The Hidden Cost of Shipping Your Holiday Package

Dec 19, 2018

Containers coming to Hawaii from a foreign port typically cost significantly less than those coming from a U.S. port.
Credit Pixabay

Pop quiz. If you live in California and want to ship a a holiday gift to friends in Hawaii and Australia, which do you think will cost more? Unless you shell out for next day air delivery, the answer is likely to be the Hawaii route. The reason is an obscure 1920 U.S. shipping law known as the Jones Act.

The Jones Act governs maritime shipping within the domestic United States. In essence, it says that any shipment from one U.S. port to another, it is required to come on a ship built in the United States, owned and operated by an American company, and crewed by American citizens or residents.

That drives up the cost of shipping according to Michael Hansen with the Hawaii Shippers' Council.  The reason is that ships built in the United States cost approximately five times more than those built in Japan and South Korea, who supply most of the world's cargo ships. Shipbuilders in Asia employ a mass production model that allows them to achieve economies of scale, churning out more ships at a lower price.

The Port of Honolulu is the single point of entry for all container ships coming in to the Hawaiian Islands.
Credit Bernard Spragg / Flickr

American jurisdictions separated from the mainland U.S. get hit the hardest by mandating the use of higher cost American ships. Hawaii, Alaska, Puerto Rico, and Guam of are often refered to as the "non-contiguous territories" by Jones Act hawks. Shipping something to Hawaii from the West Coast can easeily cost 2-3 times the cost of sending the same cargo to Australia. That cost is refelcted in almost everything Hawaii residents buy in brick and mortar stores.

That was the case for the Kauai-based Koloa Rum Company. Koloa Rum's President and CEO Bob Gunter told HPR that when he needed to send a container of rum to Australia, he needed to first send it to Los Angeles. The Hawaii to L.A. leg cost him $5,900. From Los Angeles to Sydney, Australia cost him only $1,900.

Most economists agree that Jones Act is the type of protectionist measure that helps a particular interest group at the expense of everyone else. In this case it’s the U.S. domestic ship building and shipping industries that benefit. But we are unlikely to see a change to the law anytime soon.

 

Kauai-based Koloa Rum Company is growing its own supply of sugar, the main ingredient for rum, but it still imports bottles and packaging from the U.S. mainland.
Credit Koloa Rum Company

  The members of Hawaii’s delegation to Congress have historically opposed any changes to the Jones Act.  Senators Brian Schatz and Maisie Hirono and have both expressed opposition to repealing or modifying the law, as has Congresswoman Tulsi Gabbard.

 

They have argued that maintaining a domestic shipbuilding industry is a national security imperative – and that changes to the Jones Act could impact hundreds of thousands of jobs around the country.

 

During the 2018 campaign the delegation’s newest member, Congressman-Elect Ed Case, expressed support for some kind of update to the 98 year old law.

 

Watch full talks from the Cato Institute conference here.