Shipping Under the Jones Act: Legislative and Regulatory Background
Released: 2019-05-17T00:00:00

Introduction

The Jones Act, which refers to Section 27 of the Merchant Marine Act of 1920 (P.L. 66-261), requires that vessels transporting cargo from one U.S. point to another U.S. point be U.S.-built, and owned and crewed by U.S. citizens. The act provides a significant degree of protection from foreign competition for U.S. shipyards, domestic carriers, and American merchant sailors. It is a subject of debate because some experts point out that it makes domestic ocean shipping relatively expensive, constrains the availability of ships, and contributes to making it much more costly to build merchant vessels in U.S. shipyards than in shipyards abroad.

The Jones Act has been an issue in recent Congresses, coming into prominence amid debates over Puerto Rico's economic challenges and recovery from Hurricane Maria in 2017; in the investigation into the sinking of the 40-year-old ship El Faro with 33 fatalities during a hurricane in 2015; and in discussions about domestic transportation of oil and natural gas. The law's effectiveness in achieving national security goals has also been the subject of attention in conjunction with a congressional directive that the Administration develop a national maritime strategy, including strategies to increase the use of short sea shipping and enhance U.S. shipbuilding capability. In May 2018, the Office of Management and Budget requested public comment on federal requirements that could be modified or repealed to increase efficiency and reduce or eliminate unnecessary or unjustified regulatory burdens in the maritime sector.

Legislative Context

The Jones Act of 1920 was not the first law requiring that vessels transporting cargo domestically be U.S.-built, owned, and crewed. Rather, it was a restatement of a long-standing restriction that was temporarily suspended during World War I by P.L. 65-73, enacted October 6, 1917.

Laws favoring a U.S.-flag fleet over a foreign fleet were initiated by the third act of the First Congress (1 Stat. 27, enacted July 20, 1789), which assessed lesser duties on vessels built and owned domestically than on those foreign-built and -owned. On September 1 of the same year, Congress specified that only a U.S.-built vessel owned by U.S. citizens and with a U.S. citizen captain could register as a U.S. vessel (1 Stat. 55). In 1817, Congress enacted a precursor to the Jones Act by disallowing any vessel wholly or partially foreign-owned from transporting domestic cargo between U.S. ports (3 Stat. 351). In 1886, this prohibition was extended to vessels transporting passengers domestically (24 Stat. 81).

The early United States had a comparative advantage in shipbuilding due to its ample supplies of large timber. During the second half of the 1800s, it lost that advantage as wooden sailing ships gave way to iron steamships, with the advantage shifting to Scotland and England. Congress began debating how to respond to the steep drop-off in the share of U.S. foreign trade carried by U.S. vessels. The fall-off in domestic coastwise transport was less severe, but railroads began offering competition to coastal shipping. Proposals to allow foreign-built vessels to sail under the U.S. flag became known as the "free ship" movement. Opponents of the free ship movement argued that the higher cost of U.S. crews in and of itself would prevent a resurgence of trade carried by U.S. vessels even if foreign-built ships were allowed. While bills that would have allowed foreign-built vessels to qualify for U.S.-flag international service were reported by House and Senate committees in the late 1800s, it was in 1912 that Congress enacted such a measure (P.L. 62-33, 37 Stat. 562). Thus, since 1912, the domestic build requirement has principally applied to vessels making domestic voyages.

In the late 1800s, Congress considered but did not pass bills that would have allowed foreign-built ships in domestic trade. Rather, Congress tightened the language concerning coastwise transport in response to shippers' attempts to avoid high-cost U.S. vessels. For instance, in 1891 a shipper loaded 250 kegs of nails at the Port of New York with an ultimate destination of Los Angeles (Redondo).The shipper loaded the merchandise on a foreign-flag ship bound for Antwerp, Belgium, where the goods were transferred to another foreign-flag ship bound for Los Angeles. Despite the circuitous routing and extra port charges, the freight charges were apparently less than they would have been using a U.S.-built and U.S.-owned ship to carry the nails directly between New York and Los Angeles. A court found that the shipper had acted legally. Similarly, shipments from Seattle to Alaska often were routed via Vancouver, Canada, so shippers could use foreign-flag ships for both legs. Congress amended the coastwise law in 1893 (27 Stat. 455) and again in 1898 (30 Stat. 248) to prohibit shippers from routing cargo through a foreign port so as to avoid coastwise laws.

Nonetheless, U.S. shippers continued to use foreign-flag vessels in the Alaska trade by moving cargo between the United States and Vancouver, Canada, by rail. In the Merchant Marine Act of 1920, Senator Wesley Jones of Washington, chair of the Commerce Committee, sought to stop this practice by requiring Alaska-bound cargo to move through the Port of Seattle by amending the coastwise language to cover shipments "by land and water" and replacing shipments between "U.S. ports" with shipments between "U.S. points." These amendments remain current law.

Shipbuilding Costs Debated

The relative cost of building ships in the United States versus foreign countries was part of the debate leading up to passage of the Jones Act. Four years earlier, in the Shipping Act of 1916, Congress had requested annual reports on the subject from the federal agency in charge of maritime transportation. The minority report to a 1919 House committee report to the bill that would become the Jones Act expressed the view that banning foreign-built ships would result in more costly domestically built ships:

… in order to build up and sustain an American merchant marine it is absolutely necessary to remove every restriction against American merchants acquiring ships, whether built in the United States or out of the United States, at the lowest possible price, in order to enable them to compete with other nations in the transportation of the commerce of the world. If our merchants are allowed to buy ships in the open world market and place them under American registry with the privilege of using them both in the coastwise and overseas trade, it will inevitably follow that ships under the American flag will be bought as cheaply as ships under other flags.

On the other hand, if the American merchant shall be permitted to buy ships only from American builders in order to engage in our coastwise trade, it necessarily follows that every ship built in the United States will command a higher price than any foreign-built ship.

Our American iron and steel manufacturers were unable to compete until they had to. When they had to they did compete successfully. Our shipbuilders can and will do likewise.

