America Gets Serious About Shipping

Ships move 80 percent of global trade. Without them, people would be poorer, and few appreciate the critical role they play in our everyday lives.

In December, a bipartisan group of U.S. Congressmen introduced the Shipbuilding and Harbor Infrastructure for Posterity and Security (SHIPS) for America Act. The bill addresses critical shipping issues impacting America’s national security and our economy’s ability to function in today’s politically charged world.

Why the sudden attention to maritime matters?

 

Safeguarding Trade

Political leaders recognize that geopolitical tensions are elevated and will remain so, given regional struggles. The key role maritime trade plays in global economic activity means it must be protected from armed attacks blocking trade routes and/or endangering the operation of vessels and the safety of crews. Navies are essential for protecting these ships and ensuring their free passage.

Geopolitical tensions could erupt into regional wars. Governments and their allies must protect their coastlines and commercial interests. History is replete with episodes of nations using their navies to wage war and gain commercial power over their enemies.

Local pirates, rather than governments, sometimes waged those campaigns. Pirates sought financial gains from capturing ships and selling their cargo or holding ships and seamen hostage for ransom. Recently, the world watched Somali pirates wreak havoc against commercial ships traveling along the western coast of Africa, forcing navies to protect them.

Who can forget the tales of pirates like the notorious Captain Kidd, Blackbeard and Black Bart? How about the Barbary pirates that birthed the U.S. Navy? Amazingly, the South Pacific had massive pirate operations. In the early 1800s, Chinese pirate Cheung Po Tsai commanded a fleet of several hundred ships and 50,000 seamen.

He followed the example of Ching Shih’s exploits, the most famous female pirate, who took over her husband’s fleet after his demise, expanded it to 1,500 ships and 80,000 men, and plundered shipping along the coast of the South China Sea. She was so successful the Chinese government offered her universal pirate amnesty in exchange for peace.

In today’s world, terrorism can also take the form of piracy, as demonstrated by the Houthis in Yemen and their attacks on shipping in the Red Sea.

 

Energy Transition

Besides protecting commercial shipping, governments are undertaking an energy transition that requires vast volumes of critical energy minerals for renewable energy technologies.

The International Energy Agency projects a select group of critical minerals must increase their output by a whopping 30-40 percent while ignoring the role of other critical and essential minerals in meeting clean energy demand and supporting economic growth.

The global challenge for shipping is being able to refresh the existing fleet while growing it to handle the increase in critical mineral volumes. Those minerals oftentimes must be moved from where they’re mined to where they’ll be refined. Once converted into materials for use in renewable energy devices, they must be transported to manufacturing locations.

Many minerals will embark on long journeys from mines to final manufacturing sites. This may necessitate new shipping routes, depending on where the new mines are located, which may require different-sized ships.

 

Supplementing the Jones Act?

The SHIPS Act is designed to reinvigorate the U.S. shipbuilding industry, which is critical for our commercial fleet and potentially for our military.

Since the enactment of the Merchant Marine Act of 1920, also known as the Jones Act, U.S. cabotage (coastwise trade) has been strictly regulated. All goods transported by water between U.S. ports must be moved in U.S.-built ships that fly the U.S. flag, are owned by U.S. citizens and are crewed by U.S. citizens or permanent residents.

The Jones Act has become controversial. Opponents argue it reduces domestic trade via waterways relative to other forms of trade and has an inflationary impact on consumer goods. However, military and commercial officials support the act for its promotion of domestic shipbuilding, ship ownership and the training of U.S. seafarers.

The incoming Trump Administration must balance the inflationary pressures and national security interests of the Jones Act.

 

Rebuilding the Military Fleet

From a national security perspective, the U.S. Navy’s fleet today is less dominant over China’s.

According to naval experts, China’s navy in 2024 had 79 more ships than the U.S., including the 30 it added in 2023 compared to just two new U.S. ships. However, these experts say the U.S. fleet is technologically superior to China’s because it possesses greater missile capacity, especially in its submarines.

A troubling fact is that one recent study concluded larger fleets won 25 out of 28 historical wars.

