest storm to ever hit U.S. territory. Communications were cut off completely for days and remain heavily strained; near-record levels of rain led to massive flooding; and reports confirm there is no electricity on the island, with no immediate prospect of restoring power. The island is short of food, drinkable water and fuel. Around half the island’s hospitals were still out of service at the start of this week; a Navy hospital ship was due to arrive yesterday or today to provide some relief.

Puerto Rico’s governor, Ricardo Rossello, asked the U.S. government for help – including lifting the Jones Act, a federal law (formally the Merchant Marine Act of 1920) that basically prohibits ships built, majority-owned or crewed by foreigners from carrying goods between American ports. Other officials and lawmakers on both sides of the aisle agreed. As the office of Sen. John McCain, R-Ariz., observed, the Jones Act has the unintended consequence of making it twice as expensive to ship goods from the mainland to Puerto Rico as it is to ship those goods from any foreign port elsewhere.

On Sept. 28, the White House announced that it would grant the waiver as Rossello requested. However, despite calls for a waiver of at least a year, if not an outright repeal of the Jones Act, the administration granted the waiver for only 10 days, with an option to extend it if necessary.

CNN reported that the Defense Department requested a waiver for Texas and Florida in the aftermath of Hurricanes Harvey and Irma, expediting the process. The department had not requested a waiver for Puerto Rico, however, according to the Department of Homeland Security. The DHS initially argued that a Jones Act waiver wasn’t necessary for Puerto Rico at all. When asked whether a waiver was forthcoming before it was officially announced, President Trump told the press that “we have a lot of shippers and a lot of people… who work in the shipping industry that don’t want the Jones Act lifted.”

Michael Roberts, senior vice president and general counsel at Crowley Maritime Corp., told The Wall Street Journal that there is “very steady pipeline of relief goods that is in process now and adding foreign-flag capacity and taking out U.S. mariners who are doing this work would not help at all.” I often see Crowley’s vessels on the horizon cruising past our beach; the shipping company is based just up the road from me in Jacksonville, Florida.

American shipping companies such as Crowley have a point when the say the main bottlenecks in getting relief to suffering Puerto Ricans are on the island itself rather than the shipping lanes across the high seas. Suspending or repealing the Jones Act won’t put more trucks on the island, deliver more drivers to haul those trucks, or clear the roads and drain the floods that the trucks must traverse to get the goods where they are most needed.

But beyond the immediate humanitarian crisis lies years of rebuilding ahead. Puerto Rico is already in dire financial straits, but any recovery will be made far more difficult by the artificially high cost of delivering everything to the island, from fuel oil to work boots. That artificially high cost is almost entirely a function of the Jones Act, which prevents foreign-flagged, foreign-owned and foreign-crewed vessels from adding San Juan, Ponce and other ports in the territory to itineraries that already take them all over the rest of the Caribbean.

Puerto Ricans on and off the island have every reason to be outraged. And they aren’t the only ones. The Jones Act hurts practically every American consumer and many businesses, even some which are thousands of miles from the ocean.

It does this by artificially limiting shipping options, as well as by raising prices. When the CSX railroad suffered a major service breakdown this summer, most of its customers found their alternatives limited. They could send goods by truck, if they could find enough trucks and drivers amid a chronic shortage of both, or they could try to find capacity on Norfolk Southern or other competing railroads where that was practical. One option virtually nobody considered was shipping goods by water from, say, West Coast ports to cities on the Mississippi River or the Eastern seaboard. The reason nobody considered this alternative is that, thanks to the Jones Act, such shipments are economically impractical, when they aren’t physically impossible.

The Jones Act exists to protect the jobs of Americans serving in the nation’s merchant marine. Think of all the kids you knew who wanted to grow up to join the nation’s commercial shipping fleet. What, you don’t know anyone who ever did that? Join about 320 million other Americans who are, so to speak, in the same boat.

Freighter work is hard, dirty and anything but glamorous. It can occasionally be dangerous, too. The Jacksonville-based freighter El Faro sailed from Florida into Hurricane Joaquin in 2015; it sank, and all 33 crew members on board were lost. I admire the Americans who still go to sea, but there aren’t very many of them.

