BY MICHAEL HANSEN – Puerto Rico’s sole delegate to the U.S. Congress, Representative Pedro Pierluisi, announced that he introduced legislation that would create a limited exemption from the U.S. build requirement of the Jones Act allowing foreign-built ships to transport bulk cargoes the domestic Puerto Rico trade.
The Jones Act (Section 27 of the Merchant Marine Act of 1920) requires that vessels must be U.S.-built, U.S.-flag, U.S.-owned, U.S.-crewed and U.S.-operated to transport cargo between domestic points within the U.S. Puerto Rico is considered a domestic place for purposes of the Jones Act.
Rep. Pierluisi’s legislation, he “Puerto Rico Interstate Commerce Improvement Act 2013,” responds directly to the Government Accountability Office (GAO)’s report “Characteristics of the Island’s Maritime Trade and Potential Effects of Modifying the Jones Act” (GAO-13-260), issued on March 14, 2013.
The GAO report identified a shortage of Jones Act qualified ships available to transport liquid and dry bulk cargoes from the U.S. mainland to the Commonwealth of Puerto Rico, which can be relieved by allowing foreign built ships into the Puerto Rico trade.
Rep. Pierluisi’s legislation intends to facilitate movement of critical commodities from the U.S. mainland to the island territory. The kinds of commodities that would move under this legislation include dry bulk cargos such as feed grains and fertilizers to support the agricultural sector and liquid bulk cargoes especially refined petroleum products such as motor gasoline, diesel fuel, and jet fuel.
In addition, Rep. Pierluisi wishes to support the conversion of the island’s electrical production from oil to gas fired, which would be greatly assisted by accessing domestic Liquid Natural Gas (LNG) from the U.S. Gulf Coast. As there are no LNG carriers in the Jones Act fleet and none have been built in the U.S. since the 1970’s, allowing foreign built LNG carriers in the Puerto Rico trade is integral to those plans.
Currently a significant proportion of these bulk commodities are imported from foreign sources outside the U.S. despite their higher cost because of the lack of Jones Act qualified shipping to bring these commodities from the U.S. mainland.
This extent of this import substitution is ironic given Puerto Rico’s geographic location in the Caribbean Sea in relatively close proximity to the largest concentration of U.S. oil refineries on the Gulf Coast and the gateway to America’s agricultural heartland at the mouth of the Mississippi River that should benefit Puerto Rico’s economy.
A primary reason for the shortage of Jones Act bulk carriers for dry bulk cargoes and tankers for petroleum products is the extraordinary high cost of deep draft ship construction in the United States that is four to five times the cost of comparable ships built in Asian shipbuilding yards in Japan and South Korea. In comparison to Jones Act trades, the world is actually well supplied with efficient modern tonnage.
Rep. Pieluisi’s legislation would partially relieve this bottleneck by allowing foreign built ships operating U.S. flag to carry domestic bulk cargoes to Puerto Rico
Rep. Pierluisi is officially known as the Resident Commissioner of Puerto Rico to the U.S. Congress, serves the only four-year term in the U.S. House of Representatives and was reelected to another term in 2012.
The Hawaii Shippers Council supports Rep. Pierluisi’s legislation as a first step to exempting all the noncontiguous trades – Alaska, Guam, Hawaii and Puerto Rico – from the U.S. build requirement of the Jones Act for all deep draft ships.
Michael N Hansen is the President of the Hawaii Shippers Council, a business league organization incorporated in 1997 to represent cargo interests – known as “shippers” – who tender goods for shipment with the ocean carriers operating the Hawaii trade.
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A copy of the “Puerto Rico Interstate Commerce Improvement Act of 2013” is attached as HSC-518
Representative Pedro Pierluisi’s Congressional Website
Pierluisi Introduces Jones Act Reform Legislation for Puerto Rico
July 25, 2013
Washington, DC—Resident Commissioner Pedro Pierluisi today introduced the Puerto Rico Interstate Commerce Improvement Act of 2013, which would amend Section 27 of the Merchant Marine Act of 1920, commonly known as the Jones Act, in order to increase the number of maritime vessels that would be able to transport energy supplies, agricultural products and other bulk cargo between ports in the U.S. territory of Puerto Rico and other U.S. ports.
The legislation is based on findings made by the U.S. Government Accountability Office (GAO), the non-partisan investigative arm of Congress, in a March 2013 report prepared at the Resident Commissioner’s request.
The Jones Act requires that maritime transportation of cargo between ports in the United States be carried on vessels that are owned by U.S. citizens and registered in the United States, built at shipyards located in the United States, and operated with predominantly U.S. citizen crews.
“The GAO report indicates that there are insufficient Jones Act-qualified bulk cargo vessels to meet current and future demand in Puerto Rico for certain products, such as energy supplies and agricultural inputs. As a result, there is a well-founded concern that the Jones Act is hindering domestic maritime commerce in the case of Puerto Rico. This hurts businesses and consumers in both the 50 states and the U.S. territory of Puerto Rico. That is why I am introducing this targeted bill,” said Pierluisi.
The Resident Commissioner’s legislation would allow vessels built outside of the United States to transport bulk cargo between ports in Puerto Rico and other ports in the United States. Vessels would still be required to meet all safety standards established by the U.S. Coast Guard.
“In effect, my bill relaxes a component of the Jones Act—the U.S.-build requirement—for particular vessel types operating in the Puerto Rico trade, namely self-propelled ships and tankers that transport bulk cargo, including liquified natural gas, liquified propane gas, jet fuel, gasoline, oil, chemicals, and agricultural products like fertilizer and animal feed. The goal is to enable customers in Puerto Rico to source these products in a more efficient and less expensive way from suppliers in the United States, rather than being compelled to purchase these products from foreign countries, which the GAO found is often the current practice. This, in turn, would help lower prices for consumers in Puerto Rico,” said Pierluisi.
The Resident Commissioner’s legislation places special emphasis on energy. The GAO report indicates that there are not enough Jones Act-compliant vessels available to transport refined petroleum and gas products from the U.S. mainland to Puerto Rico to meet current and emerging demand and, as a result, companies in Puerto Rico are importing most fuel from foreign countries like Venezuela rather than from refineries in the United States.
In addition, Pierluisi noted that the U.S. has recently emerged as the top producer of natural gas in the world, with natural gas being produced in over 30 states. In the 48 contiguous states, natural gas is distributed to power plants by a network of pipelines. By contrast, Puerto Rico continues to generate most of its electricity from imported foreign oil, which is more expensive and environmentally harmful as compared to natural gas.
“Because of Puerto Rico’s excessive reliance on oil, Island households and businesses are paying twice as much for electricity as the U.S. national average. The high cost of electricity strains family budgets and is regularly cited as the main burden facing current and prospective Island businesses. Efforts to convert more of Puerto Rico’s power plants from oil to natural gas cannot be fully realized unless Puerto Rico can gain access to natural gas produced in the U.S. mainland. Because of its geographic location, of course, Puerto Rico can only obtain this gas via ship, not pipeline,” said Pierluisi.
“Therefore, my bill would enable foreign-built vessels to transport liquefied natural gas and other fuels from the U.S. mainland to Puerto Rico. This will benefit energy producers in the states, who will gain access to an important new U.S. market and make a positive contribution to their local economies. It will also provide a direct benefit to consumers in Puerto Rico, who will see their electricity bills decrease,” added the Resident Commissioner.