A 1922 government report on shipbuilding indicated that U.S.-built ships cost 20% more than those built in foreign yards. The cost differential increased to 50% in the 1930s. In the 1950s, U.S. shipyard prices were double those of foreign yards, and by the 1990s, they were three times the price of foreign yards. Today, the price of a U.S.-built tanker is estimated to be about four times the global price of a similar vessel, while a U.S.-built container ship may cost five times the global price, according to one maritime consulting firm. The cost differential is also an issue for Department of Defense officials in charge of military sealift ships. As discussed later in this report, the military has modified a plan to build sealift ships domestically, finding it unaffordable, and instead will buy more used foreign-built cargo ships. Since U.S. shipyards do not build vessels for export, they are not required to compete with foreign shipyards on price or vessel characteristics.

However, as was argued in the late 1800s, shipbuilding costs are not the only cost factor. U.S. crewing costs are higher than those of foreign-flag vessels. U.S.-flag ships have an operating cost differential estimated to be over $6 million per ship per year compared to foreign-flag ships. While crewing is the primary cost element, this estimate also includes insurance and ship maintenance costs. A 2011 study by the U.S. Maritime Administration (MARAD) found that in 2010, the average operating cost of a U.S.-flag ship was 2.7 times greater than a foreign-flag ship, but MARAD estimates that this cost differential has since increased.

Statement of U.S. Maritime Policy

A main thrust of the Merchant Marine Act of 1920 concerned the sale of a surplus of government cargo ships constructed for World War I. A second important and enduring aspect of the bill is its statement of maritime policy. The policy goals stated in the 1920 act, which appear in Section 27, have continued to the present day (46 U.S.C. §50101). The law stated the following:

That it is necessary for the national defense and for the proper growth of its foreign and domestic commerce that the United States shall have a merchant marine of the best equipped and most suitable types of vessels sufficient to carry the greater portion of its commerce and serve as a naval or military auxiliary in times of war or national emergency, ultimately to be owned and operated privately by citizens of the United States; and it is hereby declared to be the policy of the United States to do whatever may be necessary to develop and encourage the maintenance of such a merchant marine.

This statement reflects the United States' status as an emerging power at that time. When World War I began in 1914, European nations utilized their ships for the war effort or kept them in harbors for fear of submarine attacks, leaving the United States with a shortage of ships for carrying its foreign trade. The Merchant Marine Act therefore emphasized that the United States should have its own merchant marine so as not to be dependent on any other nations' merchant vessels.

What the Jones Act Requires

The Jones Act applies only to domestic waterborne shipments. It does not apply to the nation's international waterborne trade, which is almost entirely carried by foreign-flag ships. The U.S. citizen crewing requirement means that the master, all of the officers, and 75% of the remaining crew must be U.S. citizens. If the U.S. owner of a Jones Act ship is a corporation, 75% of the corporation's stock must be owned by U.S. citizens.

Regarding U.S. territories, the U.S. Virgin Islands, America Samoa, and the Northern Mariana Islands are exempt from the Jones Act. Therefore, foreign-flag ships can transport cargo between these islands and other U.S. points. Puerto Rico is exempt for passengers but not for cargo. Vessels traveling between Guam and another U.S. point must be U.S.-owned and -crewed but need not be U.S.-built.

Regulatory Background

The Coast Guard is in charge of enforcing the U.S.-build requirement for vessels (46 C.F.R. §§67.95-67.101), U.S. ownership of the carriers (46 C.F.R. §§67.30-67.43), and U.S. crewing (46 C.F.R. §10.221)—essentially, the licensing of Jones Act operators. It enforces these requirements when an operator seeks a "coastwise endorsement" (46 C.F.R. §67.19) from the agency. The terms "coastwise qualified" and "Jones Act qualified" are synonymous. Customs and Border Protection (CBP) is primarily responsible for determining what maritime activity falls under the act, namely defining what constitutes "transportation" and whether the origin and destination of a voyage are "U.S. points" (19 C.F.R. §§4.80–4.93). Agency interpretations of domestic shipping restrictions have been consistent since the late 1800s and early 1900s, as discussed further below.

"U.S.-Built" Vessel Defined

A significant element of the Jones Act is the requirement to use only "U.S.-built" vessels. Competing freight transportation modes have no requirement to purchase only domestically built equipment. Congress has not defined what constitutes a U.S.-built vessel, leaving this determination to the Coast Guard. Coast Guard regulations deem a vessel to be U.S.-built if (1) all "major components" of its hull and superstructure are fabricated in the United States, and (2) the vessel is assembled in the United States. The "superstructure" means the main deck and any other structural part above the main deck (e.g., the bridge, forecastle, pilot house).

The Coast Guard holds that propulsion machinery (the ship's engine), other machinery, small engine room equipment modules, consoles, wiring, piping, certain mechanical systems and outfitting have no bearing on a U.S.-build determination. Consequently, for oceangoing ships, U.S. shipyards typically import engines from foreign manufacturers. This is allowed because engines are deemed components that are attached to the hull rather than an integral part of the hull's structure. A ship part or component that is self-supporting and independent of the vessel's structure and does not contribute to the overall integrity of the vessel or compromise the watertight envelope of the hull can be manufactured in a foreign country. However, the part or component must be attached or joined to the vessel in a U.S. shipyard, not an overseas yard.

The Coast Guard's test for "major components" of the hull or superstructure is based on weight; up to 1.5% of the steel weight of hull and superstructure components can be manufactured abroad. By this reasoning, the propeller, stern bulb, bulbous bow, some rudders (depending on their design), and watertight closures used in U.S.-built vessels are often imported, as long as they (in the aggregate) do not exceed the steel weight limit. The Coast Guard also permits steel products in standard forms ("off the shelf") to be imported with no limit on their weight, but any shaping, molding, and cutting of the steel that is custom to the design of the vessel must be performed in a U.S. shipyard.

Shipyards typically seek confirmation from the Coast Guard that incorporating certain foreign-built components in construction of a vessel will not disqualify the vessel from the Jones Act trade. These "determination letters" written by the Coast Guard detail which and to what extent foreign components are permissible. In the Coast Guard Authorization Act of 2018 ( P.L. 115-282 , §516) Congress directed the Coast Guard to publish these letters.

