News / Is A Controversial Shipping Law Swaying Gas Prices?

Is A Controversial Shipping Law Swaying Gas Prices?

29 July 2022 - by - in Industry News
Controversial Shipping Law

Large ship with 2 loading cranes and cargo.

The past couple of years has hit the shipping industry hard. One of the places where this is most apparent is the gas pump. Gas prices are through the roof and a big reason for that is the tumultuous shipping industry. Some people wonder whether or not the Jones Act, a shipping law passed in the early 20th century, has anything to do with this. But what exactly is the Jones Act and how could it be affecting gas prices?

What is the Jones Act?

The Jones Act is a section of the Merchant Marine Act of 1920. The American Congress wanted to help fund a merchant marine for the United States so the country wasn’t so dependent on British and German ships, which had ditched the commerce sector to go to war. The idea was to subsidize shipping companies as long as the country could use the ships during times of war. These ships would be built in the US and owned, operated, and crewed by Americans. During the early and mid-20th century, the United States had a robust shipping industry, with 16% of the world’s cargo fleet sporting a US flag as recently as 1960. Today, only 0.2% of all ships fly a US flag. 

Acts like the Jones Act are common around the world. Nearly 80% of international coastlines have domestic shipping restrictions like the Jones Act, which are also known as cabotage laws. However, the United States may have sabotaged its own plan of having a strong US shipping industry that could serve the country in times of war. This is due to the stringy requirements and the lack of federal funding. 

Could Waiving the Jones Act Lower the Cost of Fuel?

Is it possible that waiving the Jones Act would result in lower fuel costs? Expert opinions differ. A JP Morgan report found that it would shave 10 cents off the price at the pump. However, the American Maritime Partnership found that waiving the law would account for less than one cent off the price. 

Even if we take JP Morgan’s higher estimate into account, the monthly savings for Americans isn’t drastic. Yes, gas prices are through the roof, but according to JP Morgan’s report, waiving the Jones Act would save the typical American driver a whole $4 per month. So while waiving the Jones Act would technically lower fuel costs, the savings are marginal. 

What are Some Other Solutions?

There are some solutions we need to consider. Waiving the Jones Act and limiting the export of fuel would ensure Americans across the country have access to US oil. Sure, the US oil reserves are reaching historic lows, but the Gulf Coast is exporting more fuel than ever to regions like Europe and Latin America. The Northeast, which has limited refining capacity, imports fuel internationally while the Gulf Coast provides the lion’s share of domestic energy. 

While the Biden administration has considered limiting US oil exports, this action on its own would more than likely increase the global cost of fuel. There aren’t enough Jones Act tankers to move the gasoline to places like the Northeast. But, waiving the Jones Act and limiting exports could lure tankers from all over the world to move fuel within the United States. This would increase the oil supply, making fuel cheaper. 

The United States also has an infamously diminishing refinery capacity. Refining is seen as a low-margin, unattractive business, which is one reason why it costs so much to import oil. If refineries could process US oil, it could make the economics of refineries more appealing. More affordable maritime shipping could also divert freight from rail and trucks to ships.

We’re Ready to Help With Your Shipping Needs

If you’re looking for a freight shipping company to help with your complex logistic needs, our team at Trifecta Transport is ready to help. We can help plan your time-critical shipping needs, ensuring you receive or ship the products you need in a timely and affordable manner. Contact us today to find out what it is we can do for you and your needs!