Oil and the Ghost of 1920
The surge of new American shale oil heading down pipelines to the Gulf Coast will do two things:
It will depress oil prices at points along the route, presenting a big opportunity for refineries and consumers to enjoy a windfall of cheaper fuel.
And it will test a protectionist shipping law that may impede these gains. Most people probably have never heard of the Jones Act. It is either essential for national security or a vast barnacle on the hull of U.S. growth, depending on your point of view.
The Jones Act, known formally as the Merchant Marine Act of 1920, requires that any shipment from one U.S. port to another be carried on vessels built in the U.S., owned by U.S. citizens, and operated by a U.S. crew. The restrictions, in part, reflected Washington’s post-World War I desire to have a guaranteed merchant marine.
But there’s a price for that. The law can drive up the cost of coastal and inland shipping, push traffic onto rail and trucks, and create other dislocations.
“You have to ask what’s good for the country,” says Tom Allegretti, the CEO of American Waterways Operators, a trade group for ship owners. The Jones Act, he says, boosts the economy by keeping roughly 74,000 maritime jobs in the U.S., helps national security by making a fleet available for the military, and assures homeland security by keeping transportation in the hands of U.S. citizens.