The Jones Act and International Maritime Markets

IssueJones Act MarketInternational Market
Vessel ownershipUS Ownership (minimum 75%)Any (large shipping companies)
Vessel registrationUSAAny (flags of convenience)
ShipyardUS LocatedAny (mainly Asia)
Vessel crewUS citizensAny (developing countries)
Vessel typeMostly coastal and riverMostly deepsea
Vessel trading privilegeCabotage within USAInternational shipments
Legal jurisdictionUS Federal CourtCountry of registration
TaxationUS corporate taxation systemMostly offshore
Barriers to entryVery highLow
CompetitionStatutory protection against foreign competitorsIntensive / Oligopolistic

Source: adapted from B.M. Karatzas (2009) “A Primer on Leasing Transactions in the International Maritime Sector”, Journal of Equipment Lease Financing, Vol. 27, No. 3, pp. 1-8.

The Merchant Marine Act was implemented in 1920 to regulate maritime commerce between American ports. Section 27 of this act is known as the Jones Act, which regulates cabotage and is under the jurisdiction of the US Coast Guard (and thus of the US Federal Court). The above table resumes the main requirements of the Jones Act. Cargo transported between American ports must be carried by vessels of US ownership (minimum of 75% ownership), built and registered in the United States, and manned by American citizens (or permanent residents). Shipping companies abiding by these requirements are able to service the domestic American market, which also includes Hawaii, Alaska, and Puerto Rico, and receive statutory protection against foreign competitors. The purpose of the Jones Act is to protect portions of the American maritime industry (shipbuilders, operators, and labor) and maintain a fleet under direct American control, which addresses some national security concerns. The Jones Act is also subject to controversy. It creates very high barriers to entry, increases cabotage costs, and reduces competition (oligopoly and rate fixing). It thus may have benefited land transportation modes, particularly rail, to the detriment of short sea shipping networks.