Shipyard unions refer to ships built in this manner as "kit ships." They sued the Coast Guard in 2007, arguing that the Coast Guard's interpretation of the statute violated the Administrative Procedure Act. The U.S. District Court for the Eastern District of Pennsylvania sided with the Coast Guard, noting in part that the Coast Guard's interpretation is rooted and consistent with the Treasury Department's interpretation dating to at least the late 1800s (the Treasury Department was the agency of jurisdiction at that time), as well as U.S. Attorney General interpretations dating to the early 1900s. The shipyard unions' lawsuit was prompted by a Philadelphia shipyard's partnership with a South Korean shipbuilder, begun in 2004, to use the Korean builder's ship designs and other procurement services to build a series of Jones Act tankers. This partnership continues today and also includes container ships built in the Philadelphia shipyard. Since 2006, General Dynamics NASSCO of San Diego, another builder of Jones Act oceangoing ships, has partnered with Daewoo Shipbuilding of South Korea to procure vessel designs, engineering, and some of the materials for the commercial ships it has since built for Jones Act carriers.

Importing engines and other major ship components would appear to undermine the Jones Act policy objective of a domestic shipbuilding capability independent of foreign yards. In the court case cited above, the shipyards argued that not allowing use of such foreign components would increase the cost of ships further. This would reduce orders for new ships and harm the domestic fleet.

Passenger Vessel Itineraries

The United States is the largest cruise ship market, but most Americans board foreign-flag cruise ships. This is because CBP has determined that a cruise ship serving a U.S. port does not have to be Jones Act-compliant as long as it has visited a distant foreign port (any port outside North and Central America, Bermuda, the Bahamas, and the Virgin Islands). Thus, for example, if a cruise ship includes Aruba or Curacao in its itinerary, it does not need to be Jones Act-compliant. The reasoning is that the main objective of such a cruise itinerary is to visit such foreign ports, not to transport passengers from one U.S. port to another U.S. port. This reasoning was articulated in a 1910 Attorney General's opinion.

Another significant regulatory interpretation allowing for the prevalence of foreign cruise ships at U.S. ports is a 1985 rulemaking by the U.S. Customs Service (the predecessor of CBP). In this rulemaking, Customs allowed foreign-flag cruise ships to make round trips from a U.S. port and to visit other U.S. ports as long as they also include a visit to a nearby foreign port (such as those in Canada, Mexico, or Bermuda). All passengers must continue with the cruise until the cruise terminates at the same dock at which it began. Again, the reasoning is based on the primary intent of the cruise voyage; if the main purpose of the voyage is not domestic transportation of passengers then the Jones Act is not violated.

Another type of passenger vessel excursion involves visits to no other ports. The purpose of the voyage could be whale watching, recreational diving, gambling, duty-free shopping, or deep-sea fishing, for example. These are so-called "voyages to nowhere" since passengers do not visit any other ports besides the one at which they embark and disembark. In these cases, CBP has determined that if such vessels stay within the 3-mile zone of U.S. territorial waters they must be Jones Act-compliant since CBP considers any places within such waters as "U.S. points." This interpretation is based on Treasury Decision 22275, issued in 1900. However, CBP has determined that if the vessel journeys beyond 3 miles from shore (into international waters), then it does not need to be Jones Act-compliant. This determination is based on a 1912 Attorney General opinion. But the policy regarding charter fishing boats differs from that regarding other passenger vessels. If charter fishing boats venture into international waters, they still must be Jones Act-compliant. This determination is by virtue of a 1936 ruling by the Bureau of Navigation and Steamboat Inspection (Circular Letter No. 103, June 3, 1936), and affirmed by Treasury Decision 55193(2) in 1960.

Another element of CBP's interpretation of the Jones Act with respect to passenger vessels is its definition of a passenger. According to CBP, a passenger need not be a paying customer (such as a tour boat or cruise ship ticket holder); rather, the term encompasses anyone aboard a vessel who is not a member of the crew or an owner of the vessel. Thus, for example, an owner of a yacht who chooses to entertain business clients aboard his or her vessel must comply with the Jones Act. A construction company transporting construction workers to a construction site must use a Jones Act-compliant vessel.

Offshore Oil and Gas Vessels

In the offshore oil market, CBP's interpretations have affected "lightering" (the transfer of oil offshore from an oil tanker too large to transit a harbor to a smaller vessel) and offshore supply vessels (OSVs) used to supply oil platforms. CBP has determined that if a tanker to be lightered is anchored to the seabed and within 3 nautical miles of shore (which are U.S. territorial waters), it is a "U.S. point." Many lightering areas in the Gulf of Mexico are 60 to 80 miles offshore and therefore the lightering vessels can be foreign-flagged. Lightering operations in the Delaware Bay and elsewhere are within the 3-mile zone, and therefore lightering vessels operating in these areas must be Jones Act-compliant (in which case tank barges rather than ships are typically used as lighters).

Regarding OSVs, two factors determine whether these vessels must be Jones Act-compliant in servicing offshore oil rigs. By virtue of the Outer Continental Shelf Lands Act of 1953 (P.L. 83-212), U.S. waters extend 200 miles offshore strictly for purposes related to the exploration, development, and production of offshore natural resources. CBP has determined that within this zone, only oil rigs attached to the seabed (anchored or submerged to) are "U.S. points." Another type of oil rig is not attached to the seabed: some mobile offshore drilling units (MODUs) are semisubmerged and can hold their positions with the use of propellers. CBP had determined that MODUs not attached to the seabed are not "U.S. points," and therefore foreign-flagged vessels were permitted to service these units. However, in 2008, Congress required that OSVs servicing MODUs be U.S.-owned and -crewed, but need not be U.S.-built ( P.L. 110-181 , §3525), which is the same requirement applied to U.S.-flag vessels engaged in international voyages.

