By John Reeve
August 7, 2018 at 5:00 am ET
Over the past year, Puerto Rico has suffered through a prolonged period of recovery from one of the most devastating hurricanes to ever make landfall on the island. The costs were and continue to be astronomical as the 3.4 million U.S. citizens in Puerto Rico rebuild their homes and businesses, and ongoing efforts to repair the electrical grid and damaged infrastructure also continue.
In the immediate wake of the storm, however, media pundits and others claimed that the Jones Act was to blame for driving up shipping costs and the cost of consumer goods on the island, and that the act essentially held Puerto Rico hostage, impeding the island’s ability to trade with non-U.S. sources. All of these claims are not supported by the facts.
First, the Jones Act requires that all goods transported between Puerto Rico and the U.S. mainland be carried on U.S. flag vessels; however, the act does not preclude foreign vessels from calling on Puerto Rico. In fact, foreign vessels delivering cargoes directly from foreign countries account for 57 percent of port calls to the island. Clearly, shippers in Puerto Rico have multiple options for trading partners and the shipping services to connect with them, both foreign and domestic.
Moreover, there is no “Jones Act” freight rate premium for transporting goods on Jones Act vessels. Over the last five years, Jones Act carriers serving the island have invested over $1 billion in building state-of-the-art, liquified natural gas-powered, fuel-efficient and environmentally friendly container and roll-on/roll-off vessels, updated marine terminals, new fleets of high-capacity containers and trailers, and advanced logistics systems. As a result, Puerto Rican residents benefit from a highly efficient intermodal supply chain that provides cost-effective, fast and direct shipping services that closely integrate Puerto Rico with the mainland’s logistics systems.
Since 2000, and despite critics’ claims to the contrary, U.S. carriers’ ocean freight rates in real terms have not increased, and they continue to maintain very similar — or lower — rates for shipping between the mainland and neighboring islands of Puerto Rico, including the U.S. Virgin Islands, Haiti and the Dominican Republic.
Consequently, the Jones Act has minimal, if any, impact on either retail prices or the cost of living in Puerto Rico. To prove this point, one may simply visit the web offerings of a retailer such as Walmart Inc. and compare the price of the same goods as sold in San Juan and mainland stores such as in Jacksonville, Fla. This investigation will find no real difference in the price of those goods, including foodstuffs, apparel and durable goods, between Puerto Rico and the mainland.
One reason is that the cost of ocean shipping is a very minor portion of the total cost of goods sold in Puerto Rico. For example, ocean shipping costs account for just 2 percent of the retail price of a can of chicken noodle soup as sold by Walmart in San Juan. And, as the price of the can of soup is the same in Puerto Rico and Jacksonville, the retailer appears to consider that the shipping must be an insignificant contributor to the retail price.
However, without the Jones Act providing regular, fast, environmentally friendly and cost-effective shipping to Puerto Rico, there would be a cost. The cost would be felt by the consumers relying on the steady flow of goods to the island; the nearly 1,000 Puerto Rican residents employed by the Jones Act carriers; and the business owners who count on on-time delivery to keep their storefronts open and shelves filled.
Yet, the costs would not stop there. Manufacturers who rely on the accessible and affordable northbound trade route to transport high-valued merchandise to the United States would need to rely on foreign carriers that may not offer the direct and attractive shipping rates of the Jones Act services. This would be devastating to many Puerto Rican employers, producers and manufacturers.
The facts are clear. The true cost of the Jones Act would be a Puerto Rico without it.
John Reeve is the president and founder of Reeve & Associates, a management and economic consulting firm based in Massachusetts that advises organizations in the private and public sectors on strategy development, economic analysis and public policy involving domestic and international transportation and logistics services.
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