Jones Act Domestic Shipping Ports

The Jones Act and Domestic Shipping: Port Finance Implications

The Jones Act is one of the most enduring and consequential pieces of U.S. maritime legislation—and one of the most controversial. Originally enacted as Section 27 of the Merchant Marine Act of 1920, the Jones Act requires that all goods shipped between two U.S. ports be carried exclusively on vessels that are U.S.-built, U.S.-flagged, U.S.-owned, and U.S.-crewed. For coastal ports, particularly those serving non-contiguous states (Hawaii, Puerto Rico, Alaska, Guam), the Jones Act functions as a critical traffic reserve that underpins bond revenue stability. For mainland container ports, understanding the Jones Act framework is essential to analyzing which cargo streams face protected versus international competition.

This article examines the Jones Act's structure, its impact on cargo flows and shipping economics, the ports that benefit most from its protections, and the ongoing policy debate surrounding its reform or repeal.

Disclaimer: AI-generated analysis, not investment, financial, or legal advice. Consult qualified legal counsel for specific statutory interpretations.

Changelog
2026-02-23 — Initial publication.

Introduction: What Is the Jones Act?

The Jones Act, formally Section 27 of the Merchant Marine Act of 1920 (46 U.S.C. § 55102), is a protectionist statute that reserves all coastwise (domestic port-to-port) cargo to U.S.-built, U.S.-flagged, U.S.-owned vessels with U.S. crews. The original 1920 legislation was motivated by three policy objectives: (1) preserving a domestic maritime industrial base and shipbuilding capacity as a strategic national defense asset, (2) maintaining employment in the U.S. merchant marine and related industries, and (3) ensuring that the economic value of domestic trade remained within the United States.

The statute applies strictly. A foreign-built ship cannot qualify for Jones Act service even if it later becomes U.S.-flagged, U.S.-owned, and U.S.-crewed. The four requirements must be met simultaneously: (1) built in a U.S. shipyard, (2) flying the U.S. flag, (3) U.S. majority-owned (at least 75% U.S. ownership), and (4) crewed by U.S. citizens. Violation of the Jones Act is a federal offense; ships found carrying domestic cargo without compliance face fines and seizure.

For port finance professionals, the Jones Act is significant because it creates a "captive traffic" environment for certain routes and cargo streams. Non-contiguous ports (Hawaii, Puerto Rico, Alaska) depend almost entirely on Jones Act vessels for U.S. trade, which creates revenue stability but also cost pressures for consumers and businesses in those markets. Mainland ports must understand which of their container, breakbulk, and bulk cargo flows qualify as "domestic" (Jones Act-protected) versus "international" (open competition).

The Four Jones Act Requirements: Definition and Scope

1. U.S.-Built Requirement

A vessel must be constructed in a U.S. shipyard. The Maritime Administration (MARAD) under the U.S. Department of Transportation administers this definition. The requirement is strict and retroactive: if a ship was foreign-built but later purchased and flagged as U.S., it still cannot carry Jones Act cargo, even if every other requirement is met. This creates a durable barrier to entry for foreign shipyards, as foreign operators cannot recycle or repurpose foreign-built hulls into Jones Act service.

The commercial consequence is that U.S. shipyards command a premium price for Jones Act newbuilds. A modern Jones Act container feeder (1,000–2,500 TEU) built in the U.S. typically costs $300–$500 million, compared to $80–$150 million for the same vessel built in a foreign yard (China, South Korea, Japan). This cost premium directly drives up operating expenses for Jones Act operators and is ultimately reflected in higher shipping rates to consumers in non-contiguous markets.

2. U.S. Flag

The vessel must be documented with the U.S. Coast Guard under the U.S. flag. This is a formal registration requirement and is straightforward to maintain. However, once documented under the U.S. flag, the ship is subject to U.S. maritime law, labor laws (including the Fair Labor Standards Act), and other domestic regulations that do not apply to foreign-flagged vessels.

