JONES ACT STUDIES

The true cost of the jones act

FROM THE EXPERTS

Though Puerto Rico is home to two of the most geographically advantageous ports in the Caribbean, the Jones Act robs the island of its potential to be prosperous and self-sustaining. Because of the Jones Act, Puerto Ricans are forced to pay a premium for necessities like food, water, energy, automobiles, and more, widening the inequities between Puerto Ricans living on the island and U.S. citizens living on the mainland. 

 

Check out a few of the most recent studies released detailing the effect of the Jones Act on Puerto Rico.

Analysis of issues related to maritime transportation to puerto rico

submitted to Mida PR | Prepared by Advantage Business Consulting

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.

 

*Excerpt only

  • 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. 

*Excerpt Only

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. 

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The jones act
a legacy of economic ruin
for puerto rico

submitted to Mida PR | Prepared by John dunham & Associates

The Merchant Marine Act of 1920 was passed by Congress and enacted into law nearly 100 years ago. Section 27 of the Merchant Marine Act is known as the Jones Act after its sponsor, Senator Wesley Jones, from Washington State. It serves as the cabotage law of the United States and requires that all goods transported by water between destinations in the country and its territories, be carried on U.S.-flagged ships, that are constructed in the country, and are owned and substantially crewed by US citizens.

This legacy of the roaring 20’s continues to limit the ability to ship products by water throughout the United States and Puerto Rico. These effects are significant and have led to a number of unintended consequences. In fact, rather than achieving any of the goals set forth in 1920, the Jones Act has severely hampered the development of the merchant marine and shipbuilding industries in the United States, has reduced waterborne coastwise trade, has increased prices, harmed the environment, and over time has measurably harmed the economy of the Commonwealth of Puerto Rico.

 

Because of the Jones Act, firms in Puerto Rico have limited shipping options, leading consignees in these areas to purchase more from foreign sources (Puerto Rico for example imports almost no heavy cargo from the US since ships are not available to carry it). This not only impacts prices for consumers, but also economic activity in these jurisdictions.

The Merchant Marine Act of 1920 was passed by Congress and enacted into law nearly 100 years ago, and continues to harm the economy of Puerto Rico. In addition, rather than achieving any of the goals set forth in 1920, the Jones Act has severely hampered the development of the merchant marine and shipbuilding industries in the United States, has reduced waterborne coastwise trade, has increased prices, harmed the environment, and over time has measurably harmed the economy.

 

These higher costs not only impact importers in Puerto Rico, but they flow throughout the economy, effecting manufacturers, businesses and consumers.

 

Using JDAs recommended model, water transportation costs to Puerto Rico are $568.9 million higher, and prices are $1.1 billion higher than they would be without the Jones Act limitations. If this is the case, Puerto Rico has 13,250 fewer jobs than it would have were there a free market for ocean freight. These jobs would pay residents $337.3 million more in wages, and would result in nearly $1.5 billion in increased economic activity. Higher prices in Puerto Rico would cost the average resident nearly $374 per year, or $1,050 for a typical family of 2.8 members.

Overall tax revenues would be $106.4 million higher were the island be exempted from the Jones Act’s provisions.

Click to Download 

The jones act
a legacy of economic ruin
for puerto rico

submitted to Mida PR | Prepared by John dunham & Associates

The Merchant Marine Act of 1920 was passed by Congress and enacted into law nearly 100 years ago. Section 27 of the Merchant Marine Act is known as the Jones Act after its sponsor, Senator Wesley Jones, from Washington State. It serves as the cabotage law of the United States and requires that all goods transported by water between destinations in the country and its territories, be carried on U.S.-flagged ships, that are constructed in the country, and are owned and substantially crewed by US citizens.

This legacy of the roaring 20’s continues to limit the ability to ship products by water throughout the United States and Puerto Rico. These effects are significant and have led to a number of unintended consequences. In fact, rather than achieving any of the goals set forth in 1920, the Jones Act has severely hampered the development of the merchant marine and shipbuilding industries in the United States, has reduced waterborne coastwise trade, has increased prices, harmed the environment, and over time has measurably harmed the economy of the Commonwealth of Puerto Rico.

 

Because of the Jones Act, firms in Puerto Rico have limited shipping options, leading consignees in these areas to purchase more from foreign sources (Puerto Rico for example imports almost no heavy cargo from the US since ships are not available to carry it). This not only impacts prices for consumers, but also economic activity in these jurisdictions.

