The Jones Act and Puerto Rico
By: Mark Ruge, Sarah Beason and Elle Stuart of K&L Gates, LLP
Originally Published in the November/December 2017 Edition of Maritime Executive
It is fashionable these days to criticize Congress and federal government officials. But the recent situation in Puerto Rico is a prime example of federal government officials, including key members of Congress, doing their jobs and doing them well. It is a stark reminder that facts still matter on public policy issues. Through aggressive fact-finding, federal leaders may have helped avert actions that could have made the crisis in Puerto Rico even worse and had far reaching impacts throughout an American industry vital to our security interests.
A 1-2-3 Punch of Hurricanes
Within 26 days this fall, three major hurricanes plowed into our nation. On August 25, Hurricane Harvey reached landfall and battered the Texas coast. Sixteen days later, Hurricane Irma made landfall in Florida. Ten days after that, Hurricane Maria arrived in Puerto Rico, leaving devastation in its wake.
Two days before Irma made landfall in Florida, Department of Homeland Security (DHS) Acting Secretary Elaine Duke preemptively issued a limited waiver of the Jones Act. The waiver was limited in terms of geography, time, and cargo. The waiver was extended for a second 7-day period on September 11 and expired on September 22. Regardless of the waiver, a Jones Act armada serviced Florida before, during, and after the waiver.
On September 20, Hurricane Maria reached landfall in Puerto Rico. This time, DHS did not issue a Jones Act waiver in advance, noting that there was no need to do so because adequate American capacity was available to service the island. The immediate reaction was an outcry over what some believed to be disparate treatment of Puerto Rico. “The Jones Act Gets Famous” read one headline as commentary about the little-known law exploded on social and other media outlets.
Getting It Wrong
For veteran maritime observers, the sight of the generally obscure Jones Act receiving so much national media attention was remarkable. But even more remarkable was the amount of misinformation that drove the Jones Act narrative, especially on social media.
The most common misconception was that only American vessels could serve Puerto Rico. For example, one national media commentator announced that “[b]ecause of the Jones Act … any supplies, any goods that go to Puerto Rico must go to the United States first….” Even major media publications repeated the “fact” that, because of the Jones Act, all foreign cargo had to be brought to the United States, reloaded onto an American vessel, and only then could it be delivered to the island. In reality, two-thirds of the vessels that deliver goods to Puerto Rico are foreign vessels.
Another frequently repeated misunderstanding was that “Puerto Ricans pay double for simple items like water, food, soup, toothpaste,” as one commentator put it. Yet, the cost of consumer goods in Puerto Rico is lower than on the mainland United States, according to the Numbeo economic tool. Transporting a basic commodity like a can of soup costs just pennies in terms of ocean transportation between the U.S. mainland and Puerto Rico — a tiny fraction of the overall cost to consumers on the island. A number of other factors not related to Jones Act shipping — such as warehouse costs, the cost of retail real estate, Puerto Rico-based distribution costs, store overhead, and marketing expenditures — impact retail prices. The Jones Act is not to blame for consumer price differentials.
Many outlets were questioning the national security value of an “antiquated” law like the Jones Act. However, they failed to acknowledge that a long list of military leaders have said the Jones Act is essential to national security, including the vice chairman of the Joint Chiefs of Staff, the commander of the U.S. Transportation Command, commanders of the Military Sealift Command, and many others.
Among all the misinformation, the most glaring misconception by far was that the Jones Act was inhibiting the recovery effort. It soon became apparent that the opposite was true. Jones Act shipping was providing an important lifeline to Puerto Rico. Before the Administration granted a 10-day waiver of the law for Puerto Rico on September 28th, Jones Act vessels had already delivered thousands of shipping containers filled with medicine, food, construction equipment, and other relief cargoes. Since the hurricane hit, domestic carriers have delivered over 19,000 loads of commercial and government relief cargo to the island. There was, and is, no shortage of Jones Act capacity. Jones Act carriers continue to increase their capacity to help assist with the island’s recovery efforts.