A second factor determining whether OSVs must be Jones Act-compliant is whether the OSV is transporting supplies or workers to the oil rig, or if the vessel is involved in installing equipment necessary for the operation of the rig. CBP defines "vessel equipment" as anything "necessary and appropriate for the navigation, operation or maintenance of a vessel or for the comfort and safety of persons on board." Consequently, a vessel laying cable or pipeline in U.S. waters does not need to be Jones Act-compliant. Similarly, while OSVs transporting supplies and rig workers must be Jones Act-compliant (if the rig is attached to the seabed), vessels involved in installing rig equipment or conducting geophysical surveying or diving inspections can be foreign-flagged, as well as "flotels," which are vessels that provide living quarters for construction workers. The distinction can be unclear. In 2017, CBP proposed that most or all activities performed by OSVs fall under the Jones Act, but after reviewing comments, the agency withdrew the proposal.

Offshore Wind Farms

Some question whether the Outer Continental Shelf Lands Act, and therefore the Jones Act, applies to offshore wind farms located beyond 3 miles from shore. Currently, wind farm developers are being guided by CBP's interpretations of the Jones Act with respect to OSVs and oil rigs. The Department of Energy has noted that the nonavailability of Jones Act-compliant "Tower Installation Vessels" (TIVs) can be a hindrance to offshore wind farm development, especially for installations in deeper water. In Europe, TIVs not only install the towers but also transport the equipment from shore to the offshore site. Since there are no Jones Act-compliant TIVs, U.S. wind developers either transport the equipment from foreign countries or use Jones Act-compliant vessels to transport the equipment to the site from a U.S. port alongside non-Jones Act-compliant TIVs to install the equipment.

Foreign Blending Ports

A third CBP interpretation of the Jones Act has been significant in shaping coastal maritime activity. CBP determined that if merchandise is transformed (manufactured or processed) into a new and different product at an intermediate foreign port, then the vessels transporting the original product from a U.S. port to this foreign port and transporting the transformed product from the foreign port to a U.S. port do not need to be Jones Act-compliant. For example, a Texas oil producer has shipped a gasoline product to a Bahamian storage facility where its product is blended with a different imported petroleum product to produce a final gasoline product that is shipped to New York. Foreign-flag tankers are allowed to make all of these shipments even though it could be argued that a portion of the cargo is being shipped between two U.S. points (Texas and New York). The transformation of the product into a new and different product at an intermediate foreign port distinguishes this case from the 1891 kegs-of-nails case mentioned above. This interpretation has precedent in a 1964 Customs Service ruling involving California rice being processed in the U.S. Virgin Islands (exempt from the Jones Act) before being shipped to Puerto Rico, with both shipment legs involving foreign-flag ships.

The Jones Act Since 1920

Since 1920, Congress has enacted provisions that could be said to tighten Jones Act requirements, as well as provisions that exempt certain maritime activities from the requirements. In 1935, Congress forbade Jones Act-qualified vessels sold to foreign owners or registered under a foreign-flag to subsequently requalify as Jones Act-eligible (P.L. 74-191), meaning that they could never again be used in U.S. domestic trade. This provides additional protection from competition for Jones Act carriers if coastal shipping demand increases, because it can take two years to construct a new ship. In 1940, Congress expanded the Jones Act to cover towing vessels, such as river tugs that push barge tows and harbor tugs that assist larger ships, and salvage vessels operating in U.S. waters (P.L. 76-599). In 1988, Congress specified that waterborne transport of valueless material, such as dredge spoil or municipal solid waste, requires use of a Jones Act-qualified vessel ( P.L. 100-329 ).

Precedents for Exempting the Jones Act

Congress has enacted numerous exemptions or exceptions to the Jones Act. A list of these legislated exemptions and exceptions can be found in the Appendix .

It has waived the Jones Act's restrictions when finding that no Jones Act-qualified operator was interested in providing service in a particular market, reasoning that the waiver thus would bring no harm to the domestic maritime industry. For instance, in 1984, Congress exempted passenger travel between Puerto Rico and any other U.S. port as long as no Jones Act-qualified operator was able to provide comparable service ( P.L. 98-563 ). This exemption remains in force, allowing foreign-flag cruise ships to carry passengers between the U.S. mainland and the island. On two occasions, in 1996 ( P.L. 104-324 ) and again in 2011 ( P.L. 112-61 ), Congress has permitted certain foreign-flagged liquefied natural gas (LNG) tankers to provide domestic service because none existed in the Jones Act fleet; no ship owners have made use of these exemptions (see Table A-1 ).

Congress has also enacted exemptions due to a sudden spike in demand for Jones Act-qualified vessels. To address a vessel shortage, Congress enacted an exemption for iron ore carried on the Great Lakes during the 1940s that was related to a surge in steelmaking for the war effort. It did the same for a bumper grain harvest in 1951 (see Table A-1 ). In 1996, Congress enacted an exemption for vessels participating in oil spill cleanup operations when an insufficient number of Jones Act-qualified vessels are available.

Congress has enacted Jones Act waivers for two innovations in vessel designs used in foreign trade but whose cargo operations included domestic legs that technically would otherwise fall under the Jones Act. One concerned a ship designed to carry river barges on international voyages, a technology known as Lighter Aboard Ship (LASH). In 1971, Congress exempted these specific barges from the Jones Act (P.L. 92-163). The exemption is no longer relevant, as this type of shipping is not now in use. In 1965, as container ships were about to come into use internationally, Congress exempted the movement of empty containers between U.S. ports from the Jones Act (P.L. 89-194). This exemption is restricted to containers used for international shipments, thus allowing the foreign-flagged container carriers to reposition their empty equipment along U.S. coastlines.

Jones Act-compliant ships are necessary for transshipment of loaded international containers. This distinction between carriage of loaded and unloaded containers has ramifications for the development of marine highways or short sea shipping routes. Transshipment of international containerized cargo by feeder ships is prevalent abroad, but the practice does not exist in the United States. The Jones Act would require such ships be U.S.-built, -crewed, and -owned. Lack of transshipment services increases demand for rail and road connections to ports, as smaller feeder container ships do not play a role in distributing international containerized cargo among U.S. ports.