The Merchant Marine Act of 1920 was passed by Congress and enacted into law nearly 100 years ago, and continues to harm the economy of Puerto Rico. In addition, rather than achieving any of the goals set forth in 1920, the Jones Act has severely hampered the development of the merchant marine and shipbuilding industries in the United States, has reduced waterborne coastwise trade, has increased prices, harmed the environment, and over time has measurably harmed the economy.

 

These higher costs not only impact importers in Puerto Rico, but they flow throughout the economy, effecting manufacturers, businesses and consumers.

 

Using JDAs recommended model, water transportation costs to Puerto Rico are $568.9 million higher, and prices are $1.1 billion higher than they would be without the Jones Act limitations. If this is the case, Puerto Rico has 13,250 fewer jobs than it would have were there a free market for ocean freight. These jobs would pay residents $337.3 million more in wages, and would result in nearly $1.5 billion in increased economic activity. Higher prices in Puerto Rico would cost the average resident nearly $374 per year, or $1,050 for a typical family of 2.8 members.

Overall tax revenues would be $106.4 million higher were the island be exempted from the Jones Act’s provisions.

REPORT BY THE TASK FORCE ON PUERTO RICO IN SUPPORT OF PERMANENTLY EXEMPTING PUERTO RICO FROM THE JONES ACT

New York City Bar Association

 A few examples from the GAO report help to illustrate the point, showing that everything from animal feed to jet fuel is affected by this law:

  • Animal Feed. “[A]ccording to representatives of the Puerto Rico Farm Bureau, the rate difference between Jones Act carriers and foreign carriers has led farmers and ranchers on the island to more often source animal feed and crop fertilizers from foreign sources than from U.S. domestic sources, even though commodity prices were stated to be similar. They provided an example that shipping feed from New Jersey by Jones Act carriers costs more per ton than shipping from Saint John, Canada, by a foreign carrier—even though Saint John is 500 miles further away. According to the representatives, this cost differential is significant enough that it has led to a shift in sourcing these goods from Canada.”

 

  • Corn and Potatoes. For other companies, “corn and potatoes [were] being sourced from foreign countries rather than the United States,” due to “the lower cost of foreign shipping.”

 

  • Jet Fuel. “[R]epresentatives of airlines purchasing jet fuel for use in Puerto Rico told us that they typically import fuel to the island from foreign countries, such as Venezuela, rather than from Gulf Coast refineries. They do so because of difficulty in finding available Jones Act vessels to transport jet fuel and, when vessels are available, the high cost of such shipments compared to shipping the product from foreign countries.”

 

  • Petroleum. “An oil and gas importer in Puerto Rico told us that the company makes purchasing decisions based on the total price of oil or gas—including any applicable duties or other charges—plus transportation costs. The company looks at total prices from numerous suppliers around the world—including U.S. suppliers—but generally does not purchase from U.S. suppliers because the total cost is higher as a result of the differential in transportation costs.”

 

This is just a small sampling of the costs imposed by the Jones Act and the impact on businesses operating within the mainland United States. The costs described above are important, because they tell us that exempting Puerto Rico from the Jones Act’s requirements would be beneficial to American businesses and to the United States as a whole. It is important to emphasize that repealing the Jones Act’s restrictions on Puerto Rico would “not cost anything for U.S. taxpayers.” To the contrary, it would “increase imports from the U.S.” to Puerto Rico, directing approximately $341 million towards U.S. companies annually, and would therefore generate approximately $13.5 million in tax revenues as estimated by Empresarios Por Puerto Rico.

As of June 22, 2018


1. Alliance for Free Association (ALAS)

2. Amistad Long Island Black Bar Association

3. Arab American Bar Association

4. Asian American Bar Association of New York

5. Asociación de Detallistas de Gasolina de Puerto Rico, Inc. (Puerto Rico Gasoline Detailers Association, Inc.)

6. Asociación Nacional de Tiendas de Autoservicio y Departamentales (ANTAD)

7. Association of Black Women Attorneys

8. American Enterprise Institute

9. Bronx County Bar Association

10. Cámara de Mercadeo, Industria y Distribucion de Alimentos (Puerto Rico Food Marketing, Industry and Distribution Chamber)

