Puerto Rico is a small and open economy that depends heavily on its external trade. Its principal trade partner is the continental United States (CONUS). This is especially relevant in food imports. Given its insular condition, most of the trade in Puerto Rico uses maritime transportation services. For that reason, regulations on maritime transportation are a key factor in the economic development of Puerto Rico in general and the cost of food in particular.

In November 2018, due to the lack of official statistics, Advantage Business Consulting carried out a Survey of Maritime Transportation Practices among food industry companies in Puerto Rico. The survey had a 70% response rate. The survey included information on 32 companies with nearly 40,000 containers transported over nine months (January 2018 to September 2018). Most containers imported (90%) came from the US. Among them, 88% came from Jacksonville, FL.

The Jones Act Carriers’ (JACs’) higher prices were confirmed by the survey. Shipping imports from US ports costs 151% more than shipping imports from non-US ports. The figure is the blended rate from a 180% additional cost in dry goods and 129% in refrigerated goods.

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• Repeal the Jones Act because the damage to the economic markets, especially the market in Puerto Rico, are daunting. The insular condition of Puerto Rico exacerbates the negative economic impacts of the Jones Act.

• In the alternative, a Jones Act waiver of at least five years could serve to demonstrate the impediments that the Act creates in Puerto Rico.

• In order to bring transparency to the maritime transportation services in the CONUS/PR trade, it would be recommendable for the PR government to order a publicly available freight index, similar to the existing Shanghai Containerized Freight Index (SCFI).

• Continue researching the economic impact of the Jones Act in other sectors of the economy. 

• Quantify the share of the losses caused by Hurricane Maria in Puerto Rico that are attributable to the fact that the waiver to the Jones Act was only for 10 days.

The most recent and most obvious of all was the shipping crisis in Puerto Rico in the aftermath of Hurricane Maria, with industry experts confirming that charter vessels were needed to ship regular merchandise due to FEMA’s use of Crowley’s ships. While the emergency environment required unusual measures, it resulted in a lack of container space for regular goods.

Following a request from the governor of Puerto Rico, and in spite of lobbying from the JACs against this request, President Trump issued a 10-day waiver to the Jones Act for Puerto Rico. According to US Customs & Border Protection data, despite the short duration of the Jones Act waiver, there were 10 international vessels that carried diverse urgently needed supplies like baby food, water, generators, diesel and other goods from US ports to Puerto Rico.

In a competitive shipping market, the three events mentioned above would have been resolved quickly through the entrance of new suppliers. In Puerto Rico, the impact of the Jones Act results in market conditions that are unfavorable for living and doing business in Puerto Rico.

The estimated $300 million a year Jones Act Tax on the cost of maritime transportation for food and beverages in Puerto Rico does not include the issues of land transportation, the cascade effect and local production.

a) Land transportation extra costs occur because the Jones Act Carriers (JACs) service Puerto Rico from a very limited number of ports and use Jacksonville as their principal port. Therefore, shippers have to move their merchandise overland from as far as California to Jacksonville. At present, bringing a 40-foot container from California to Puerto Rico through Jacksonville costs some $9,404 while a foreign flag vessel, using Chile-San Juan as benchmark, would bring the same container to Puerto Rico for $2,483.

b) The estimate of the Jones Act Tax also does not include the “cascade effect” in the local distribution chain. Because the merchandise that arrives in Puerto Rico already includes this implicit Jones Act Tax—making it more expensive—all the markups in the distribution chain are calculated including the Jones Act Tax.

c) Puerto Rico agricultural production becomes more expensive as the Jones Act adds to the cost of inputs required by the local farmers, from fertilizers to electricity.

The Jones Act can be viewed as a tax on Puerto Rico households.

The Jones Act impacts the freshness of groceries consumed in Puerto Rico. Vessels that come from markets outside the US cannot download part of their merchandise (fresher food) in Puerto Rico and then continue their journey toward the CONUS to download more merchandise since they would not have access to the US coastal states market because they left a port “protected” by the Jones Act of 1920.

For that reason, unless Puerto Rico is the final destination of a vessel, the products consumed in Puerto Rico require an additional 4 to 7 days of transportation. They need to be off-loaded in the CONUS, reloaded in a Jones Act vessel and then shipped to Puerto Rico. 

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In April 2013, PR Senator Rossana López León presented PR Senate Resolution 237 (SR 237) focused on analyzing the GAO report on cabotage laws. Between January 2014 and January 2015, several public hearings on SR 237 took place in the Legislature.

All but two (the Puerto Rico Shipping Association and economist José Villamil of Estudios Técnicos) of the 41 witnesses who testified in the public hearings asked to repeal the Jones Act or exempt Puerto Rico from its application. The main reason cited to repeal the Jones Act was its negative effects on the PR economy.

Opposing the Jones Act were the Puerto Rico Bar Association, the Association of Certified Public Accountants of Puerto Rico, the PR Department of Consumer Affairs, the PR Department of Agriculture, the Puerto Rico Chamber of Commerce, the Southern Chamber of Commerce of Puerto Rico, Centro Unido de Detallistas, the Restaurants Association of Puerto Rico (ASORE, by its Spanish acronym), and the Association of Products of Puerto Rico, among many others.

After this long process of public hearings, the conclusions presented on April 9, 2015 indicated that the vast majority of the evidence that has been generated through independent studies about the Jones Act of 1920 indicate that such legislation is harmful to the economy of the United States and even worse for its territories and possessions.