When America First = America Last

This Ruinous American Toll Road Doesn't Show Up On Any Map...

Shipping a barrel of oil from New Orleans to Los Angeles costs more than four times what it does from Houston to London.

Why? 

The answer has nothing to do with oceanography, trade winds, or the relative efficiency of British ports. 

It’s down to a 106-year-old American law that most people have never heard of.

This Benchmark is going to explain why this law exists, how it works in practice, and what it might challenge about your economic assumptions. 

Welcome to the Jones Act.

SCabotage

In 1920, Congress passed the Merchant Marine Act. Buried inside it was Section 27, written by Republican Senator Wesley Jones of Washington State. 

Jones represented a Pacific Northwest economy with a deep interest in protecting its shipbuilding industry, and he embedded in the Act a rule that has remained almost unchanged ever since.

The rule is called ‘cabotage’, and it works like this.

If you want to move cargo by water between two ports in the United States, you must use a ship that meets four specific conditions. It must be:

• Built in the United States.

• Owned (at least 75%) by US citizens or permanent residents.

• Flagged in the United States.

• Crewed by a majority of UScitizens or permanent residents.

No exceptions — unless Washington says so (we will come back to this crucial point). 

The original logic was sound enough, in a post-WWI world. 

The US had spent the Great War in a cold sweat about its dependence on foreign shipping to supply its forces. 

If the next war came, Washington wanted a deep bench of domestically owned and operated vessels it could commandeer. A protected merchant marine was, in effect, a strategic reserve.

Today, the fleet that protection was supposed to build numbers just 56 Jones Act-compliant vessels capable of carrying petroleum between US ports. 

For perspective, the US moves roughly 20 million barrels of petroleum products per day. This would require somewhere in the range of 300 to 400 tankers in continuous rotation.

Made (expensive) in America

Here is how the math works in practice.

A US-built commercial vessel costs roughly four to five times more to construct than an equivalent ship built in South Korea or Japan. 

The Jones Act doesn't just require US-built ships — it has ensured that the US shipbuilding industry, protected from global competition for a century, never needed to become cost-competitive. 

So the ships are expensive, there are very few of them, and the operators who own them have significant pricing power over anyone who needs them.

Moving refined fuel from Texas to Florida on a Jones Act tanker cost roughly $3.29 per barrel in early 2025. 

The same shipment on an international tanker would have run about $1.23 per barrel. 

On a single trade route, that gap generates over $550 million in additional annual costs.

That sounds like a lot, until you consider what happens in Puerto Rico.

Next-level red tape

Puerto Rico is a US territory. It has no land borders. Everything that arrives on the island arrives by air or by sea. 

Under the Jones Act, any ship arriving from another US port must meet all four conditions. 

Since the island's population of 3.2 million is not large enough to justify much investment in a dedicated compliant fleet, Puerto Rico imports most of its goods at international cargo rates — or at the inflated domestic rates whenever Jones Act ships are available.

A 2019 analysis placed the cost to the island's economy at over $1.1 billion a year, with $367 million falling specifically on food and beverages. 

A more recent paper puts the cost to Puerto Rican consumers alone at $692 million a year. 

For a population with a median household income about half that of the mainland, that is not a rounding error.

I’ve explored geographic macroeconomic chokepoints in The Benchmark before.

The Strait of Hormuz controls 20% of global oil flows. 

Qatar controls 40% of global helium exports. 

But this situation isn’t geographical. It’s legal. 

Puerto Rico can’t receive American LNG at all.

There are no Jones Act-compliant LNG tankers in existence. 

The US is the world's largest LNG exporter.

It has major terminals on the Gulf Coast.

And yet it cannot legally ship a molecule of that gas to its own territory by domestic vessel.

New England faces a similar problem. 

During cold winters, the region regularly runs short of heating fuel. 

Pipeline capacity from the Gulf Coast is constrained. 

The obvious solution — ship LNG north by tanker — is effectively unavailable via the domestic route for the same reason: no compliant LNG tankers. 

So what do they do?

New England instead imports LNG from Trinidad and Tobago, or even from Russia in previous years. 

American gas, sold abroad, is sometimes re-imported to American shores because the domestic legal architecture makes the direct route nonviable.

So you can see who loses with the Jones Act. 

Who benefits?

The winners are a small, specific group: 

US domestic shipyards (primarily in the Gulf Coast and Pacific Northwest).

The handful of US-flag carriers who operate compliant vessels.

Maritime unions who negotiate generous wage rates on those vessels.

The portions of the defense establishment that value having a guaranteed domestic fleet available for military requisition.

These are real and not trivial interests. 

Why the government must keep breaking its own law

The Jones Act confesses its own costs every time there is a crisis.

After Hurricane Katrina devastated the Gulf Coast in 2005, the Secretary of Homeland Security waived the Jones Act for 18 days to allow foreign vessels to carry petroleum to affected areas. 

After Hurricane Sandy hit the Northeast in 2012, it was waived again for a week to ease the movement of petroleum products to New York and New Jersey. 

After Hurricanes Harvey and Irma in 2017, the Trump administration issued a seven-day waiver covering Texas, Louisiana, and Florida. 

Each waiver is issued for the same reason; in a supply emergency, there are not enough Jones Act-compliant vessels to move the fuel that people need, and the legal requirement must be suspended to allow foreign ships to fill the gap.

This means that a law that was built to guarantee a robust domestic merchant marine, ready for emergency logistics, is suspended every time there is an actual emergency.

The fleet it was supposed to build is too small to do the job. 

The waiver record is a recurring admission by the government that the Jones Act creates fragility in exactly the situations it was designed to prevent.

This is not just an American thing

Cabotage laws exist across most of the world, and the Jones Act is not even the most extreme version. 

Australia's coastal trading regime requires foreign vessels to obtain temporary licenses to operate domestically — licenses that domestic operators can challenge and block, making the system nearly as restrictive in practice as the US model. 

Brazil's cabotage rules reserve coastwise shipping for Brazilian-flagged vessels, and while the country has invested heavily in expanding its domestic fleet, the cost premium over international shipping remains significant. 

China maintains strict coastal shipping restrictions as a matter of both economic and national security policy, reserving its enormous internal waterway and coastal trade entirely for Chinese-flagged carriers.

Strangely, the European Union offers a contrast. 

The EU liberalised its intra-community maritime trade in 1993, allowing any EU-based shipping company to operate coastal routes within any member state — not just their own. 

The result is a competitive, multi-operator market that keeps capacity flexible and prices lower than they would be under a single protected domestic fleet. 

The EU fleet today represents 35% of global tonnage despite the bloc accounting for only 15% of global GDP — a direct consequence of competition rather than protection.

Not all chokepoints show up on a map.

Why Germany holds the keys to the AI arms raceThis week's quote:

“If the highest aim of a captain were to preserve his ship, he would keep it in port forever.”  

— Thomas Aquinas

Invest in knowledge,

Thom

The Benchmark

Read more: Why Germany quietly controls the keys to the AI arms race.

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