11. Campbell Soup Company

12. CATO Institute

13. Climate Justice Alliance

14. College of Certified Public Accountants of Puerto Rico

15. Defense Association of New York

16. Dominican Bar Association

17. El Colegio de Abogados y Abogadas de Puerto Rico

18. Empresarios Por Puerto Rico (Entrepreneurs of Puerto Rico)

19. Empire Gas Company, Inc.

20. Federal Reserve Bank of New York

21. Fundación Libertad Puerto Rico

22. Grassroots Institute of Hawaii

23. Haitian American Lawyers Association of New York

24. Hawaii Shippers Council

25. Heritage Foundation

26. Hispanic Federation

27. Hispanic National Bar Association

28. Iranian American Bar Association – New York Chapter

29. Jewish Lawyers Guild

30. Korean American Lawyers Association of Greater New York

31. LatinoJustice

32. Latino Lawyers of Queens County

33. LGBT Bar Association of Greater New York

34. Long Island Hispanic Bar Association

35. Metropolitan Black Bar Association

36. Muslim Bar Association of New York 3

7. National Grocers Association

38. National Lawyers Guild

39. Network of Bar Leaders* 15

40. New York County Lawyers Association

41. New York State Bar Association

42. Pan American Grain

43. PathStone Corporation

44. Puerto Rican Bar Association

45. Puerto Rico Chamber of Commerce

46. Puerto Rico Community Pharmacy Association

47. Puerto Rico Electric Power Authority (PREPA)

48. Puerto Rico Small Business Owners

49. Puerto Rico Society of CPAs

50. Puerto Rico United Retailers Association

51. Puma Energy Caribe, LLC *

*Consensus resolution – reflects a consensus of the designated bar leaders present and voting

Exempting Puerto Rico from the Jones Act, much like the U.S. Virgin Islands, would be a way for Congress to help Puerto Rico’s economy at no additional cost to American citizens. The New York City Bar urges a permanent exemption to allow the global markets to help Puerto Rico and remove impediments to its economic growth. There is broad bi-partisan support for this exemption from the Jones Act. The time to take action to help those in Puerto Rico is now.

Click to Download

Click to Download

REPORT BY THE TASK FORCE ON PUERTO RICO IN SUPPORT OF PERMANENTLY EXEMPTING PUERTO RICO FROM THE JONES ACT

New York City Bar Association

 A few examples from the GAO report help to illustrate the point, showing that everything from animal feed to jet fuel is affected by this law:

  • Animal Feed. “[A]ccording to representatives of the Puerto Rico Farm Bureau, the rate difference between Jones Act carriers and foreign carriers has led farmers and ranchers on the island to more often source animal feed and crop fertilizers from foreign sources than from U.S. domestic sources, even though commodity prices were stated to be similar. They provided an example that shipping feed from New Jersey by Jones Act carriers costs more per ton than shipping from Saint John, Canada, by a foreign carrier—even though Saint John is 500 miles further away. According to the representatives, this cost differential is significant enough that it has led to a shift in sourcing these goods from Canada.”

 

  • Corn and Potatoes. For other companies, “corn and potatoes [were] being sourced from foreign countries rather than the United States,” due to “the lower cost of foreign shipping.”

 

  • Jet Fuel. “[R]epresentatives of airlines purchasing jet fuel for use in Puerto Rico told us that they typically import fuel to the island from foreign countries, such as Venezuela, rather than from Gulf Coast refineries. They do so because of difficulty in finding available Jones Act vessels to transport jet fuel and, when vessels are available, the high cost of such shipments compared to shipping the product from foreign countries.”

 

  • Petroleum. “An oil and gas importer in Puerto Rico told us that the company makes purchasing decisions based on the total price of oil or gas—including any applicable duties or other charges—plus transportation costs. The company looks at total prices from numerous suppliers around the world—including U.S. suppliers—but generally does not purchase from U.S. suppliers because the total cost is higher as a result of the differential in transportation costs.”

 

This is just a small sampling of the costs imposed by the Jones Act and the impact on businesses operating within the mainland United States. The costs described above are important, because they tell us that exempting Puerto Rico from the Jones Act’s requirements would be beneficial to American businesses and to the United States as a whole. It is important to emphasize that repealing the Jones Act’s restrictions on Puerto Rico would “not cost anything for U.S. taxpayers.” To the contrary, it would “increase imports from the U.S.” to Puerto Rico, directing approximately $341 million towards U.S. companies annually, and would therefore generate approximately $13.5 million in tax revenues as estimated by Empresarios Por Puerto Rico.

