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To Promote Competition, Deregulate

 |  July 30, 2021

By: Anne O. Krueger (Project Syndicate)

US President Joe Biden recently issued an executive order calling on regulators to “further competition” in the shipping and rail industries, among others, because high and rising freight costs and delivery delays constitute a drag on economic activity by preventing businesses from obtaining timely inputs. But regulatory interventions won’t ameliorate that problem; deregulation will.

For over a century, US maritime transport has been regulated under the Merchant Marine Act of 1920 (the “Jones Act”) and the Foreign Dredge Act of 1906, both of which greatly restrict competition and raise costs. The Jones Act requires all shipping between domestic ports to be on vessels that are American-built (made with a majority of American-made parts), American-owned, American-operated, and manned by a crew that is at least 75% American.

The Case Against the Jones Act, a collection of essays edited by Colin Grabow and Inu Manak, details the many problems with this rule. For starters, the law both ignores and contributes to the fact that coastal cargo ships built in the United States cost six to eight times more than similar vessels built elsewhere. Moreover, labor costs are substantially higher for US ships, both because wages are relatively higher in the US and because the legally required size of coastal ship crews has remained unchanged, even as automation has enabled foreign shipping companies to reduce crew size and lower their costs. Restrictions on US dredging further exacerbate the problem…