A century-old maritime law has been waived since March, giving fertilizer shippers a live test of what the law adds to freight. The Department of Homeland Security (DHS) extended the emergency waiver of the Jones Act through Nov. 15, making it the longest and broadest suspension of the 1920 law since at least 1950, the Cato Institute’s waiver tracker says.
Since March 17, foreign-flagged ships have been free to carry fertilizer and energy products between U.S. ports.
What the Jones Act is, and why it reaches fertilizer
The Jones Act, formally the Merchant Marine Act of 1920, requires that cargo moved by water between two U.S. points travel on a ship built in the United States, owned by Americans and at least 75% crewed by Americans.
It affects fertilizer whenever product or raw material moves by water between U.S. points, such as phosphate from Tampa, Florida, to the Mississippi Gulf. Exports are not covered because they end at foreign ports, and imports arrive on foreign ships with no such requirement either.
A freight gap the companies describe
Colin Grabow, a research fellow at the Cato Institute, published analysis arguing the Jones Act makes shipping fertilizer between U.S. ports so expensive that buyers often find it cheaper to import from Peru or Trinidad and Tobago, and that the temporary waiver has shown this by letting foreign vessels, including types the U.S. fleet doesn’t have, carry the cargo. He cites example provided by Mosaic, in which it pays the same $18 a ton to ship fertilizer to Louisiana as to Brazil, whose ports are six to 10 times farther from Tampa than New Orleans. Additionally, a Mosaic official says shipping phosphate rock from Peru, about 2,300 nautical miles away and through the Panama Canal, costs almost half as much as shipping it from Florida, about 500 nautical miles.
The chief executive of Helm Fertilizer Corporation said at a June 2022 commission hearing that urea ammonium nitrate (UAN) from Trinidad and Tobago holds a freight advantage of at least $20 a ton over domestic rail or Jones Act shipping.
“We know that the Jones Act makes shipping more expensive, but just the magnitude of it is really surprising,” Grabow says. “I’m a free trader. I’m not anti-import, but I certainly don’t understand why we put American firms at a disadvantage or kind of tilt the playing field against them.”
A fertilizer manufacturer reports 20% of the product’s price comes from logistics. And non-Jones Act vessels are half the cost as Jones Act compliant ones. As such, this manufacturer relies on rail as the most cost-effective option.
Mike Steenhoek, executive director of the Soy Transportation Coalition, says shipping fertilizer by ocean vessel from Florida to the Mississippi Gulf is cost prohibitive when the Jones Act is in place.
What the waiver shows
The early read is mixed. While Grabow says the waiver shows how much the law costs fertilizer buyers and producers, Josh Linville, vice president of fertilizer at StoneX, says it helps move product but does little for what farmers pay.
“I can’t point anywhere and say the suspension of the Jones Act dramatically reduced the cost of product X, Y, Z, at least not in the fertilizer world,” says Linville.
For years, the case against the law has been theoretical, Grabow says. “Traditionally, this has been more of a theoretical argument,” he says. “But that’s being supplemented now by findings from the waiver.”
His tally counts a dozen voyages of fertilizer and related inputs under the waiver: nine on liquefied petroleum gas (LPG) tankers, two on dry bulk ships and one on a small chemical tanker. None of those vessel types is in the Jones Act fleet, he says.
“Phosphate rock, I think the ideal vessel is a dry bulk carrier. There are none that comply with the Jones Act,” Grabow says. He reads the voyages as evidence of demand. “If there were better options that comply with the Jones Act, they would have done that,” he says.
Linville says the waiver does not reach the root of the market. “It probably oils the gears a little bit, but it’s far from solving what’s at the base of the problem,” he says. He says the Strait of Hormuz is the main focus for both nitrogen and phosphate prices.
“That is the biggest linchpin in this market today,” Linville says. He says removing it would not solve global supply problems overnight.
Industry figures say phosphate is up about 9% since just before the waiver began.
Potash is a different story, Linville says. It moves mostly by rail from Canada, prices have been steady, and he is watching for a signed trade agreement with Canada.
The case for the law
Supporters say the law protects U.S. shipyards, mariners and national security. Grabow says the record does not support that.
“Last year, the United States accounted for 0.03% of global shipbuilding output,” he says. U.S.-built ships cost four to five times more than those built abroad, he says, and the Jones Act fleet has fallen from more than 450 ships in the 1950s to 92. “I don’t think it’s working,” he says.
Steenhoek says defenders can point to real capacity. The United States still builds barges, towboats and dredges, and it has mariners ready to crew them. But he says ocean vessels cost significantly more to build here, and labor adds to the gap. Rebuilding the industry is a long runway, Steenhoek says.
“That’s going to take years to be able to do,” he says.
Steenhoek says the Soy Transportation Coalition has not taken a position on the Jones Act. “Is it really achieving these goals? Partially, but certainly not robustly,” he says.
What’s next
Waivers are temporary by design, Grabow says, and shippers feel it. “When you’re trying to make plans in advance, you don’t know if the waiver will be there,” he says. “That can impede your ability to take full advantage of this waiver.”
He says the waiver could be renewed after Nov. 15 or lapse, and no one knows which. The current waiver rests on national security grounds, he says.
Grabow says the best hope to a lasting change is more narrow and targeted. He points to exemptions limited to vessel types the U.S. fleet does not have, such as LPG tankers and dry bulk carriers. Any permanent change would have to go through Congress, he says.
Steenhoek says exemptions already come often, mostly for energy. “You see new exemptions being approved on a pretty routine basis,” he says. A carve-out for fertilizer and other farm inputs is possible, he says, but supporters of the law want to hold the line, not widen it.
