The Koloa Rum Company is known for producing popular spirits using pure cane sugar and water from Mount Waialeale, a volcano whose summit is one of the rainiest places on the planet. Business is booming in Hawaii, where the distiller is based, and beyond. Its offerings can be found on the shelves of more than three dozen US states and nine countries.
However, the owners say that a century-old federal law known as the Jones Ac, or the Merchant Marine Act of 1920. has undermined growth.
In a complaint filed in February, the company claimed businesses and consumers in Hawaii pay an “estimated $1.2 billion annually in excess costs—a hidden tax on all goods transported to and from the state” due to the Jones Act.
The original intent of the law when it was introduced was to ensure the development of a competitive merchant marine. To that end, it stipulated that all maritime goods transported between US ports must be carried aboard ships that have been built in America and are both owned and crewed by Americans.
Critics say it’s bad for business. Supporters of the Jones Act argue that it is imperative to both national and homeland security.
Koloa falls squarely in the former camp, pointing to higher prices for goods, fewer shipping options, and “increased operational expenses that reduce their competitiveness compared to mainland businesses.”
The complaint claims that shipping freight from Los Angeles to Hawaii can cost two to three times more than it does to move it from the West Coast of the U.S. to Asia. That’s because there aren’t many ships that meet the requirements of the Jones Act.
As of January 2023, there are fewer than a hundred vessels worldwide that are considered compliant with the law, according to Statista. In contrast, the Danish shipping giant Maersk has a fleet of 735 ships alone.
Imports and exports are a unique challenge for Hawaii.
In 2019, the Cato Institute reported there are just two ships that are compliant with the Jones Act and capable of transporting liquefied natural gas, but both are mainly used for refueling other vessels.
“What they are not used for, nor even capable of, is transporting bulk quantities of LNG for use in large-scale electricity generation,” the institute concluded. For Hawaiians, that translates into increased reliance on foreign energy imports.
Alaska has had its own notable issues with the Jones Act.
Last year, two seafood shipping companies challenged penalties and fines brought on by U.S. Customs and Border Protection. The firms pointed to an exemption of the US-flagged vessel requirement that allows for products to be moved from Alaska to mainland America if they travel by Canadian rail.
In the end, the companies settled and agreed to pay $9.5 million to the federal government in what was the second-largest settlement of a case brought under the Jones Act to date.
Now, the Koloa Rum Company is arguing that the maritime law violates a clause within Article 1, Section 9, Clause 6 of the US Constitution. It is called the Port Preference Clause, and it “prohibits Congress from enacting laws that favor certain ports over others through regulation of commerce or revenue.”
The complaint states that the Jones Act is almost exclusively applied to the ports of Hawaii and Alaska and that it was adopted before either became a state, in part to force them “into subsidizing the American shipping industry.”
The Pacific Legal Foundation, which is representing Koloa Rum at no charge, argues that it is plainly illegal.
“The Constitution’s Port Preference Clause prohibits Congress from favoring ports of one state over those of another to ensure equal treatment in interstate commerce,” the foundation said in a statement.
“The Jones Act, however, was specifically designed to disadvantage Hawaii and Alaska, then territories, despite strong opposition to the law’s discriminatory effects from Hawaiian and Alaskan officials.”
Some legal experts believe that should a case make its way up, the current composition of the Supreme Court could spell the demise of the Jones Act.
Our elected representatives in Congress should have already taken action to remove this outdated Act, there is bipartisan support from the states affected most by this issue. Landlocked states shouldn’t be involved with driving our cost of living up.
During the State of the Union Address President Trump said
“To boost our defense industrial base, we are also going to resurrect the American shipbuilding industry, including commercial shipbuilding and military shipbuilding. And for that purpose, I am announcing tonight that we will create a new office of shipbuilding in the White House and offer special tax incentives to bring this industry home to America, where it belongs,” he also said “We used to make so many ships. We don’t make them anymore very much, but we’re going to make them very fast, very soon. It will have a huge impact.”
The Jones Act was specifically enacted to prevent competition to ship to Alaska from Washington. It is estimated that it costs the average family $1,500 a year. Also it makes moving Alaska resources to the states totally uneconomical. However both Murkowski and Sullivan are big fans, evidently due to their corporate sponsors.