The Transportation Institute (TI) released a study by Ernst & Young (EY) evaluating the Jones Act and its implications on freight rates, container availability, port congestion, and carrier performance in the Caribbean Region relative to global averages.
Main findings in the Caribbean Region
As the most significant destination for US shipments to the Caribbean, Puerto Rico is a good case for testing the stabilizing effects of the Jones Act on shipping between the continental United States and the Caribbean. Of total trade shipments to the Caribbean from the United States, Puerto Rico constitutes about 41% of total trade with the region.11 Jacksonville to San Juan is the highest volume trade route. Several carriers serve the market, with four main cargo carriers operating north and southbound routes between the continental US and San Juan providing sufficient capacity to meet demand for goods.
#1 Customer experience
- Shippers and business representatives are significantly more satisfied with Jones Act carriers’ ability to navigate the COVID-19 pandemic than non-Jones Act carriers between 2020 and the spring of 2022. Nearly 9 in 10 shippers (88%) indicated that they were “very” or “mostly” satisfied with the Jones Act carriers’ “ease of booking” and “customer service” functionality, whereas only around half of shippers expressed similar levels of satisfaction with non-Jones Act carriers.
- Caribbean shippers were more satisfied with the level of service and resiliency provided in domestic trade lanes. The Caribbean’s region history with natural disasters such as Hurricane Maria and other emergencies have tested the resiliency of shipping carriers. Among shippers, nearly three-fourths said they were “very” or “mostly” satisfied with Jones Act carriers’ ability to meet “urgent change orders” and adapt to “major crisis situations”. Only 42% of the same shippers expressed similar levels of satisfaction with carriers operating on non-protected lanes, and less than one-third of shippers thought that non-Jones Act carriers’ crisis performance was satisfactory.
#2 Freight rates and stability
- Within the Caribbean region, EY’s survey indicates rate increases on domestic routes the prior three years are comparable to rate increases on other Caribbean routes. According to EY’s survey of 49 shippers, company representatives indicated that they generally did not experience higher prices on Jones Act-protected lanes than international routes in the Caribbean, either prior to or during the pandemic.
- Jacksonville to San Juan is the highest volume Jones Act lane for Puerto Rico. For this Jones Act route, rate increases were marginally lower than other comparable Caribbean rate increases. For the Jacksonville to San Juan route, shippers on average reported a 19% increase in freight rates (including fuel and accessorial fees) over the April 2019 to April 2022 period, compared to a 20% increase to Kingston and a 27% increase to Santo Domingo. Since companies generally negotiate two- or three-year contracts with Jones Act carriers, shippers attributed most of the freight rate increases to higher fuel or bunker costs.
- For other Jones Act lanes, price increases were generally similar to other Caribbean routes. Freight rate increases from Philadelphia and Houston have been similar to San Juan, Santo Domingo, and Kingston. For example, shippers from Philadelphia to San Juan reported a 27% increase in rates since the pandemic, which was lower than a 33% increase in Santo Domingo. However, southbound rates from Philadelphia rose more steeply to San Juan (27%) than to Kingston (20%).
#3 Port congestion and availability of chassis and containers
- Dwell times for domestic lanes were lower than international lanes during the pandemic. While there has been an overall general decline in service reliability during the pandemic, the impact of port congestion on turnaround time has not been uniform across ports in the Caribbean and dwell time for container ships on non-Jones Act protected routes have grown more rapidly than Jones Act routes. For example, median days in port increased by 40% in Kingston compared with 35% in Santo Domingo and 24% in San Juan between January 2019 and July 2021.
- Availability of chassis and containers were more reliable in domestic trade lanes than in international lanes. Representatives identified more issues on non-Jones Act lanes, with more than 1 in 3 shippers to Santo Domingo experiencing trouble getting containers compared to 1 in 4 shippers to Kingston. By contrast, fewer than 1 in 7 shippers to San Juan experienced issues with containers or chassis.
- Underscoring the difficulty with rotating containers on trans-Atlantic and trans-Pacific routes, non-Jones Act carriers serving the three continental US ports had the largest issues with both containers and chassis. More than 60% respondents said they experienced trouble finding available containers from Jacksonville, with 58% of businesses shipping out of Philadelphia and 45% out of Houston citing container availability as a problem.
#4 Economic contributions due to Jones Act shipping industry operations in Puerto Rico
- Annual operations of the Jones Act shipping industry in Puerto Rico in 2021 directly supported an estimated 1,055 workers with payroll of $53 million, value added of $62.2 million and direct economic output of nearly $120 million.
- Jones Act shipping supported jobs in other industries as purchases were made from Puerto Rican suppliers and shipping workers spent money at restaurants, grocery stores, and other businesses in Puerto Rico. The Jones Act shipping industry is associated with an additional 972 jobs in other sectors of the Puerto Rican economy.
- Including indirect and induced contributions, the total annual economic contributions of the Jones Act shipping industry in Puerto Rico is estimated at 2,027 total jobs supported, nearly $96 million of labor income, $130 million in value added (GDP) contributions and $221 million of annual gross economic output.
- The two largest Jones Act carriers have invested nearly $1 billion to serve Puerto Rico trade since 2014, including major capital investments in the world’s first LNG-powered containerships and related assets and infrastructure. Between 2019 and 2021, capital expenditures of $18 million by the cargo carriers in buildings and equipment supported an estimated 58 jobs each year in Puerto Rico. Workers earned an estimated $8.6 million in labor income and supported $11.7 million of total value added and $19.8 million in economic output.