Jones Act reforms proposed by Rep. Ed Case

Congressman Ed Case (HI-01) has introduced three bills in Congress to reform the century-old Merchant Marine Act of 1920 (commonly referred to as the “Jones Act”), which is widely credited with artificially inflating the cost of shipping goods to Hawai’i.

The Jones Act mandates that all cargo shipping between U.S. ports occur exclusively on U.S., not foreign, flagged vessels. Additionally, the law requires that these vessels are built in the U.S. and owned and crewed by U.S. citizens. Because Jones Act shipping has shrunken and international shipping has increased dramatically, especially in the last quarter-century, the Jones Act results in a very few carriers serving all domestic shipping needs.

“My three bills aim directly at one of the key drivers of our astronomically high cost of living in Hawai’i and other locations in our country that are not part of the continental U.S,” said Case. “Because the Jones Act severely limits the supply of shipping to and from our communities, it has allowed a very few companies to control our very lifeline to the outside world and as a result command shipping rates way higher than the rest of the world.

“In the rest of our country, if shipping rates are too high then there are transportation alternatives like trucking and rail that act as a market check on the shipping companies,” continued Case. “But that is not a choice in our noncontiguous jurisdictions, and if there are artificially limited numbers of shippers then the price of virtually everything we need is jacked up.”

Case points to Hawai‘i as a classic example. Located almost 2,500 miles off the West Coast, the state imports well over 90 percent of its life necessities, including food and other consumer goods, construction and housing supplies, and raw materials for Hawai’i industries like agriculture, by ocean cargo only.

“At a basic level, the everyday goods that we rely on in Hawai‘i cost much more than on the Mainland. As just one example, yesterday there was a 30 percent difference in a gallon of milk at Safeway grocery stores in Honolulu and Long Beach, California. My constituents pay $6.39 for a gallon of whole milk, while those in Long Beach, one of the major ports where Hawaii’s good come from, pay $4.49. That difference of fully 30% is only about shipping, way above world prices, and is unacceptable.”

“There are plenty of international cargo lines who could and would compete for a share of that market. Yet in Hawaii’s case only two U.S. flag domestic cargo lines – Matson and Pasha – operate a virtual duopoly over our lifeline and they do not act as an effective market check on each other,” said Case.

Case’s three measures and their proposed amendments to the Jones Act are:

– the Noncontiguous Shipping Relief Act, which exempts all noncontiguous U.S. locations, including Hawai‘i, from the Jones Act;

– the Noncontiguous Shipping Reasonable Rate Act, which benchmarks the definition of a “reasonable rate” which domestic shippers can charge as no more than ten percent above international shipping rates for comparable routes; and

– the Noncontiguous Shipping Competition Act, which rescinds the Jones Act wherever monopolies or duopolies in noncontiguous Jones Act shipping develop.

Case said the Jones Act was enacted in a protectionist era under the guise of preserving a strong national merchant marine. “But today it is just an anachronism: most of the world’s shipping is by way of an international merchant marine functioning in an open, competitive market. And those few U.S. flag cargo lines that remain have maneuvered the Jones Act to develop virtual monopolies over domestic cargo shipping to and from our most isolated and exposed locales: our island and offshore states, territories and possessions,” said Case.

“While they are nominally subject to federal regulation, the fact of the matter is that cargo prices have gone in only one direction—up, fast and accelerating—and it is indisputable that there is no downward market pressure which would otherwise result from meaningful competition,” said Case.

Michael N. (“Mike”) Hansen, President of the Hawai’i Shippers’ Council, said: “The Hawai’i Shippers’ Council welcomes Representative Case’s introduction of important new Jones Act reform legislation in the Congress to directly benefit the noncontiguous jurisdictions of the United States.”

“The Jones Act has made the domestic United States maritime industry the most expensive in the world and its burden falls most heavily on the noncontiguous jurisdictions embraced by the Act due to their complete reliance on ocean shipping for interstate surface transportation,” said Hansen.

Hansen continued: “In contrast the 48 Contiguous United States (CONUS) have access to other modes of interstate surface transportation including by road trucking (motor carriers), rail, pipeline and inland barge. The Jones Act is one of the significant cost drivers impacting the Hawaiian economy and the high cost of living plaguing the islands.”

Case said: “Essentially, my bills are intended to lay out options for providing relief for our U.S. noncontiguous areas. We can resolve the issue in many ways, but we must change the status quo which has had such a negative impact on my state and the other jurisdictions beholden to the Jones Act.

“These long-overdue bills are of the utmost importance to the unique localities which have been left undefended to bear the brunt of the Jones Act. It is often difficult to pierce the veil of longstanding custom and understanding to see the real negative impacts of a law and what should instead be. It is even more difficult to change a law which provides a federally-created and endorsed monopoly under which no competition exists to hold down prices. Yet clearly the time for these measures is overdue.”