The recent 60-day waiver of the Jones Act (more formally known as the Merchant Marine Act of 1920) may not bring the price of gas down by a significant amount, but it could alleviate a shortage of shipping capacity for U.S.-produced gasoline, at least that bound for California. 

The California Fuels & Convenience Alliance (CFCA), which represents California's fuel retailers, convenience store operators, and industry suppliers, reiterated its support for President Donald Trump’s waiver, announced March 18. The CFCA says the Jones Act should be more permanently reviewed, and that fuel supply to the country’s most populous state was already facing supply and transportation cost challenges before the beginning of the U.S.-Israel war on Iran. 

In a statement to SupplyChainBrain on March 19, the CFCA clarified its comments a day earlier, commending the waiver, which opens U.S. port-to-port ocean transport to all comers, for offering “relief from supply bottlenecks” and “fuel supply constraints” it says have contributed to higher prices at the pump. 

These conditions predate the war, and are caused by “structural limitations in the domestic shipping market created by the Jones Act,” said CFCA chief executive officer Elizabeth Graham, although global energy supply chain disruptions, such as the current war in the Middle East, “can certainly exacerbate an already tight system.” 

Read More: Trump Admin Waives Jones Act for 60 Days

Because the temporarily suspended law requires that cargo moved between U.S. ports be transported on U.S.-built, U.S.-flagged, and U.S.-crewed vessels, the pool of eligible ships is extremely limited and significantly more expensive to operate — some estimates say as much as five times more expensive. That adds significant costs when transporting oil domestically in normal times. 

But there’s also a capacity crunch when it comes to energy transportation, says the Cato Institute, a libertarian think tank. Of the world’s nearly 7,500 tankers for moving crude oil and refined products, just 54 comply with the 1920 law. Among liquefied natural gas tankers, only a single compliant vessel exists, and it is restricted to serving Puerto Rico.

“There is, in practice, insufficient Jones Act-compliant tanker capacity to efficiently move petroleum products from the Gulf Coast and other U.S. refineries to West Coast markets like California,” said Graham. “This is not a new issue. It has been a longstanding constraint due to the high cost of building and operating these vessels, which has led to a small, aging fleet and limited competition. 

“With respect to current geopolitical tensions, those events can certainly exacerbate an already tight system. When global markets are disrupted, demand for available vessels, including internationally flagged ships, increases, and shipping routes can shift. In that environment, the inability to rely on a flexible domestic maritime network becomes more pronounced. So while the Jones Act-related capacity constraints are pre-existing, geopolitical events can intensify the impacts by tightening global supply chains and increasing competition for available shipping,” Graham continued. 

Because of the limitations placed by the Jones Act, it is often cheaper to import foreign crude than to buy domestic products moved via Jones Act ships, Graham said, causing, for example, a long-term decline in shipments of Alaska North Slope crude to California. 

A Jones Act waiver can help reduce transportation costs by allowing access to more competitively priced, non-Jones Act vessels; and increase available shipping capacity by expanding the pool of vessels that can move fuel between U.S. ports, the CFCA CEO said. 

“In a state like California where refining capacity is tightening, and more than 60% of crude supply is already imported, both cost and capacity constraints have real implications for fuel prices and supply reliability.” 

The CFCA is among many industry bodies and businesses that would like to see the Jones Act restrictions relaxed or ended permanently. “The issuing of this waiver underscores the importance of seriously considering broader modernization and reform of the Jones Act,” said Graham. 

The Cato Institute agrees. “By opening domestic routes to internationally flagged shipping, relief from the Jones Act would vastly increase the supply of vessels available to move American crude oil and refined products to U.S. ports,” said Colin Grabow, an associate director at the Cato Institute's Herbert A. Stiefel Center for Trade Policy Studies, in a March 12 article anticipating the waiver. “That, in turn, would unlock new and more efficient supply chains.” 

“A Jones Act waiver may not deliver dramatic price declines — only an end to the misguided U.S. military action in Iran will do that,” said Grabo. “But it would expand capacity, enhance competition, and ease constraints in a stressed system.”