Waivers for Specifically Named Vessels

In addition to authorizing exemptions to the Jones Act under certain circumstances, Congress has enacted exemptions for specific vessels identified by name and identification number (a registration number with a state government, the Coast Guard, or International Maritime Organization). Typically, the legislative language does not indicate why a waiver was needed or describe the kind of vessel, its size, or its function. A search of the statutes at large under the terms "coastwise" and "endorsement" and "certificate of documentation" indicates that since 1989, at least 133 specific vessels have been granted Jones Act waivers by Congress in 16 separate legislative acts.

These waivers typically appear in maritime-related legislation, such as a Coast Guard authorization bill. One act contains waivers for 67 vessels and another for 35 vessels. It appears in most cases that these vessels are not commercially significant—for instance, that they are not large or even moderately sized cargo or passenger vessels. Some of them are owned by nonprofit entities. One exception was the previously mentioned 2011 granting of waivers to three LNG tankers built in the United States in the late 1970s that subsequently became foreign-registered ( P.L. 112-61 ). In many cases, it appears the vessel needs a waiver because of a technicality in meeting Jones Act requirements; for example, the U.S.-citizen ownership history may be missing some records. In many cases, the statute granting the waiver places specific conditions on how the vessel can be used.

Administrative Waivers in The Interest of National Defense

As noted, the domestic shipping restrictions were waived during World War I. They were waived again in preparation for World War II (P.L. 77-507, 1942). In 1950, after the Korean War began, Congress enacted a provision allowing the executive branch to issue waivers "in the interest of national defense" (P.L. 81-891). This authority is still in effect, as the language did not specify that it was intended only for the conduct of that war. In 1991 and 2011, waivers were granted on national defense grounds to expedite oil shipments from the Strategic Petroleum Reserve in response to the Persian Gulf War and a conflict in Libya, respectively.

In addition to military conflicts, the executive branch has waived the Jones Act for fuel resupply in the aftermath of natural disasters. This so-called "national defense waiver" authority has been the basis for recent waivers granted in the aftermath of major hurricanes, beginning with Hurricane Katrina in 2005 up to and including Hurricanes Harvey, Irma, and Maria in 2017 (see Table A-2 ). In 2008 ( P.L. 110-417 ), Congress inserted a role for MARAD to check on the availability of any Jones Act-qualified vessel before granting certain waivers.

The lack of heavy-lift vessels in the Jones Act fleet has also prompted national defense waivers: in 2005 to allow a foreign-flag heavy-lift vessel to transport a radar system from Texas to Hawaii and in 2006 to allow an oil company to use a Chinese-flagged heavy-lift vessel to transport an oil rig from the Gulf Coast to Alaska. The national defense justification for the oil rig waiver was apparently based on addressing a fuel shortage in that region of Alaska. However, in 1992, Customs denied a waiver request to use a foreign-flag heavy-lift vessel to transport replicas of Christopher Columbus's Niña, Pinta, and Santa Maria vessels from Boston to San Francisco. A specific type of heavy-lift vessel is used in the construction of offshore oil rigs, but CBP has denied Jones Act waivers for these vessels even after Coast Guard and the Bureau of Safety and Environmental Enforcement in the Department of the Interior advised that not granting a waiver created a safety hazard for these operators.

CBP has stated that the "national defense" justification is a high standard and that national defense waivers would not be issued for economic reasons such as commercial practicality or expediency. Consistent with this view, while CBP has issued national defense waivers in circumstances involving fuel shortages, it has not issued waivers that would merely favor domestic supply lines over offshore ones, even though one might argue the latter is a national security issue. For instance, in 1976, arguing that offshore supply lines are more vulnerable, some Members of Congress representing Gulf Coast states sought to have the Jones Act extended to the U.S. Virgin Islands. At the time, the largest refinery in North America was located in the U.S. Virgin Islands, and the refinery supplied petroleum products to the U.S. Northeast on foreign-flagged tankers. In 2014, northeast refineries reportedly contemplated seeking a Jones Act waiver to ship crude oil from Texas. These refineries import much of their crude oil. In 2018, the United States exported between 40 million and 80 million barrels of crude oil per month on foreign-flag tankers, imported about 150 million barrels per month from overseas sources on foreign-flag tankers, and shipped about 15 million barrels per month domestically on Jones Act tankers.

A similar situation is occurring with liquefied natural gas (LNG): the United States has begun exporting substantial quantities by ship while continuing to import LNG by ship, but no LNG is shipped domestically. There are no LNG tankers in the Jones Act fleet, and it is unclear why shippers have not utilized the 1996 or 2011 waivers for LNG tankers mentioned above. Puerto Rico, which currently imports LNG from Trinidad and Tobago, is seeking a 10-year waiver of the Jones Act to receive bulk shipments of LNG from the U.S. mainland.

The Jones Act Fleet

Recent controversies over the Jones Act have concerned the oceangoing ship and offshore supply vessel sectors. The Jones Act also covers ships on the Great Lakes, river barges, harbor tugs, dredging vessels, and various kinds of passenger vessels. The Jones Act ship fleet, in particular, has shortcomings compared to the merchant fleet desired by the drafters of the 1920 act as they described it in the aforementioned statement of U.S. maritime policy.

Oceangoing Ships

As of March 2018, there were 99 oceangoing ships in the Jones Act-compliant fleet, employing about 3,380 mariners. The largest category of Jones Act ships is tankers. Of the 57 tankers in the fleet, 11 carry Alaskan crude oil to refineries on the West Coast, 44 are medium-sized product tankers that mostly carry refined products along the Atlantic Coast, and 2 are chemical or asphalt tankers. The dry cargo fleet includes 24 small to medium-sized container ships, 7 ships that have ramps for carrying vehicles (known as roll on/roll off vessels), and 2 dry bulk vessels designed to carry such commodities as grain and coal in bulk form. The fleet also includes 9 relatively small general-cargo vessels supplying subsistence harbors along Alaska's coast.

As Figure 1 indicates, the number of oceangoing ships in the Jones Act fleet has shrunk to less than a quarter of what it was in 1950. The ships are much larger today than they were then, but their aggregate carrying capacity (DWT) is still less than in 1950.

