The Jones Act and Puerto Rico: Government and Economic Implications

The Merchant Marine Act of 1920, commonly called the Jones Act, imposes federal maritime shipping requirements that directly shape Puerto Rico's import costs, government fiscal capacity, and economic structure. This page covers the statute's core provisions, the mechanisms through which it affects the island's supply chain, the regulatory positions of federal and territorial government bodies, and the policy boundaries that define the ongoing debate. Puerto Rico's status as a non-contiguous U.S. territory without statehood makes its exposure to the Jones Act structurally distinct from that of the 50 states.

Definition and scope

The Jones Act (46 U.S.C. § 55102) requires that goods transported by water between two U.S. ports be carried on vessels that are U.S.-built, U.S.-owned, U.S.-registered, and crewed by U.S. citizens or permanent residents. The statute applies to all U.S. coastal and interisland shipping, but its economic weight falls disproportionately on Puerto Rico because the island is entirely dependent on maritime freight for its import supply — there is no land bridge to the continental United States.

Puerto Rico receives approximately 75 to 80 percent of its imported goods through the Port of San Juan, making it one of the highest-volume Jones Act trade lanes in the nation. The U.S. Government Accountability Office (GAO) has analyzed Jones Act shipping costs in multiple reports, including GAO-13-260 (2013), which found that Puerto Rico shippers faced higher freight rates compared to nearby non-U.S. Caribbean islands served by foreign-flagged vessels.

The scope of the law covers:
1. Vessel construction — ships must be built in U.S. shipyards
2. Vessel registration — ships must fly the U.S. flag
3. Ownership — at least 75 percent U.S.-citizen ownership is required
4. Crew composition — officers and unlicensed crew must meet U.S. citizenship or permanent resident standards

How it works

Under the Jones Act framework, Puerto Rico importers must contract with Jones Act–qualified carriers when shipping from any U.S. mainland port. The two primary carriers serving the Puerto Rico lane have historically been TOTE Maritime and Crowley Maritime. Foreign-flagged vessels, even if cheaper, cannot legally carry cargo between San Juan and, for example, Jacksonville, Florida.

This restriction removes competitive pressure on freight pricing. A foreign-flagged vessel can transport goods from a non-U.S. port (such as a Caribbean transshipment hub) to San Juan — but the same vessel cannot carry goods from Houston to San Juan. The result is a two-tier shipping market: foreign carriers dominate Puerto Rico's import trade from outside the U.S., while a small pool of Jones Act–compliant carriers controls the U.S.-origin freight lane.

The cost differential is absorbed either by Puerto Rican consumers through higher retail prices or by the Puerto Rico government through elevated procurement costs for public services and infrastructure. The Federal Reserve Bank of New York estimated in its 2012 report on the Puerto Rico economy that the Jones Act adds measurable cost burdens to the island's consumer goods prices, though precise aggregate figures are contested due to methodological variation across studies.

The Puerto Rico government's fiscal structure compounds this burden: higher import costs reduce disposable income, compress tax revenues, and constrain the fiscal space available to government agencies for public services.

Common scenarios

Three operational scenarios illustrate how the Jones Act creates divergent outcomes depending on cargo origin and route:

Scenario 1 — U.S. mainland to Puerto Rico (Jones Act applies): A pharmaceutical manufacturer in New Jersey ships drug supplies to a distributor in San Juan. The cargo must move on a qualified Jones Act vessel. Freight rates reflect the limited carrier pool and U.S. shipbuilding cost structures.

Scenario 2 — Foreign port to Puerto Rico (Jones Act does not apply): The same manufacturer ships identical cargo from a facility in Ireland to San Juan. A foreign-flagged vessel can legally carry this shipment. The freight rate may be lower, but the routing is longer and impractical for time-sensitive domestic supply chains.

Scenario 3 — Disaster relief waiver: Following Hurricane Maria in 2017, the U.S. Department of Homeland Security issued a temporary 10-day waiver of Jones Act requirements to allow foreign vessels to carry relief supplies to Puerto Rico. Waivers are authorized under 46 U.S.C. § 501 and require a finding that U.S.-flagged vessels are not available in sufficient numbers or capacity. Waivers are rare and short-term; the 2017 waiver was not extended.

Decision boundaries

The central policy boundary is whether Puerto Rico's non-contiguous geographic status justifies a permanent or structural exemption from Jones Act requirements. This question intersects directly with Puerto Rico's federal relationship and its unresolved political status.

Two contrasting positions dominate federal regulatory debate:

Position Basis Supported by
Maintain Jones Act as applied National security, U.S. maritime industrial base preservation, labor protections U.S. Maritime Alliance, maritime labor unions, domestic shipbuilders
Exempt Puerto Rico or reform coverage Cost burden disproportionate to a non-state territory, economic development impact Puerto Rico government, GAO analyses, economists citing competition policy

The Puerto Rico government's oversight authority under PROMESA — specifically the Financial Oversight and Management Board — has identified Jones Act shipping costs as a structural factor in fiscal recovery modeling. The Board does not have jurisdiction to waive the Jones Act, which is a federal statute outside territorial government authority.

Congressional action would be required to create a permanent Puerto Rico exemption or to reform vessel-build requirements. The broader context of Puerto Rico's government structure — including its lack of voting representation in the Senate and House — limits the island's direct legislative influence over this federal statute.

The Puerto Rico debt crisis has reinforced the economic framing of Jones Act reform: higher consumer prices reduce real wages, compress tax receipts, and increase dependence on federal transfer programs, all of which affect the government's capacity to service debt and fund operations.

References