As of June 22, 2018


1. Alliance for Free Association (ALAS)

2. Amistad Long Island Black Bar Association

3. Arab American Bar Association

4. Asian American Bar Association of New York

5. Asociación de Detallistas de Gasolina de Puerto Rico, Inc. (Puerto Rico Gasoline Detailers Association, Inc.)

6. Asociación Nacional de Tiendas de Autoservicio y Departamentales (ANTAD)

7. Association of Black Women Attorneys

8. American Enterprise Institute

9. Bronx County Bar Association

10. Cámara de Mercadeo, Industria y Distribucion de Alimentos (Puerto Rico Food Marketing, Industry and Distribution Chamber)

11. Campbell Soup Company

12. CATO Institute

13. Climate Justice Alliance

14. College of Certified Public Accountants of Puerto Rico

15. Defense Association of New York

16. Dominican Bar Association

17. El Colegio de Abogados y Abogadas de Puerto Rico

18. Empresarios Por Puerto Rico (Entrepreneurs of Puerto Rico)

19. Empire Gas Company, Inc.

20. Federal Reserve Bank of New York

21. Fundación Libertad Puerto Rico

22. Grassroots Institute of Hawaii

23. Haitian American Lawyers Association of New York

24. Hawaii Shippers Council

25. Heritage Foundation

26. Hispanic Federation

27. Hispanic National Bar Association

28. Iranian American Bar Association – New York Chapter

29. Jewish Lawyers Guild

30. Korean American Lawyers Association of Greater New York

31. LatinoJustice

32. Latino Lawyers of Queens County

33. LGBT Bar Association of Greater New York

34. Long Island Hispanic Bar Association

35. Metropolitan Black Bar Association

36. Muslim Bar Association of New York 3

7. National Grocers Association

38. National Lawyers Guild

39. Network of Bar Leaders* 15

40. New York County Lawyers Association

41. New York State Bar Association

42. Pan American Grain

43. PathStone Corporation

44. Puerto Rican Bar Association

45. Puerto Rico Chamber of Commerce

46. Puerto Rico Community Pharmacy Association

47. Puerto Rico Electric Power Authority (PREPA)

48. Puerto Rico Small Business Owners

49. Puerto Rico Society of CPAs

50. Puerto Rico United Retailers Association

51. Puma Energy Caribe, LLC *

*Consensus resolution – reflects a consensus of the designated bar leaders present and voting

Exempting Puerto Rico from the Jones Act, much like the U.S. Virgin Islands, would be a way for Congress to help Puerto Rico’s economy at no additional cost to American citizens. The New York City Bar urges a permanent exemption to allow the global markets to help Puerto Rico and remove impediments to its economic growth. There is broad bi-partisan support for this exemption from the Jones Act. The time to take action to help those in Puerto Rico is now.

Click to Download

The impact of the jones act (1920) On the economy of Puerto Rico

Fundacion Francisco Carvajal | Prepared by Francisco E. Martínez

The following recommendations summarize those made by testimonies discussed in the text.

 

1. Assign funds to commission an independent entity to carry a comprehensive study regarding the effects of the Jones Act.

 

2. Make efforts to exempt Puerto Rico from certain stipulations of the Jones Act such as those related to the transportation of petroleum and natural gas, such that U.S. shipping companies may use leased or bought foreign vessels for transporting these items between the United States and Puerto Rico.

 

3. A concerted effort should be made between the economic, social and political sectors to formally request the government of the United States to exempt Puerto Rico from requirements of the Jones Act, following international agreements of which is signatory. 

As a result of investigations by the Federal Grand Jury, three companies and six individuals have pleaded guilty or been convicted at trial. Five of the individuals and the three companies have been ordered to serve sentences ranging from seven months to four years in prison and to pay more than $46 million in criminal fines.

 

On August 1, 2012, Crowley Liner Services Inc., pleaded guilty and was sentenced to pay a $17 million criminal fine for its role in a conspiracy to fix prices in the coastal water freight transportation industry. According to the U.S. District Court for the District of Puerto Rico, Crowley Liner Services engaged in a conspiracy to fix base rates for water transportation for certain freight between United States and Puerto Rico from January 2006 until at least April 2008. According to the charges, Crowley Liner Services and coconspirators carried out the conspiracy by agreeing during meetings and discussions to fix the base rates to be charged to non-government purchasers of water transportation of certain freight between United States and Puerto Rico.

 

The U.S. Justice Department stated that Crowley Liner Services and co-conspirators also engaged in meetings for the purpose of monitoring and enforcing adherence to the agreed-upon rates and sold Puerto Rico freight services at collusive and noncompetitive rates. The means and methods of the conspiracy were:

 

1.Participating in meetings, conversations, and communications in the continental United States and Puerto Rico to discuss customers, rates, surcharges, and bids for the sale of Puerto Rico freight services;

 

2. Agreeing during those meetings, conversations and communications to identify customers of Puerto Rico freight services between and among the conspirators;

 

3. Agreeing during those meetings, conversations, and communications to fix, stabilize, and maintain rates and surcharges charged for Puerto Rico customers’ freight services;

 

4, Agreeing during those meetings, conversations, and communications to rig bids submitted to government and commercial customers of Puerto Rico freight services; engaging in meetings, conversations and communications for the purpose of monitoring and enforcing adherence to the agreed-upon rates and surcharges;

 

5. Selling Puerto Rico freight services at collusive and noncompetitive rates and surcharges pursuant to the agreements reached;

 

6. Accepting payment for Puerto Rico freight services at collusive and noncompetitive rates and surcharges; and

 

7. Authorizing and consenting to the participation of subordinate employees in the conspiracy.

 

*Excerpt only

A recurrent theme throughout the recommendations in the statements above, be in favor or against, the Jones Act is that cost reductions could be achieved by the removal of the requirement that ships must be built in the United States.

