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Keeping up with
the Jones (Act)
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Puerto Rico’s money woes have nothing to do with the Jones Act.
Arguably, the U.S. island would be worse off without it.
Joseph Keefe is the lead
commentator of
MaritimeProfessional.com.
In the late 1980’s, I was toiling
for a small maritime consulting
group, traveling probably 20 days
per month, following oil tankers
around the globe as they lifted and discharged
various cargoes for oil traders
and multi-national refining groups. It
was wonderfully satisfying work, typically
conducted at 3 AM in a sweaty
tank farm while swatting mosquitoes
large enough to carry away small pets
with a single bite. And it involved other
pleasant tasks such as making telephone
calls to Wharton-educated oil traders
who resented having their afternoon
squash match interrupted by a perspiring
surveyor who had bad news about the
dog-of-a-ship they had chartered 45 days
prior, at a huge discount, in the hopes of
increasing the margins on a less-thansavvy
crude oil lifting.
As it turned out, one of the places I was
dispatched – on a regular basis – was the
island of Puerto Rico. In fact, I spent
the better part of two years traveling
back and forth to the island, often staying
10 days or more at a whack before
fleeing back to the mainland. Hence, I
know a little bit more than most about
ocean shipping in and out of the island.
I’m embarrassed to say that, given the
amount of time I spent there, my conversational
Spanish skills should be a
lot better. On the other hand, my experiences
there give me a unique perspective
that others perhaps do not.
For the most part, I was assigned to attend
marine petroleum custody transfers
for all manners of liquid cargoes; crude
oils, condensate and refined products.
Along the way, I vetted ships for suitability
and safety, maintained loss accounting
records and looked for ways to
increase efficiencies for my local, refining
and trading clients. It didn’t always
go well for the client here, and at one
point, I was asked to do a full evaluation
– paper and physical infrastructure
– of their primary facilities. When I was
done, the reasons why became fully evident.
I walked every pipeline in that terminal,
located and recorded every valve and its
position, and when I was done, I presented
my report to the client. Their physical
and paper losses were likely to continue,
I said, unless they began to employ fully
independent and competent security, 24
hours per day, 365 days per year. That’s
because it didn’t take a genius to see
that unlocked gates at supposedly inactive
truck racks, where mysterious tank
trucks would show up at odd hours and
idle for predictable periods of time, were
eating into the profits. Alleged custody
transfer losses, in theory of the ship-toshore
kind, were largely paper-generated,
and a function of what was happening
ashore.
Interestingly, the vast majority of the
countless vessels that I boarded and surveyed
during my time spent on the island
were foreign registered vessels, with
U.S. flag product tankers arriving only
to haul refined products to the U.S. East
Coast. Sometimes, the client might even
get a Jones Act waiver when no U.S.
flag asset was available. Jones Act trade
was actually quite a small percentage of
the overall marine traffic in and out that
port, and in the end, had little to do with
economic success or failure of the operations
ashore.
Eventually, I moved on to another job,
which took me to other exotic and equally
grimy tank farm terminals, and so I
understand, the facility in Puerto Rico
also eventually closed its doors. To be
fair, what I saw and experienced there
could happen just about anywhere, but
from my bird’s eye perspective, the basis
for a prosperous and successful local
economy – built on local industry, ocean
trade and tourism – were always present,
but never fully realized. At the time, a
low mileage rental car at San Juan’s International
Airport was defined as anything
with less than 30,000 miles on the
odometer and the local infrastructure
was crumbling and dangerous. It was a
tough place to work then, and based on
what is being reported today about the
island’s economy and so-called debt crisis,
I’m guessing that it hasn’t gotten any
better. Again, that’s got nothing to do
with the Jones Act.
Local Debt & Ocean Shipping:
Apples & Oranges
Claims of a causal link between the costs
associated with U.S. domestic maritime
policies and the reported $72 billion debt
crisis facing the Commonwealth are being
bandied about by local pundits as an
example of what can happen when the
Jones Act holds a particular geographic
economy hostage. One such account, a
report commissioned by the government
of Puerto Rico, holds that all islands suffer
from high transportation costs. And,
the report claims, Puerto Rico “does so
disproportionately, with import costs at
least twice as high as in neighboring islands
on account of the Jones Act, which
forces all shipping to and from U.S.
Ports to be conducted with U.S. Vessels
and crews.” In contrast, a 2013 study
of the Jones Act in Puerto Rico by the
U.S. Government Accountability Office
(GAO) doesn’t necessarily agree.
One of the primary advantages to Jones
Act rules, according to GAO, is the nature
of the just-in-time service that regular
liner routes provide. If replaced by
foreign flag tonnage, the report insists,
the likelihood of dedicated liner service
to the island would be substantially reduced,
and the quality and timeliness of
freight service impacted. Beyond this,
GAO reported that in 2011, at least twothirds
of the ships serving Puerto Rico
were foreign registered, representing as
many as 55 different foreign flag carriers.
Apparently, then, there is plenty of
competition to deliver low cost freight to
Puerto Rico.
Correctly pointing out that most developed
trading nations have cabotage laws
applied to various modes of domestic
commerce, the GAO study also says that
foreign-flag ships are not subject to U.S.
taxation, U.S. immigration, and other
U.S. laws. Faced with those impediments
to the bottom line, the report goes
on to say, the perceived gap in transport
costs would largely evaporate.
As I write this blog, a massive, domestic,
multi-shipper capital improvement
program is underway for carriers in the
Puerto Rico trades.
The U.S. built vessels that will soon
join this freight corridor will be among
the best, most environmentally correct
of any operating anywhere else on the
planet. All of that investment brings me
around to a larger point, and question:
What do we tell U.S. flag operators who
collectively operate 40,000 domestically
built hulls that the Jones Act is no longer
valid? And, don’t tell me that you can
selectively eliminate the cabotage rules
in one locale (Puerto Rico, for example),
but not another. It’s like being a little bit
pregnant.
Actually, the most articulate response
to Jones Act naysayers I’ve heard in the
past 10 years came from U.S. flag operator
Morton Bouchard III, who told
MarineNews magazine back in November
of 2014, “The continuous failed attempts
by companies to circumvent the
Jones Act are amazing to me. This legislation
will not change. From our inception,
Bouchard has invested well over
five billion dollars in vessels built in the
United States, crewed by United States
seamen and owned by the Bouchard
family.
8 Maritime Reporter & Engineering News • SEPTEMBER 2015