As shown in the figure, there was a pronounced drop in the size of the fleet in the late 1950s and early 1960s. At a 1967 congressional hearing, Alan Boyd, Secretary of Transportation in the Lyndon B. Johnson Administration, testified that the U.S. merchant marine was "too small, too old, and too unproductive," and stated, "you do not revitalize an industry by flooding it with Federal dollars and imprisoning it within a wall of protection." The Lyndon B. Johnson Administration appears to be the only Administration in the modern era that has called for the repeal of the Jones Act.

While domestic ships are carrying fewer tons of freight today than they did in the 1950s, their most direct competitors, railroads and pipelines, are carrying more. Domestic ships have lost market share to land modes even though ships have economic advantages. Ocean carriers do not need to acquire and maintain rights-of-way like railroads and pipelines. They can move much more cargo per trip and per gallon of fuel than trucks and railroads. Although ships are slower than truck and rail modes, many shippers are willing to sacrifice transit time for substantially lower costs, as long as delivery schedules are reliable.

The Jones Act fleet is almost entirely engaged in domestic trade routes where overland modes are not an option, serving Alaska, Hawaii, and Puerto Rico. In other words, it operates in markets where shippers have little alternative. Although the Jones Act can be said to have preserved a nucleus of a U.S. maritime industry, it has not succeeded in meeting the stated policy goal of sustaining a growing merchant marine that carries an increasing proportion of the nation's commerce.

In the Merchant Marine Act of 1936 (P.L. 74-835, Section 101), Congress amended the policy goals articulated in the 1920 Act by adding the phrase "providing shipping service on all routes essential for maintaining the flow [of commerce] at all times," and also added the word "safest" to the policy goal of having the best equipped and most suitable types of vessels. At present, the Jones Act fleet does not appear to achieve either of these goals

Ship Designs Missing from the Fleet

One can also question whether the policy objective of having "the best equipped and most suitable types of vessels" has been achieved. Not all ship designs are represented in the Jones Act fleet. "Project cargo" or "heavy-lift" vessels are often used to carry oversized pieces of equipment such as smaller vessels, ship engines and modules, wind turbine parts, and power generation equipment. They would be useful for moving dredging fleets to project sites. There have not been any such vessels in the Jones Act fleet in recent decades. The Department of Defense has used "national defense" waivers of the Jones Act (see below) to move radar systems and newly built vessels on foreign-flag heavy-lift vessels. This type of cargo typically does not generate regular shipments in any one region; thus these ships would likely need to extend their market reach beyond the United States to include the international market. However, the higher cost structure of Jones Act operators is an obstacle to competing for international shipments.

Two dry bulk ships are in the oceangoing Jones Act fleet, and they appear to be mostly inactive, possibly because they are nearly 40 years old. This is twice the economic life of a ship in the global fleet (where ships are typically sent for scrapping between 15 and 20 years of age). The sole Jones Act-qualified chemical tanker was built in 1968. No LNG tankers are in the Jones Act fleet despite new domestic markets as a result of the shale gas boom. The lack of sufficient Jones Act-qualified tanker capacity to move booming shale oil production coastwise added to pressure for lifting the crude oil export ban in 2015.

Seagoing Barges

In response to the high cost of U.S.-built and U.S.-crewed ships, the U.S. market has developed a unique vessel design, a seagoing barge called an articulated tug barge (ATB). MARAD estimates that over 150 ATBs are operating in the Jones Act trades. While ATBs are more capable than flatwater barges in handling sea swells (with a hinge between the tug and barge), they are still less capable than ships in handling heavy sea states. They are less reliable and less efficient over longer voyages because they are slower and smaller than tanker ships, and the notch between the barge and tug creates more resistance through the water than a single hull. Since ATBs sail closer to the coasts, they could pose a higher risk of grounding and provide less time to prevent spilled oil from reaching shorelines. ATB crews are not qualified to sail sealift ships. ATBs now carry more cargo (predominantly oil) on coastal voyages than does the tanker fleet (see Figure 2 ).

Age of Fleet Raises Safety Concerns

The El Faro was a Jones Act general cargo ship that sank in a hurricane in 2015. Because the ship was built in 1975, it was required to have only open lifeboats rather than the closed lifeboats with auto launchers required on ships built since 1983. After its sinking, the Coast Guard forbade its sister ship of the same age from sailing, and in congressional testimony noted concern about the condition of the rest of the U.S.-flag fleet:

We looked a little further beyond this particular incident, caused us to look at other vessels in the fleet and did cause us concern about their condition.… And the findings indicate that it is not unique to the El Faro . We have other ships out there that are in substandard condition.… You know, some of our fleet—our fleet is almost three times older than the average fleet sailing around the world today. Just like your old car, those are the ones likely to breakdown. Those are the (inaudible) one—the ones that are more difficult to maintain and may not start when I go out, turn the key.

Substantiating the Coast Guard's concern, in February 2019, the crew of the 46 year-old Jones Act containership Matsonia found a crack in the hull when looking for the source of an oil sheen in Oakland harbor.

The Jones Act fleet today is relatively young compared to its prior composition because of shipbuilding undertaken after the large increase in shale oil production and before the lifting of the oil export ban. In part, new ships were needed to comply with tighter emissions requirements in the newly created North American emission control area. Today, just over one-third of the Jones Act oceangoing fleet (35 ships) is 21 years old or older, down from two-thirds (64 ships) in 2007.

The Great Lakes Fleet

Jones Act-compliant vessels operating in the Great Lakes are considerably older than the oceangoing fleet. The Great Lakes fleet consists of 33 dry bulk ships and several large barges carrying mostly iron ore, limestone, and coal used in steelmaking, and cement. The U.S. fleet of 1,000-foot freighters, the largest ships operating on the Great Lakes, was built between 1972 and 1981. The second-largest class of ships, around 700 feet in length, is older, with some of the vessels having originally been built in the 1940s or 1950s; a number of these were rebuilt in the 1970s. According to the U.S. Lake Carriers Association, ships operating in freshwater, such as the Great Lakes, can have longer lives than oceangoing vessels. Jones Act-compliant Great Lakes ships are much narrower for their length compared to the global dry bulk fleet because of the dimensions of the Soo Locks in Michigan. Domestic tonnage on the Great Lakes has declined steadily since the 1950s, and is now about half what it was then.

