The Jones Act: Still A Costly Obstacle to Efficient Gasoline Supply
The Jones Act—a 106-year-old maritime law requiring goods shipped between U.S. ports to travel on U.S.-built, owned, and operated vessels—is a severely outdated and costly burden on the American economy. I have written about this before here, here, and here. Recent developments in California’s gasoline supply chain highlight just how damaging the policy can be.
California already struggles with high gasoline prices, and the Jones Act is making them worse. The Jones Act requires that any ship going from one U.S. port to another U.S. port (including places like Alaska, Hawaii, and Puerto Rico) can only be a ship that is owned, been constructed, crewed, and flagged in the United States. Those ships are known as Jones Act-compliant ships. Because the United States has been so incompetent in terms of shipbuilding, Jones Act-compliant ships cost four to five times more than non-Jones Act-compliant ships, making the cost of using a Jones Act-compliant ship so outrageously expensive, it’s almost never economical to use.
Therefore, because of the Jones Act restrictions, gasoline refined on the U.S. Gulf Coast simply cannot economically be shipped to California using Jones Act-compliant ships. Instead, it is often shipped to the Bahamas first before eventually reaching California -- because it is actually cheaper to ship the gasoline to the Bahamas, do more refining there, and then reship the gasoline through Panama to California than it is to actually find a Jones Act-compliant ship that can just take it the short distance from the Gulf Coast to California. It must be noted that there are only about 55 U.S.-flagged, Jones Act-compliant oil tankers available worldwide compared with more than 7,000 foreign vessels; because Jones Act-compliant ships are so expensive, they need to charge excessive amounts to cover their costs and therefore can only be used in the most limited circumstances.
The problem in California is magnified by the state’s shrinking refining capacity resulting from excessive environmental regulatory rules and compliance costs. As refineries close and no pipeline connects the Gulf Coast to the West Coast, California has become increasingly reliant on imported gasoline. The Jones Act compliance absurdity actively prevents domestic oil from being shipped from the nearby Gulf Coast to the West Coast and instead is increasingly imported from a foreign country.
The result is predictable: Californians pay more at the pump for fuel that faces unnecessary delays and inflated shipping costs. Though the law was an ill-advised but relatively small attempt at protectionism 100 years ago, today it serves no purpose beyond providing crony benefits to a small segment of the shipping industry at the public’s expense.
It’s time to repeal the Jones Act. A modern energy market requires efficient supply chains and flexible transportation. Instead, this outdated law drives up costs for consumers and weakens the very system it was meant to protect.