The Government Accountability Office Wednesday released a report on shipping between Puerto Rico and the United States and possible modification of the Jones Act requirement that vessels participating in the trade be registered in the United States, crewed by U.S. citizens, and built in a U.S. shipyard.
The report, prepared at the request of Pedro Pierluisi, Puerto Rico’s representative in the U.S. House, said “Shippers doing business in Puerto Rico that GAO contacted reported that the freight rates are often—although not always—lower for foreign carriers going to and from Puerto Rico and foreign locations than the rates shippers pay to ship similar cargo to and from the United States, despite longer distances.”
However, the congressional watchdog agency added “data were not available to allow us to validate the examples given or verify the extent to which this difference occurred. According to these shippers, lower rates, as well as the limited availability of qualified vessels in some cases, can lead companies to source products from foreign countries rather than the United States.”
GAO also noted “average freight rates of the four major Jones Act carriers in this market (Horizon, Sea Star, Crowley and Trailer Bridge) were lower in 2010 than they were in 2006, which was the onset of the recent recession in Puerto Rico that has contributed to decreases in demand.”
GAO said the effects of modifying the application of the Jones Act for Puerto Rico are highly uncertain, and various trade-offs could materialize depending on how the Act is modified.
"Under a full exemption from the Act, the rules and requirements that would apply to all carriers would need to be determined. While proponents of this change expect increased competition and greater availability of vessels to suit shippers’ needs, it is also possible that the reliability and other beneficial aspects of the current service could be affected. Furthermore, because of cost advantages, unrestricted competition from foreign-flag vessels could result in the disappearance of most U.S.-flag vessels in this trade, having a negative impact on the U.S. merchant marine and the shipyard industrial base that the Act was meant to protect,” GAO said.
GAO noted instead of a full exemption, some stakeholders advocate an exemption from the U.S.-build requirement for vessels. According to proponents of this change, the availability of lower-cost, foreign-built vessels could encourage existing carriers to recapitalize their aging fleets.
But it said Sea Star has recently ordered two new U.S.-built vessels for this trade.
Speaking at the Jacksonville Port Authority’s 2013 Logistics & Intermodal Conference on Tuesday, John P. Hourihan Jr., senior vice president and general manager for Puerto Rico and Caribbean at Crowley Maritime Corp., said his company plans to replace its triple-decker barges with lift-on/lift-off ships at a total estimated cost of $500 million, which includes the vessels, modifying equipment and terminals enhancements. He said the triple-deck barges were near the end of their useful life – as was most of the other tonnage used in the trade.
Horizon has also recently refurbished its ships in the Puerto Rico trade.
A change could encourage new carriers to enter the market, GAO said, but it also noted that as with a full exemption, an exemption from the requirement that ships be built in U.S. shipyards “could also reduce or eliminate existing and future shipbuilding orders for vessels to be used in the Puerto Rico trade, having a negative impact on the shipyard industrial base” in the United States that the Jones Act was meant to support. - Chris Dupin