The Canadian Great Lakes fleet illustrates the effect that vessel import policy can have on a domestic fleet. Canada's fleet was of similar age as the Jones Act fleet, with the youngest ship having been built in 1985, before Canada imposed a 25% tariff on newly constructed imported ships. While this import tariff was in effect, no new ships were added to the Canadian fleet. In 2010, Canada repealed the import tariff, and since then over 35 new dry bulk ships have been constructed in other countries specifically for service on the Great Lakes. These vessels cannot carry cargo between U.S. points.

Inland River Fleet

Thousands of tugs and barges carry mostly dry and liquid bulk commodities on the nation's inland rivers. The fleet includes several thousand tugs or pushboats that push the barge tows, about 20,000 dry cargo barges, and several thousand tank barges that carry liquid bulk cargoes. Tonnage is dominated by the export of corn and soybeans and domestic movement of coal. Since 1990, overall tonnage on the system has been flat or declining slightly. One of the two leading manufacturers of river barges ceased operation in April 2018 in response to the fall-off in demand for coal deliveries by barge.

The Dredging Fleet

The Dredging Act of 1906 (P.L. 59-185, 34 Stat. 204) requires that vessels engaged in dredging in U.S. waters be U.S.-built, -operated, and -crewed. The 1906 act was prompted by dredging work then being carried out in Galveston Bay, TX, after a calamitous 1900 hurricane. It required all dredge vessels henceforth to be U.S.-built. In 1988, Congress amended the Jones Act to define "merchandise" transported domestically by vessel to also include any valueless material ( P.L. 100-329 ). This change effectively required that dredge spoil be transported in Jones Act-qualified vessels.

According to one study, the ban on foreign-built dredgers and foreign operators raises the cost of dredging U.S. harbors substantially. According to U.S. Army Corps of Engineers figures, while federal spending on navigation dredging has increased over the last decade by several hundred million dollars per year, the spending increase has not resulted in a larger volume of material being dredged from U.S. harbors. In addition to a limited supply of dredging vessels, increases in the cost of fuel, steel, and labor, as well as more stringent environmental requirements, are factors that may be causing cost increases.

The U.S. privately owned fleet is much older and smaller, both in terms of the capacity of individual vessels and the total size of the fleet, compared to the four leading European dredging firms that perform work worldwide (except in U.S. waters). Each of the four European firms has a fleet of hopper dredges, the preferred type for dredging coastal harbors, whose total capacity is around three to four times the capacity of the entire U.S. hopper fleet. Three-quarters of the U.S. privately owned hopper dredge fleet is over 20 years of age, while about three-quarters of the European fleet is under 20 years. When the Army Corps bids harbor work requiring a hopper dredge, one of the four U.S. firms is the sole bidder over a third of the time. When the Army Corps schedules dredging projects for an upcoming year, it has periods when an insufficient number of dredges can perform the work. In addition to the dredge vessel, dredging projects involve a number of support vessels. One study found that mobilization and demobilization of the equipment in the U.S. market can amount to more than one-third of total project costs. Foreign firms use heavy-lift vessels to transport their dredge fleets to the next project. As indicated earlier, no such vessels are available in the Jones Act fleet.

Offshore Supply Vessels

The size of the OSV fleet can change significantly with changes in the oil market. In 2017, the offshore supply vessel fleet consisted of about 1,800 vessels, working mainly in the Gulf of Mexico. Over the last decade, annual construction averaged 32 vessels, but ranged between 4 and 53 vessels. Foreign-built vessels are relied upon for construction of rigs in deeper waters. These vessels need dynamic positioning propulsion systems to keep the vessel in place while performing the construction work, as the waters are too deep for anchoring. As mentioned above, similar vessels are lacking in the Jones Act fleet for installing wind towers in deeper waters.

The Jones Act and Sealift Capability

As with the commercial aspirations stated in the maritime policy of the Jones Act, there are also perceived shortcomings with respect to the domestic fleet's ability to serve as a naval auxiliary in times of war or national emergency. Since 1920, Congress has enacted programs that designate other fleets for sealift support, but the merchant mariners crewing Jones Act ships are still identified as contributing to the pool of mariners available to crew the sealift fleet. The shrinking size of the U.S. mariner pool puts in doubt its ability to sufficiently crew a reserve sealift fleet, as discussed further below. In 2014 ( P.L. 113-76 ), Congress directed the Department of Transportation and the Department of Defense to develop a national sealift strategy. This has yet to be issued.

Sealift Crews

The crews of Jones Act oceangoing ships are arguably the most salient and immediate element that could be called upon to support military sealift. Jones Act mariners typically have six months of shore leave per year, and those mariners on shore leave would be expected to crew a reserve fleet of government-owned cargo ships kept on standby for military sealift purposes (the Ready Reserve Force, or RRF). The Jones Act crew of oceangoing ships consists of about 3,380 merchant mariners, which is about 29% of the total mariner pool of 11,678 mariners that MARAD estimates would be required to crew the government-owned reserve fleet while still concurrently being able to operate the commercial fleet. The remaining pool of mariners would come from (1) the U.S.-flag privately owned international fleet enrolled in the Maritime Security Program (MSP) consisting of 60 ships and 2,386 commercial mariners, and (2) the Military Sealift Command (MSC) fleet of government-owned ships consisting of about 120 ships and 5,576 mariners.

While MARAD estimates that there is a sufficient commercial mariner pool to crew the reserve sealift fleet during a surge lasting up to 180 days, a more prolonged sealift effort would start to entail crew rotations, and MARAD estimates a shortfall of about 1,800 mariners in that scenario. That the mariner pool is barely sufficient to sustain an immediate surge and is insufficient for a longer sealift effort has been a consistent finding of sealift officials for decades, even in previous periods when the mariner pool was much larger than it is today. For instance, this was the same finding by the Department of Defense Transportation Command (TRANSCOM) in 2004, when the RRF consisted of 59 ships and the mariner pool was 16,900. And in 1991, when the RRF consisted of 96 ships and the mariner pool was 25,000 (more than twice the size that it is today), the then MARAD Administrator testified that the mariner pool was barely sufficient to crew the reserve sealift fleet.