3. U.S. Ownership (Majority Control)

The vessel must be at least 75% U.S. citizen-owned. This requirement ensures that control and economic benefit remain with U.S. persons or entities. Foreign investors can hold up to 25% ownership stakes in Jones Act vessels, but effective control must rest with U.S. citizens or U.S. corporations.

4. U.S. Crew

Officers and crew must be U.S. citizens (or long-term U.S. resident aliens in some cases). The vessel must comply with collective bargaining agreements under the National Labor Relations Act, and crews typically belong to maritime unions such as the Seafarers International Union (SIU) or Masters, Mates & Pilots (MMP). These union agreements specify wage scales (often $4,000–$8,000+ per month for ordinary seamen, substantially higher for officers), which adds significantly to the operating cost structure.

Domestic Trade Routes and Port Beneficiaries

Which Routes Are Protected?

The Jones Act applies to all shipments between two U.S. ports, including movement between the continental United States, Alaska, Hawaii, Puerto Rico, and other U.S. territories (Guam, U.S. Virgin Islands, American Samoa). The statute applies whether the cargo is containerized, breakbulk, liquid bulk, or dry bulk.

Specific protected trade lanes include:

• East-to-West Coastal: Atlantic Coast ports (PANYNJ, POLA, Charleston, Savannah) to Gulf Coast and West Coast ports
• Gulf-to-Atlantic: Gulf ports (Port of Houston, Port of Corpus Christi) to Atlantic Coast
• Inter-coastal Routes: Any domestic port-to-port movement of domestic cargo
• Alaska Trade: From West Coast to Anchorage, Juneau, and other Alaska ports; entirely reliant on Jones Act vessels
• Hawaii Trade: From West Coast and Gulf to Honolulu and neighbor island ports
• Puerto Rico Trade: From East Coast and Gulf to San Juan, Ponce, and other PR ports
• Guam and Pacific Territories: All trade with Guam, CNMI, and other U.S. territories in the Pacific

Ports Benefiting Most from Jones Act Protection

The top beneficiaries of captive Jones Act cargo are:

Non-Contiguous Ports: Hawaii (Honolulu/Port of Honolulu handled 8.4M TEUs + domestic breakbulk in FY2024), Puerto Rico (Port of San Juan + others), and Alaska (Port of Anchorage). These ports rely almost exclusively on Jones Act vessels for any connection to the U.S. mainland. The Jones Act creates zero competition from foreign carriers on these routes, ensuring a stable, captive revenue stream.

Mainland Jones Act Hubs: Port of Houston, Port of Los Angeles (for domestic feeder cargo), Port of Mobile, Port of Beaumont, and Port of Orange all handle substantial Jones Act breakbulk and project cargo. Smaller regional ports (such as ports in Puget Sound, the Great Lakes via St. Lawrence Seaway, and inland waterway ports) depend on Jones Act barge and small-ship service for domestic cargo.

The Jones Act Fleet: As of 2025, the U.S. Jones Act merchant marine fleet comprises approximately 180–200 oceangoing vessels (cargo ships, tankers, containerships) and several thousand inland barges. The fleet is dominated by:

• Large integrated carriers (Crowley Maritime, Horizon Offshore, Matson Navigation) operating scheduled service to Hawaii and Puerto Rico
• Tank ship operators serving petroleum and chemical cargoes (Horizon, SeaCube, others)
• Breakbulk/general cargo operators serving Alaska, Puerto Rico, and regional domestic routes
• Container feeder services connecting regional ports and smaller markets

The fleet is aging. The average age of Jones Act oceangoing vessels exceeds 20 years, and the cost of replacing this fleet with new U.S.-built tonnage is estimated at $50+ billion. This creates a chronic renewal challenge for Jones Act operators and an existential strategic issue for the U.S. maritime industry.