Jones Act restrictions also put pressure on inspectors to allow ships to sail with potentially dangerous defects, the Coast Guard said in a report on the El Faro sinking that was released Sunday. “Coast Guard [inspectors] often lack the Prevention experience necessary to make time sensitive decisions to hold up substandard [vessels]…a problem that is exacerbated by the limited number of Jones Act vessels available to perform certain trade routes,” the report observed amid conclusions that the El Faro had mechanical and loading deficiencies that made it vulnerable when it sailed too close to the hurricane.

We could take traffic off our roads and free up capacity on our rails if we allowed more cargo to move around the country by sea. The Jones Act is a relic of the days when steamships carried passengers and freight across the oceans to foreign and domestic ports, and when ports and shipping companies were major sources of jobs for American labor. Merchant vessels were converted to military use in both world wars, and protecting those vessels’ American control was considered a matter of national security. Those days are over. Today’s merchant vessels have no significant military purpose, and neither does the Jones Act.

If President Trump wants to take a page from his predecessor’s playbook, he could unilaterally suspend enforcement of the Jones Act in Puerto Rico indefinitely, or just keep renewing the waiver until Congress decides to act. Full repeal, worthy as it would be, might have to wait for the political stars to align in a way I can’t see happening soon. But at the very least, Puerto Rico’s physical and financial reconstruction demand that the island be permanently liberated from its protectionist shackles.

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About Larry M. Elkin 564 Articles

Affiliation: Palisades Hudson Financial Group

Larry M. Elkin, CPA, CFP®, has provided personal financial and tax counseling to a sophisticated client base since 1986. After six years with Arthur Andersen, where he was a senior manager for personal financial planning and family wealth planning, he founded his own firm in Hastings on Hudson, New York in 1992. That firm grew steadily and became the Palisades Hudson organization, which moved to Scarsdale, New York in 2002. The firm expanded to Fort Lauderdale, Florida, in 2005, and to Atlanta, Georgia, in 2008.

Larry received his B.A. in journalism from the University of Montana in 1978, and his M.B.A. in accounting from New York University in 1986. Larry was a reporter and editor for The Associated Press from 1978 to 1986. He covered government, business and legal affairs for the wire service, with assignments in Helena, Montana; Albany, New York; Washington, D.C.; and New York City’s federal courts in Brooklyn and Manhattan.

Larry established the organization’s investment advisory business, which now manages more than $800 million, in 1997. As president of Palisades Hudson, Larry maintains individual professional relationships with many of the firm’s clients, who reside in more than 25 states from Maine to California as well as in several foreign countries. He is the author of Financial Self-Defense for Unmarried Couples (Currency Doubleday, 1995), which was the first comprehensive financial planning guide for unmarried couples. He also is the editor and publisher of Sentinel, a quarterly newsletter on personal financial planning.

Larry has written many Sentinel articles, including several that anticipated future events. In “The Economic Case Against Tobacco Stocks” (February 1995), he forecast that litigation losses would eventually undermine cigarette manufacturers’ financial position. He concluded in “Is This the Beginning Of The End?” (May 1998) that there was a better-than-even chance that estate taxes would be repealed by 2010, three years before Congress enacted legislation to repeal the tax in 2010. In “IRS Takes A Shot At Split-Dollar Life” (June 1996), Larry predicted that the IRS would be able to treat split dollar arrangements as below-market loans, which came to pass with new rules issued by the Service in 2001 and 2002.

More recently, Larry has addressed the causes and consequences of the “Panic of 2008″ in his Sentinel articles. In “Have We Learned Our Lending Lesson At Last” (October 2007) and “Mortgage Lending Lessons Remain Unlearned” (October 2008), Larry questioned whether or not America has learned any lessons from the savings and loan crisis of the 1980s. In addition, he offered some practical changes that should have been made to amend the situation. In “Take Advantage Of The Panic Of 2008” (January 2009), Larry offered ways to capitalize on the wealth of opportunity that the panic presented.

Larry served as president of the Estate Planning Council of New York City, Inc., in 2005-2006. In 2009 the Council presented Larry with its first-ever Lifetime Achievement Award, citing his service to the organization and “his tireless efforts in promoting our industry by word and by personal example as a consummate estate planning professional.” He is regularly interviewed by national and regional publications, and has made nearly 100 radio and television appearances.

Visit: Palisades Hudson

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