Should the United States Follow Europe and Liberalize its Cabotage Law?
Cabotage is “the transport of goods or passengers from one port or place to another in the same country. ”[1] In the United States, cabotage is governed by Section 27 of the Merchant Marine Act of 1920, otherwise known as the Jones Act.[2] The Jones Act requires ships engaging in such intra-country trade to be American owned, operated, and built.[3] It is among the most restrictive cabotage laws in the world.[4] For years, economists and other experts have advocated for a repeal of the Jones Act, arguing that it acts as a drag on the U.S. economy, increases prices in areas least equipped to afford them, and fails at its goal of maintaining a viable merchant marine fleet.[5] It has frequently been blamed for higher than necessary prices in Hawaii, Alaska, and Puerto Rico.[6]
Indeed, a report commissioned by the Congressional Research Service made several observations demonstrating the high cost of the Jones Act: (1) Container ships built in America are about five times more expensive to build than the international price.[7] (2) More than 90% of vessels built in American shipyards are sold domestically, indicating that American-built vessels are uncompetitive in the foreign market.[8] (3) The average operating cost of U.S.-flagged ships are more than double that of foreign-flagged vessels.[9]
It is no wonder, then, that people and companies have searched for both obvious and inventive ways to avoid using these expensive, American-built ships. Whether by chartering planes to fly cows from Hawaii to the mainland, building 100-foot railways, or simply using trucks instead of boats, businesses across the country take otherwise unreasonable actions to circumvent the Jones Act.[10]
To alleviate these issues, America should look to Europe, which gradually liberalized its cabotage policies in the 1990’s.[11] There, shipowners in the European Economic Community may generally provide cabotage services within any country in the community.[12] This means that, unlike American shipbuilders, European shipbuilders are forced to compete with at least some international competition for the intra-country shipping market. This is not to say that European cabotage markets are completely free, as eligibility for participation depends on vessel registration and compliance with manning requirements.[13] Additionally, European shipbuilders are still protected from competition from the dominant shipbuilding industries of China, South Korea, and Japan.[14]
However, even with this modest liberalization, the European Union has reported promising results. For example, several countries noted an increase in the volume of maritime cabotage of cargo.[15] Additionally, “over 40% of Europe’s domestic freight is shipped along so-called motorways of the sea. In the US, a measly 2% of domestic freight distributed among the lower forty-eight states travels by water, even though half the population lives near the coast.”[16] Using ships instead of trucks and trains allows European countries to access efficiencies that are unavailable in America because ships can transport more cargo per gallon of fuel.[17]
Given the benefits of easing Jones Act restrictions, the United States should liberalize its cabotage regime. For example, merely exempting ships bound for Hawaii, Alaska, Puerto Rico, and Guam would do a lot to mitigate the harm of the Jones Act because of their vast distances from the rest of the U.S.[18] Indeed, the efficacy of such waivers can be readily ascertained, as “the cost of shipping goods from the contiguous United States to the Virgin Islands, which are exempt from the Jones Act, is half that of shipping goods to Puerto Rico.”[19] More than this, though, the United States should take a page out of Europe’s book and open its cabotage market to ships built and/or flagged by its close allies. Furthermore, the U.S. could use its newfound openness to such liberalization as a bargaining chip, opening up new markets for American industries that actually are competitive on the global market.[20] Such modest reforms could greatly reduce prices in America’s farthest-flung states and territories, allow for a more efficient and environmentally-friendly cabotage market, and perhaps even improve the international competitiveness of American shipbuilding by exposing, for the first time in 100 years, to meaningful competition.[21]
Jonathan Friedman is a staff member of Fordham International Law Journal Volume XLVII.
[1] CABOTAGE, Black's Law Dictionary (11th ed. 2019).
[2] Sam Heavenrich, The Neglected Port Preference Clause and the Jones Act, 132 YALE L. J. 559, 566 (2022).
[3] Id. at 567.
[4] Id.; Ana Cristina Paixao Casaca & Dimitrios V. Lyridis, Protectionist vs Liberalised Maritime Cabotage Policies: A Review, 3 MAR. BUS. REV. 210, 228-29 (2018).
[5] See e.g. Heavenrich, supra note 2; Colin Grabow, Examining the Jones Act's Harm to U.S. Ports, CATO INST.: CATO AT LIBERTY (Apr. 7, 2021), https://www.cato.org/blog/transshipment-oft-overlooked -cost-jones-act; Stacy Yuen, Keeping Up with the Jones Act, HAW. BUS. MAG. (Aug. 5, 2012), https://www.hawaiibusiness.com/keeping-up-with-the-jones-act.
[6] Heavenrich, supra note 4, at 571; Patrick Holland, Help PuertoRico by Repealing the Jones Act, ECONOMICS21 (July 15, 2015), https://manhattan.institute/article/help-puerto-rico-by-repealing-the-jones-act.
[7] JOHN FRITTELLI, CONG. RSCH. SERV., R45725, SHIPPING UNDER THE JONES ACT: LEGISLATIVE AND REGULATORY BACKGROUND 4 (2019).
[8] Id.
[9] Id.
[10] Yuen, supra note 5; Kloosterboer Int'l Forwarding LLC v. United States, 604 F. Supp. 3d 853, 859 (D. Alaska 2022); Erik Olsen, An Arcane American Law Protected by Powerful Interests is Causing Insane Traffic Jams, (Aug. 7, 2017), https://qz.com/1032288/how-a-100-year-old-american-law-helps-make-your-commute-miserable.
[11] Casaca & Lyridis, supra note 4 at 215-17; Council Regulation 3577/92, 1992 (EEC).
[12] Casaca & Lyridis, supra note 4 at 215.
[13] Id. at 216.
[14] Thomas Grennes By Land or by Sea: Does the Jones Act Cause Land‐Based Transport Congestion?, CATO INST. (November 15, 2018) https://www.cato.org/cato-online-forum/land-or-sea-does-jones-act-cause-land-based-transport-congestion
(“Over 90 percent of commercial ships built in the world recently have been built in Japan, South Korea, or China.”).
[15] Fifth report on the implementation of Council Regulation (EEC) No 3577/92 applying the principle of freedom to provide services to maritime cabotage (2001-2010), at 7, (Apr. 22, 2014) http://aei.pitt.edu/93256/1/5th.pdf
[16] Olsen, supra note 12.
[17] FRITTELLI, supra note 7, at 14.
[18] Colin Grabow, Inu Manak & Daniel Ikenson, The Jones Act: A Burden America Can No Longer Bear, CATO INST. (June 28, 2018), https://www.cato.org /sites/cato.org/files/2022-o2/policy-analysis-845.pdf at 15.
[19] Heavenrich, supra note 2, at 571.
[20] Grabow et al., supra note 20, at 13.
[21] Grabow et al., supra note 20 at 2. (“Surface transportation produces more carbon emissions than ships do, and its more intensive use increases the likelihood of highway accidents and train derailments involving hazardous materials.”); See supra text accompanying note 21; supra text accompanying note 18; Fifth Report, supra note 17, at 11 (noting that increased competition led to the modernization of some national fleets).
This is a student blog post and in no way represents the views of the Fordham International Law Journal.