Non-Contiguous Markets: Hawaii, Puerto Rico, Alaska, and Guam

Hawaii: The Largest Jones Act Market

Hawaii is the largest non-contiguous market affected by the Jones Act. All cargo arriving in Hawaii from the U.S. mainland (except air freight) must be carried on Jones Act vessels. The primary operator is Matson Navigation Company, which has held near-monopoly or duopoly control of Hawaiian trade for over a century. Matson operates modern containerships (3,000–4,900 TEU) on regularly scheduled service from Los Angeles and Oakland to Honolulu.

The captive nature of Hawaiian trade allows Matson to command premium freight rates. Studies estimate that Jones Act shipping adds 40–60% to the cost of goods moving to Hawaii compared to open-market international rates. For perishables (fruit, vegetables), the premium can exceed 50%. These costs are passed to Hawaiian consumers and businesses, making Hawaii's cost of living substantially higher than the mainland (consumer price index 10–15% above the mainland average).

From a port finance perspective, the Port of Honolulu (managed by the State of Hawaii) benefits from stable, high-volume containerized cargo (8.4M+ TEU annually in recent years) and is unlikely to face competitive displacement from international carriers. However, the political economy of the Jones Act in Hawaii is contentious: consumer advocacy groups and labor unions in Hawaii regularly campaign to exempt Hawaii from the Jones Act, arguing that repeal would lower consumer prices. Congress has periodically considered such exemptions, but shipbuilding interests and maritime unions have successfully blocked any change.

Puerto Rico: The Controversial Waiver Case

Puerto Rico presents the most politically fraught Jones Act case. Puerto Rico was a Spanish colony until 1898 and became a U.S. territory. All cargo arriving in Puerto Rico from the U.S. mainland or other countries must comply with the Jones Act. The principal operator is Crowley Maritime, which maintains scheduled containership service from East Coast ports (particularly Jacksonville, Port Everglades, Port of Houston) to San Juan, Puerto Rico.

Puerto Rico's economy is substantially dependent on trade with the U.S. mainland. Jones Act shipping costs for Puerto Rico are comparable to or exceed those for Hawaii (40–60% cost premium). The cumulative economic impact is severe: Puerto Rico's GDP per capita is approximately $28,000, compared to the U.S. average of $75,000, and the high cost of Jones Act shipping is cited as a contributing factor to Puerto Rico's competitiveness gap and persistent poverty.

Following Hurricane Maria (September 2017), the Trump Administration granted a temporary 10-day waiver of the Jones Act to allow foreign-flagged vessels to carry emergency cargo and supplies into Puerto Rico. The waiver was widely celebrated by Puerto Rico's government and consumer advocates as essential to the hurricane relief effort. However, the waiver was narrowly limited in duration and scope, and Congress did not extend it after 10 days. This episode crystallized the political debate: emergency waiver authority is granted by statute (the President can issue a temporary waiver in case of national emergency), but using that authority remains politically contentious and subject to vigorous opposition from maritime unions and shipbuilding interests.

From a bond investor perspective, Puerto Rico's debt crisis of the mid-2010s (resulting in the Promontory Title III bankruptcy restructuring under PROMESA) was influenced by systemic economic disadvantages, including the Jones Act's cost burden. The Port Authority of Puerto Rico (a territorially-controlled entity) has issued revenue bonds for terminal development, but the port's credit metrics remain constrained by low cargo volumes and limited economic growth.

Alaska: Specialized Jones Act Dynamics

Alaska presents a unique geographic and economic profile. Alaska is the largest U.S. state by land area but has a population of only ~730,000 and a dispersed settlement pattern. Only a handful of ports are reachable by oceangoing vessels (Anchorage/Port of Anchorage, Juneau, Ketchikan, Dutch Harbor). The vast majority of Alaskan community resupply occurs via barge and small-ship service.