Sealift Ships

While the Jones Act's statement of maritime policy indicated a desire for a commercial fleet that also could provide sealift in times of war, since then three other fleets of ships have been established for purposes of military sealift: the RRF, MSC, and MSP. These ships are predominantly foreign-built. The RRF, a concept that originates in a 1954 act of Congress (P.L. 83-608), today consists of 46 ships that can sail upon either 5 or 10 days' notice and are on standby with a skeleton crew of about 600 commercial mariners (13 per ship), but would require an additional 1,200 mariners to sustain its operation once activated. The MSC fleet is controlled by TRANSCOM and has a subset of about 50 ships that carry military cargoes in port-to-port voyages similar to those undertaken by commercial ships. MSC ships are mostly crewed by civilian mariners who are federal employees. The MSP ships, a fleet established by Congress in 1996 ( P.L. 104-239 ), receive an operating subsidy of about $5 million per vessel per year to cover the additional cost of American crews and rely heavily on government cargoes (military and food aid) that pursuant to "cargo preference" law are reserved for them. As per long-standing agreements between MARAD, acting as advocate for the U.S. maritime industry, and the Department of Defense, the military is to utilize MSP ships and exhaust that capacity before it utilizes MSC ship capacity.

While Jones Act operators are required to purchase more costly U.S.-built ships, the military sealift fleet is largely composed of more economical foreign-built ships. Jones Act operators are competing in the commercial marketplace while the sealift fleet is not. Instead of relying on the Jones Act commercial fleet to provide oceangoing shipbuilding capability, the sealift fleet could be required to be built domestically. The higher cost of the domestically built sealift fleet would be shared nationally, as is the case with other defense assets. Lower-cost coastwise ships would be more price-competitive with railroads, pipelines, and ATBs, thereby enlarging the mariner pool available for sealift support and increasing repair and maintenance work for U.S. shipyards. The sealift ships could also be designed to military specifications rather than be in conflict with commercial needs (see below).

Divergence in Design of Commercial and Sealift Ships

The military seeks cargo ships with flexible capabilities: ships not so large that they could face draft restrictions in some overseas harbors, ships with ramps or onboard cranes so that they can still unload cargo at underdeveloped or damaged ports, and ships that can carry a wide variety of cargo types and sizes. The majority of the military sealift fleet consists of product tankers for carrying fuel and roll-on/roll-off (Ro/Ro) ships that have ramps for moving tanks, trucks, and helicopters. It also consists of container ships used for moving ammunition and other supplies.

The military's preference for versatility is in conflict with the commercial fleet's trend toward more specialized and larger ships, a trend driven by the need for ships with the lowest operating cost. General cargo and break-bulk ships capable of carrying a wide variety of cargo types and sizes and that were typically equipped with their own onboard cranes have been largely replaced by container ships without onboard cranes. Thus, commercial mariners may no longer have experience operating cargo cranes, as might be required in foreign ports where shore-based cranes are out of service or are not available.

The largest container ships require 45 to 50 feet of water below the waterline, far more depth than many ports can provide. Ro/Ro ships have been replaced by "pure car carriers" that maximize the number of passenger cars they can carry, but may be less useful for military purposes. Cost pressures have induced commercial carriers to install engines that minimize fuel costs by operating at lower speeds and cannot achieve the higher speeds desired for military sealift ships. In addition, more stringent sulfur emission regulations recently enacted have prompted ship operators to convert to LNG-fueled engines, a fuel not globally available, or to install scrubbers, equipment that takes up cargo space and has no military utility. Licensing of engine crews is specific to engine type. Thus, a growing disparity exists between the military's ideal vessel designs and those of commercial carriers, as well as in the skill sets of the crew.

Shipbuilding and Repair Industrial Base

Besides the deep-sea ship crews, another purported Jones Act contribution to military sealift is preservation of a shipyard industrial base with the knowledge and skills to build and repair ships. The Merchant Marine Act of 1970 (P.L. 91-469) added as an additional objective of U.S. maritime policy to have a merchant marine "supplemented by efficient facilities for building and repairing vessels." U.S. shipyards typically build only two or three oceangoing ships per year, and none for export, so they do not achieve economies of scale. There may be gaps of several years in between orders for container ships. In recent years, the demand has been sufficient to sustain one shipyard that builds only commercial ships. However, this yard stated that its employment had fallen below 100 people and that it had no vessels under construction or on order as of March 31, 2019. The other shipyard that builds commercial ships also relies heavily on Navy orders.

A larger number of shipyards build smaller vessels such as tour boats, ferries, tugs, barges, and offshore supply vessels. Around 1,000 barges are built in a typical year. These vessels also fall under the Jones Act domestic build requirement and are rarely built for export. However, the shipyards building smaller vessels lack dry docks of sufficient size to repair large ships. The government-owned sealift fleet is 44 years old on average, and many of the vessels are in need of repair. According to the Maritime Administrator, there is an insufficient number of large dry docks to service the sealift fleet, delaying their readiness to sail. Some of the reserve fleet has failed Coast Guard safety inspection, and some ships have too much steel rusted from their hulls to be seaworthy. For example, while sailing to a readiness exercise, a hole was found in the hull of one of the ships. According to TRANSCOM, the Navy's plan to recapitalize the reserve fleet includes building new vessels in domestic shipyards, repairing ships in the current fleet to extend their service life out to 60 years, and purchasing used, foreign-built ships. The Navy has found that repairing the vessels has thus far been three times more expensive and has taken twice as long as originally projected. It therefore is contemplating the need to accelerate the purchase of used, foreign-built ships because building new ships in U.S. yards is estimated to be 26 times more expensive and thus not affordable.

In addition to the Jones Act, the Tariff Act of 1930 is intended to support U.S. shipyards by assessing a 50% duty on the price of any nonemergency repairs on U.S. flag ships done in foreign shipyards. A 2011 MARAD study found that many U.S.-flag international trading ships have repairs performed in foreign yards because, even with the 50% duty, the total cost is less than if the repairs were performed in a domestic shipyard. A U.S.-flag operator confirms that this is still the case in 2018.

Appendix. Exemptions and Waivers