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American shipping law doesn’t sail

NEW YORK, June 27 (Reuters Breakingviews) - It cost $2.20 a barrel to ship gasoline from the Gulf Coast to Colombia earlier this month. Yet trying to transport a barrel to New York, roughly the same distance, cost over twice as much according to Argus. That’s thanks to the Jones Act, passed in 1920, which stipulates ships traveling between U.S. ports or on internal waterways must be American made, owned, and operated. With costs rising and some supplies and commodities still facing shortages, the Act is causing more problems than its worth.

The Act still stands partly because shipbuilders punch above their weight in Washington. The relatively small industry – shipyards contribute about $42 billion to U.S. gross domestic product – operates primarily in coastal states, and they have lots of sway with their lawmakers. Labor unions often point to bad working conditions and pay on foreign vessels. Plus, shipping costs are shouldered by many in the industry – including American consumers – but the benefits are felt by just a handful of shipbuilders. So the industry is invested in seeing that the favoritism doesn’t change.

But as inflation spikes, the distortions caused by the Act become glaringly problematic. For example, the liquefied natural gas market is under particular pressure as Russia’s war with Ukraine continues, and New England states import LNG to produce electricity every winter. Rather than bringing it up from Maryland, the area gets shipments from the Caribbean and even Russia. That’s because the U.S. ship industry doesn’t build LNG carriers, so American gas can only come into the area through a pipeline or run afoul of the rule.

More broadly, an American-built coastal container ship costs six to eight times the price of an overseas one, and coastal ships carry about half as much as they did in 1960, even though the economy is far larger. Repealing the Act could generate up to $135 billion of U.S. economic output in total, mainly by benefiting other industries, estimated the Organisation for Economic Co-operation and Development in 2019. With inflation becoming a bigger problem, particularly in the shipping business, that will likely continue to increase.

Adding tankers could remove freight off roads, helping congestion. Plus ships are more fuel efficient than trucks. The key to repealing or reforming the Act is convincing other lawmakers of the ancillary financial benefits. Despite the relatively small contribution to GDP, the Act imposes hefty costs on the U.S. economy, which is over 400 times bigger. It’s time for shipping to set sail from its Jones Act constraints.

The price of transporting gasoline from Houston to New York via a Jones Act compliant tanker was $4.66 per barrel on June 10 according to Argus. The cost of shipping gasoline from the U.S. Gulf Coast to Pozos, Colombia, which is a similar distance, was $2.19 per barrel on the same date.

This article originally appeared on Reuters

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