Jones Act barge services dominate Alaska's domestic trade. Crowley Maritime and other operators maintain barge convoys hauling fuel, groceries, vehicles, and construction materials to remote Alaskan communities. The Jones Act protects these routes from foreign competition, but given Alaska's geographic isolation, foreign ships would rarely be economically competitive regardless. The Jones Act's practical impact in Alaska is less about blocking foreign competitors and more about enabling the subset of U.S. operators who specialize in the challenging logistics of Arctic and sub-Arctic service.

The Port of Anchorage (operated by the State of Alaska Department of Transportation) handles the bulk of Alaska's international containerized cargo (imports from Asia, exports of seafood and minerals) and is partially insulated from Jones Act pricing pressures because much international cargo is not subject to the Jones Act. However, Alaskan barge services and small-ship feeder service are entirely reliant on Jones Act vessels and the cost structure they support.

Guam and Other U.S. Territories

Guam and the Commonwealth of the Northern Mariana Islands (CNMI) also fall under Jones Act protection for all U.S. domestic trade. Like Hawaii, these territories depend heavily on scheduled service from West Coast ports. The primary operator is Seatrade/COSCO subsidiary service to Guam, though specifics of Jones Act compliance vary. Guam's strategic importance (military presence, location on the U.S. defense perimeter) adds a national security dimension to the Jones Act argument in policy discussions.

Cost Impact and Political Controversy

Quantifying the Jones Act Premium

Multiple economic studies have estimated the cost impact of the Jones Act. A frequently cited study by the Mercatus Center at George Mason University (2012) concluded that the Jones Act increases shipping costs for non-contiguous markets by 40–60% relative to open-market international rates. More recent analysis suggests the range may be 35–55%, depending on cargo type, route, and market conditions.

For Hawaii specifically, this translates to an estimated $1+ billion annual consumer cost burden in higher prices for imported goods. Puerto Rico faces comparable burden relative to its smaller economy. For Alaska, the impact is less quantifiable but still significant, particularly for fuel and food supplies.

The counterargument, advanced by maritime unions and U.S. shipbuilding interests, holds that the Jones Act provides essential support for the U.S. maritime industrial base and seafaring workforce. Without the Jones Act, domestic shipyards would likely cease building oceangoing cargo vessels (they would lack volume), and the U.S. would become entirely dependent on foreign shipyards and foreign mariners. In a national emergency or conflict scenario, the U.S. would lack domestic capacity to maintain merchant marine operations. The economic value of this "insurance" against such scenarios is difficult to quantify but is argued by proponents to justify the consumer cost burden.

Political Debate and Waiver Authority

The Jones Act has been politically contentious since its enactment. Libertarian and conservative economics think tanks (Cato Institute, Mercatus Center, American Enterprise Institute) argue for full repeal. Labor unions and shipbuilding companies argue for preservation. Environmental advocates point out that older Jones Act ships are less efficient than modern international vessels, resulting in higher emissions per ton-mile. Progressives in Congress (particularly from Hawaii and Puerto Rico) have periodically introduced bills to repeal or exempt the Jones Act, but such efforts have consistently failed due to opposition from maritime labor and shipbuilding constituencies.

The statute does grant the President emergency waiver authority. Section 501 of the Merchant Marine Act of 1920 allows the President or the Secretary of Transportation to issue a temporary waiver during a national emergency or proclaimed emergency. This authority has been used sparingly: Hurricane Katrina (2005, Louisiana), Hurricane Maria (2017, Puerto Rico), and COVID-19 supply chain disruptions (2020) saw temporary waivers. However, even emergency waivers face political opposition from maritime unions, and the Trump and Biden administrations have been cautious about exercising this authority broadly.

Recent Policy Trends

As of early 2026, the Jones Act remains unchanged. The Trump administration's 2017–2021 position was generally pro-Jones Act, viewing it as consistent with "America First" protectionist trade policy and beneficial to U.S. maritime workers. The Biden administration has taken a more nuanced stance: while not proposing repeal, it has supported selective waivers for Puerto Rico hurricane recovery and acknowledged the cost burden on non-contiguous communities. Congressional efforts to reform the Jones Act have stalled, and bipartisan consensus on reform remains elusive.