The Tipping Point: Congress Sets the Record Straight
Against this chaotic tidal wave of misinformation, a congressional committee with jurisdiction over the commercial maritime industry and the Jones Act took action: the Coast Guard and Maritime Transportation Subcommittee of the House Transportation and Infrastructure Committee led by Chairman Duncan Hunter (R-CA) and Ranking Member John Garamendi (D-CA). Congressmen Hunter and Garamendi, along with the other members and staff of the Coast Guard Subcommittee, specialize in and understand the Jones Act, and they wanted more facts about what was happening in Puerto Rico.
First, they scheduled a fact-finding public “listening session” on September 28 that discussed the domestic maritime industry’s response to Hurricane Maria and efforts to support the island’s needs. Although DHS issued a limited 10-day waiver of the Jones Act for Puerto Rico the day of the listening session, White House Homeland Security Advisor Tom Bossert confirmed the finding that Jones Act capacity was not a problem, saying “we had enough capacity of U.S. flag vessels.” The following week, the Coast Guard Subcommittee convened a full congressional hearing to address the Jones Act and Puerto Rico.
The Coast Guard Subcommittee’s October 3rd hearing, just 12 days after the hurricane, was a turning point in the Jones Act narrative in Puerto Rico. Congressmen Hunter and Garamendi called in representatives from the two largest Jones Act shipping companies serving Puerto Rico, the American shipyard industry, and an organization that represents American mariners. An unusually large, bipartisan group of members of Congress attended to learn more about the situation on the ground in Puerto Rico and express support for the Jones Act and its contributions to the island’s, as well as the nation’s, economic and national security.
The primary finding of the hearing was that the Jones Act was not the problem. Jones Act vessels were already delivering millions of pounds of commercial and FEMA cargoes. The real problem on the island was (and continues to be) infrastructure challenges resulting from the hurricane’s devastation to the island’s surface transportation network. Cargo was stacking up at the terminals; four times the amount of containers that would normally be stored on the terminals sat awaiting distribution. Once on the island, these vital cargoes faced critical challenges. Roads blocked by debris, power outages, truck and driver shortages, etc. made getting these supplies to the people that needed them very difficult.
Within days after the hearing, the tide of Jones Act criticism in the media began to wane. Instead, the headlines began to focus on the infrastructure challenges and thousands of containers delivered by Jones Act vessels that were sitting on the terminals awaiting delivery to the residents of the island. Coast Guard Subcommittee members such as Congressman Garret Graves (R-LA) continued to draw attention to logistics problems on the island not attributable to the Jones Act and the support that Jones Act carriers were providing Puerto Rico. When the waiver expired on October 8, it was not extended.
The Coast Guard Subcommittee hearing was hardly the end of the Jones Act debate. Long-time critics continue to challenge the Jones Act. Since Hurricane Maria, three bills have been introduced to change the Jones Act in Puerto Rico: (1) H.R. 3852, a legislative proposal sponsored by Congresswoman Grace Meng (D-NY) that would allow the Jones Act to be waived for humanitarian relief efforts; (2) H.R. 3966, a bill sponsored by Congressman Gary Palmer (R-AL) to repeal the Jones Act in Puerto Rico for five years; and (3) S. 1894, a proposal by Senator John McCain (R-AZ) to repeal the Jones Act permanently for Puerto Rico. None of these bills have seen any action so far.
The hearing played an important function by addressing key issues, making sure accurate facts were being made available, and identifying the actual problems plaguing Puerto Rico’s recovery efforts. It also was eerily reminiscent of a Coast Guard Subcommittee hearing about the Gulf Spill disaster in 2010. In that July 6, 2010 hearing, Coast Guard Admiral Thad Allen was asked why he never requested a Jones Act waiver. “There was a misperception that the Jones Act impeded the use of foreign vessels for Deepwater Horizon response efforts,” said Allen, the national incident commander. “At no time,” he said, did the Jones Act interfere with the clean up effort. In fact, just like during Hurricane Maria, the Jones Act fleet was a key part of the recovery effort.