In a recent set of wargames, China’s navy lost 52 major ships compared to 7-20 for the U.S.. Given its more extensive fleet, China’s navy still had more major surface vessels than the U.S. and could continue the naval battle. These wargame outcomes are troubling for our military preparedness and have generated plans to expand the U.S. fleet.

The first updated fleet proposal in 2016 targeted increasing it from under 300 to 355 ships. The latest fleet growth plan calls for 381 ships by 2050. However, the fleet will shrink through 2027 due to scheduled decommissionings.

The Ship Battle Force lists 296 U.S. Navy vessels of all types. However, 126 are combat support vessels that deliver supplies, armaments and fuel almost daily. Most are part of the Military Sealift Command, which employs 5,500 civilians to operate them. There are 4,500 billets on these ships, but for every 100 civilian seafarers onboard, there are only 127 available. This means that onboard service is four months long with only one and a half months of shore leave – an inadequate work/ family balance.

The shortage of civilian seafarers has led to the MSC’s removing 17 supply ships from service to free up 600-650 seamen for deployment on other ships.

 

Rebuilding the Commercial Fleet

The SHIPS Act is designed to rebuild the U.S. commercial shipping and shipbuilding industries and develop more seafarers. The global maritime economy is between $3-6 trillion annually. U.S.-flagged vessels carry less than two percent of this total, measured by cargo weight.

There are fewer than 200 U.S. commercial vessels. Only about 80 are engaged in global trade. The small U.S. commercial fleet compares to 5,500 active Chinese-flagged vessels.

A key goal of the SHIPS Act is to grow the U.S.-flag international fleet by 250 ships within 10 years. An expansion of this magnitude is a challenge since only about 20 domestic shipyards operate today, down from 80 at the end of World War II. During the war, the U.S. was producing ships in six weeks, enabling the U.S. and its allies to defeat their German, Italian and Japanese foes.

Today, it takes years to build new military and civilian ships, increasing our economic vulnerability.

A 25 percent investment tax credit for shipyard improvements will support the shipbuilding effort. Furthermore, the bill would transform the Title XI Federal Ship Financing Program into a revolving fund and create a Shipbuilding Financial Incentives program to support innovation in shipbuilding and repair.

Other legislative goals include streamlining the U.S. Coast Guard’s regulatory process, which often impedes commercial fleet growth and adds to the cost of new ships. As an inducement for building new ships, the bill mandates that government- funded cargo be transported on U.S.-flag vessels. In addition, a portion of goods imported from China must travel on U.S.-flag vessels by 2029.

A guaranteed market is an incentive to convince shipowners to build new ships and shipyard owners to expand their capacity to build them.

Today’s global shipbuilding capacity has declined 30-40 percent from its 2011 peak in new vessel tonnage deliveries. Our research of the mineral needs of the energy transition shows that the massive volume of critical minerals required necessitates 30-50 percent more tonnage delivered in the mid-2030s than global shipyards provided at the 2011 newbuilding peak.

The need to refresh the existing fleet, plus add new capacity for the energy transition, translates into 60-90 percent more global tonnage capacity than currently exists. Japanese, South Korean and Chinese shipyards are already moving to expand their capacity, leaving the U.S. behind. Asian shipyards already dominate the global shipbuilding industry.

Other ideas for promoting the domestic shipbuilding industry include having the federal government buy and lease new shipyard equipment to accelerate construction efficiency improvements. U.S. shipyards have been late in upgrading their technology to help lower new vessel costs.

The U.S. government should explore arrangements with shipyards in Japan and South Korea, our allies, to build ships under a special five-year program granting them Jones Act status while the U.S. constructs new shipyards. This could bring state-of-the-art shipbuilding technology to U.S. yards, making them more competitive globally.

 

Essential First Step

The SHIPS Act is an essential first step in reviving the domestic shipping industry and reestablishing the U.S. as a maritime powerhouse necessary for our national security. Without such steps, the U.S. will depend more on foreign shipyards, shipowners and seafarers to deliver the goods needed for our economy.

It will also leave the U.S. Navy without the resources – ships, shipbuilding capacity and civilian seafarers to fulfill its mission. -- MarEx 
 

Energy analyst and commentator Allen Brooks is a Senior Fellow at the National Center for Energy Analytics and author of the widely read “Energy Musings” newsletter.