Port Finance Implications for Investors

Captive Cargo as a Credit Positive

For non-contiguous ports, Jones Act protection functions as a credit support factor in bond covenants and investor analysis. The Port of Honolulu, Port Authority of Puerto Rico, and Port of Anchorage all benefit from the certainty that their primary cargo streams cannot be displaced by foreign competition. Rating agencies (Moody's, S&P, Fitch) recognize this as a material credit factor. In the rating methodologies for port revenue bonds, the presence of "captive traffic" or "protected trade lanes" is listed as a favorable factor for credit strength.

Specifically:

• Non-contiguous ports' revenue stability is more predictable than mainland ports serving international competition
• Rate increases (if needed for debt service) face less competitive pressure and have greater pricing power
• Cargo diversion risk is minimal; a shipper cannot simply switch to a foreign carrier on Jones Act routes
• Long-term bond investors in Hawaiian, Alaskan, Puerto Rican, and Guam ports benefit from this structural protection

However, investors should also recognize that the Jones Act can create political risk. A future Congress could repeal or substantially modify the Jones Act, which would expose non-contiguous ports to new competitive pressure and potentially weaken their credit profiles. This tail risk is typically not explicitly priced into bond yields but is acknowledged in rating agency stress scenarios.

Implications for Mainland Ports

For mainland container ports (Port of Los Angeles, Long Beach, Savannah, Newark, Houston), the Jones Act is less directly relevant to overall credit strength because international competition dominates their business models. However, mainland ports do handle domestic Jones Act cargo—particularly breakbulk, project cargo, and regional feeder service. A mainland port's understanding of which revenue streams are Jones Act-protected versus exposed to international competition is important for financial modeling.

For example:

• Container terminal revenues are predominantly international and not Jones Act-protected (containers arriving in Los Angeles from Shanghai are not subject to the Jones Act)
• Breakbulk terminal revenues may include Jones Act domestic cargo (e.g., project cargo moving from New York to Houston)
• Regional feeder revenues (smaller containerships connecting secondary ports) are often Jones Act-protected
• Liquid bulk (petroleum, chemicals) and dry bulk (grain, coal) may include Jones Act volumes, particularly for inter-coastal and Gulf-bound shipments

Port finance professionals analyzing mainland ports should segment their cargo base into Jones Act-protected and internationally competitive components to better assess revenue stability and pricing power for different revenue streams.

DSCR and Rate Covenant Impacts

The presence of Jones Act captive traffic can support higher Debt Service Coverage Ratios (DSCRs) and higher leverage ratios for non-contiguous ports. All else equal, a non-contiguous port with stable captive cargo should achieve higher DSCRs than a mainland port facing international competition and demand volatility. This translates to lower borrowing costs (tighter spreads on revenue bonds) and greater financial flexibility for capital investment.

Conversely, the Jones Act's cost burden on regional economies (particularly Puerto Rico and Hawaii) can indirectly constrain port revenue through lower overall economic activity. If the Jones Act's cost burden suppresses economic growth in Puerto Rico, overall cargo volumes may remain depressed despite the protection from foreign competition. This is evident in Puerto Rico's port performance: despite Jones Act protection, the Port Authority of Puerto Rico has faced stagnant volume growth and declining cargo throughput in recent decades, reflecting broader economic headwinds unrelated to the Jones Act per se.