 

The consensus of the recommendations, is that efforts should be made to obtain a waiver from the requirement of the Jones Act that ships, serving the coastwise trade with Puerto Rico, must be built in the United States.

 

This recommendation is consistent with the findings of the U.S. International Trade Commission discussed before (see section 1.2 on Welfare Costs), that estimates that without the domestic-build requirements, the Jones Act Fleet would not only experience reduced capital costs, but the output of coastwise Jones Act shipments would increase with cost savings passed forward in rate reductions.

Click to Download

The impact of the jones act (1920) On the economy of Puerto Rico

Fundacion Francisco Carvajal | Prepared by Francisco E. Martínez

The following recommendations summarize those made by testimonies discussed in the text.

 

1. Assign funds to commission an independent entity to carry a comprehensive study regarding the effects of the Jones Act.

 

2. Make efforts to exempt Puerto Rico from certain stipulations of the Jones Act such as those related to the transportation of petroleum and natural gas, such that U.S. shipping companies may use leased or bought foreign vessels for transporting these items between the United States and Puerto Rico.

 

3. A concerted effort should be made between the economic, social and political sectors to formally request the government of the United States to exempt Puerto Rico from requirements of the Jones Act, following international agreements of which is signatory. 

As a result of investigations by the Federal Grand Jury, three companies and six individuals have pleaded guilty or been convicted at trial. Five of the individuals and the three companies have been ordered to serve sentences ranging from seven months to four years in prison and to pay more than $46 million in criminal fines.

 

On August 1, 2012, Crowley Liner Services Inc., pleaded guilty and was sentenced to pay a $17 million criminal fine for its role in a conspiracy to fix prices in the coastal water freight transportation industry. According to the U.S. District Court for the District of Puerto Rico, Crowley Liner Services engaged in a conspiracy to fix base rates for water transportation for certain freight between United States and Puerto Rico from January 2006 until at least April 2008. According to the charges, Crowley Liner Services and coconspirators carried out the conspiracy by agreeing during meetings and discussions to fix the base rates to be charged to non-government purchasers of water transportation of certain freight between United States and Puerto Rico.

 

The U.S. Justice Department stated that Crowley Liner Services and co-conspirators also engaged in meetings for the purpose of monitoring and enforcing adherence to the agreed-upon rates and sold Puerto Rico freight services at collusive and noncompetitive rates. The means and methods of the conspiracy were:

 

1.Participating in meetings, conversations, and communications in the continental United States and Puerto Rico to discuss customers, rates, surcharges, and bids for the sale of Puerto Rico freight services;

 

2. Agreeing during those meetings, conversations and communications to identify customers of Puerto Rico freight services between and among the conspirators;

 

3. Agreeing during those meetings, conversations, and communications to fix, stabilize, and maintain rates and surcharges charged for Puerto Rico customers’ freight services;

 

4, Agreeing during those meetings, conversations, and communications to rig bids submitted to government and commercial customers of Puerto Rico freight services; engaging in meetings, conversations and communications for the purpose of monitoring and enforcing adherence to the agreed-upon rates and surcharges;

 

5. Selling Puerto Rico freight services at collusive and noncompetitive rates and surcharges pursuant to the agreements reached;

 

6. Accepting payment for Puerto Rico freight services at collusive and noncompetitive rates and surcharges; and

 

7. Authorizing and consenting to the participation of subordinate employees in the conspiracy.

 

*Excerpt only

A recurrent theme throughout the recommendations in the statements above, be in favor or against, the Jones Act is that cost reductions could be achieved by the removal of the requirement that ships must be built in the United States.

 

The consensus of the recommendations, is that efforts should be made to obtain a waiver from the requirement of the Jones Act that ships, serving the coastwise trade with Puerto Rico, must be built in the United States.

 

This recommendation is consistent with the findings of the U.S. International Trade Commission discussed before (see section 1.2 on Welfare Costs), that estimates that without the domestic-build requirements, the Jones Act Fleet would not only experience reduced capital costs, but the output of coastwise Jones Act shipments would increase with cost savings passed forward in rate reductions.

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