The Jones Act Reform Debate: Future Scenarios

Full Repeal Scenario

If Congress repealed the Jones Act entirely, the impacts would be substantial and varied:

• Non-contiguous ports: Exposed to foreign competition. Shipping rates would likely decline 40–60%, lowering consumer prices in Hawaii, Puerto Rico, Alaska, and Guam. However, ports would face new competitive dynamics and potential loss of scheduled service if foreign carriers withdrew. U.S.-flagged operators (Matson, Crowley) would likely reduce their fleet investments in new capacity
• U.S. shipbuilding: Oceangoing cargo ship construction would likely cease entirely in the U.S., absent other subsidies or protections. Cruise ship and naval shipbuilding might continue, but commercial merchant vessel yards would close
• U.S. maritime workforce: Employment in the U.S. merchant marine would decline substantially. The argument that this represents a loss of national defense capacity would intensify
• Mainland ports: Little direct impact; international cargo already faces no Jones Act protection

Selective Reform or Exemption Scenario

A more politically feasible path might involve selective exemptions (e.g., for Puerto Rico or Hawaii) while preserving the Jones Act for other routes. This could allow Congress to respond to cost-of-living pressure in specific jurisdictions without dismantling the entire regime. However, such exemptions would be administratively complex and would likely prompt litigation from competing operators.

Modernization Scenario

Another path might involve modernizing the Jones Act to ease the U.S.-built requirement or allow for greater foreign crew participation while preserving the core protection for the U.S. flag and ownership. This could lower newbuild costs and operating expenses while maintaining some level of domestic maritime support. However, maritime unions have historically opposed any easing of the crew requirement, making this path politically difficult.

Investment Implications for Bond Holders

For investors in non-contiguous port revenue bonds, the Jones Act reform debate introduces a medium-term tail risk. A major policy change affecting the Jones Act could alter the credit trajectory of ports like Honolulu, San Juan, or Anchorage. Investors should monitor Congressional activity regarding Jones Act reform and consider the impact on their portfolio's non-contiguous port exposure. However, given the sustained political deadlock on this issue since 2010, the probability of major statutory change in the next 5 years remains low.

Investor Considerations and Risk Factors

Understanding Your Port's Cargo Mix

Before investing in a port revenue bond, determine what percentage of the port's revenue comes from Jones Act-protected cargo versus internationally competitive cargo. For a non-contiguous port like Honolulu or San Juan, nearly all container and breakbulk cargo is Jones Act-protected. For a mainland port like Los Angeles or Savannah, the percentage is much lower. This fundamentally affects the port's revenue stability and pricing power.

Political Risk for Non-Contiguous Ports

Non-contiguous ports carry political risk that mainland ports do not. Hawaii and Puerto Rico have active political constituencies arguing for Jones Act exemption. A future Congress (particularly if Democrats gain control, given that some progressive members support exemption for cost-of-living reasons) could revisit the Jones Act. While full repeal remains unlikely, selective exemptions are possible. Investors should price this risk into their assessment of long-term credit stability for Hawaiian, Puerto Rican, and Alaskan port bonds.

Economic Growth Constraints

The Jones Act's cost burden can suppress economic growth in non-contiguous regions, which indirectly constrains port cargo volumes. Puerto Rico's sustained economic weakness and population loss are attributed in part to high logistics costs stemming from the Jones Act. While the Jones Act itself may create captive traffic, the broader economic stagnation in the region can offset this benefit. Investors should assess not just the Jones Act protection, but the broader economic trajectory of the region served by the port.

Fleet Age and Renewal Risk

The Jones Act fleet is aging, and the high cost of U.S.-built replacement vessels creates renewal risk. If key operators (Matson, Crowley) cannot justify investing in new U.S.-built tonnage, they may allow their fleets to age further, increasing the risk of service disruptions or capacity constraints. For ports highly dependent on a single or duopoly operator (Hawaii, Puerto Rico), this concentration risk is material. Service disruptions or withdrawal by a key operator could severely impact cargo volumes and port revenue.

Environmental and Regulatory Risk

The Jones Act fleet includes some older, less-efficient vessels that do not meet modern environmental standards. The International Maritime Organization (IMO) has implemented stricter emissions standards (IMO 2030/2050), and the U.S. has implemented its own environmental regulations. Compliance costs for older vessels can be substantial and may accelerate fleet turnover, further stressing operators' capital budgets. For ports dependent on aging Jones Act tonnage, environmental regulation creates an indirect risk to service continuity.

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