MAKE AMERICAN SHIPBUILDING AND SHIPPING GREAT AGAIN

Posted on: December 12th, 2016 by Stas

By Stas Margaronis

President-Elect Trump has pledged to “Make America Great Again” by investing in American infrastructure and creating new jobs. One area in which the new president can fast-track infrastructure revitalization and job creation is by upgrading existing U.S. loan guarantees to leverage public/private funding of new ships, new shipyards, and new maritime jobs.

New shipbuilding and new cargo ships can substantially reduce truck congestion and emissions on coastal highways along with building new ships for the U.S. Navy and U.S. military sealift (for carrying and delivering military equipment to foreign trouble spots).

The reduction of fuel and emissions when transporting cargoes by ship versus truck can be seen in the example of a ship carrying 750 containers (2,000 twenty-foot units containers) utilizing a 20,000 horsepower engine. In contrast, 750 trucks each with a 375 horsepower engine would require 281,250 horsepower to pull the same load.

The U.S. Maritime Administration promotes waterborne freight transportation by supporting marine highway shipping and marine highway corridors. This system could support building new ships and tug/barges to shift coastal truck traffic on to new ships and tug/barges along the Pacific Coast I-5, Atlantic Coast I-95, the Mississippi River, and the Great Lakes.

The United States has an efficient means of financing new shipyards and new ships through loan guarantees provided by the U.S. Maritime Administration. The Title XI Loan Guarantee program provides guarantees for as much as 87.5% of the cost of construction of new ships. Applicants must provide 12.5% in equity as a minimum and demonstrate a sound business plan.[1] The program provides security for the lenders but is not a direct cash infusion. To induce additional investment, the program will need increased funding to support a mobilization of new fuel-efficient, low-emission shipbuilding, fewer barriers to support start-up shipbuilders and carriers as well as continuing support for existing builders and carriers and support for new products such as off-shore transmission lines and wind farms. Based on a loan loss reserve of 10% and allocating $2 billion in funding for the program, it could support $20 billion in loan guarantees for shipyards, ships, and tug/barges. Compare this to the $5 billion to $10 billion that will be required to widen just one 18 mile stretch of the 710 freeway in Los Angeles County.

There is a precedent for this type of economic and ship mobilization. During World War II, the U.S. Maritime Commission, which later became the Maritime Administration, partnered with ship builders such as Henry Kaiser to mass-produce 2,708 Liberty ships. These ships carried military supplies to war fronts in Europe and Asia on U.S. flag ships manned by U.S. crews. The program helped pull the United States out of the Depression by creating new jobs and helped win the war.[2]

Shipping and Shipbuilding Jobs

According to a 2013 U.S. Maritime Administration (MARAD) report: “The majority of shipyards are located in the coastal states, but there also are active shipyards on major inland waterways such as the Great Lakes, the Mississippi River, and the Ohio River. Employment in shipbuilding and repairing is concentrated in a relatively small number of coastal states, with the top five states accounting for 62 percent of all private employment in the shipbuilding and repairing industry… In 2011, the U.S. private shipbuilding and repairing industry directly provided 107,240 jobs… $7.9 billion in labor income, and $9.8 billion in gross domestic product, or GDP, to the national economy…. Including direct, indirect, and induced impacts, on a nationwide basis, total economic activity associated with the industry reached 402,010 jobs, $23.9 billion of labor income, and $36.0 billion in GDP in 2011.[3]

Aaron Klein, former deputy assistant secretary for economic policy at the U.S. Treasury, argues the U.S. shipbuilding industry has been losing ground to foreign competitors, in part due to foreign subsidization of shipbuilding:

“Today, America ranks nineteenth in the world for commercial shipbuilding, accounting for approximately 0.35 percent of global new construction. Put another way, only one-third of one-percent of new commercial shipbuilding occurs in the United States, despite the fact that we are the world’s largest economy. What happened? While there were many factors at play in the decline of the shipbuilding industry, including global oversupply, recessions, and changing economic fundamentals, one policy decision stands out. For many years, countries around the world subsidized their national shipbuilding industries. The U.S. did so for a time through the payment of construction differential subsidies (CDS) but ceased this practice in 1981. When foreign shipbuilding companies gained the advantage of subsidization from their governments, and the U.S. shipbuilding companies had no comparable advantage, it was impossible for the American shipbuilding industry to compete.”[4]

As a result of aging and retiring mariners, the United States will also face a shortage of qualified crews to operate its ships, unless a new employment strategy is found, according to a U.S. Naval Institute report. By 2022, the United States will need ‘70,000 new people’ for the nation’s maritime fleet. The Merchant Marine Academy at Kings Point, N.Y., and the six state maritime academies only graduate 900 people per year and are at capacity, quoting Paul Jaenichen Sr., Maritime Administrator, U.S. Maritime Administration (MARAD).

Jaenichen testified before the House Armed Services Seapower subcommittee in 2016. He warned that ships in the National Defense Reserve Fleet and its subset, the Ready Reserve Fleet, also are aging—averaging almost 40 years old per vessel. He said the United States needs 40 more cargo ships under its flag as well as sufficient mariners to meet military surge demand. Right now, some current ships are steam-powered, needing parts that are no longer made. [5]

Unfortunately, supporting such savings and the build-up in American jobs, shipbuilding and ships is opposed by powerful globalization interests in Congress who want these jobs outsourced to foreign producers. Currently, U.S. shipbuilding, tug/barge, and mariner jobs, are protected by the Jones Act. However, special interests in Congress want to abolish the Jones Act and outsource American jobs to foreign shipyards and foreign mariners. Reflecting opposition to the Jones Act is the Heritage Foundation, a leading Washington think tank, which argues:

The Jones Act drives up shipping costs, increases energy costs, stifles competition, and hampers innovation in the U.S. shipping industry. Originally enacted to sustain the U.S. Merchant Marine, the law has instead fostered stagnation in the U.S. maritime shipping industry. Furthermore, the Jones Act fleet is unable to meet the needs of the U.S. military, which routinely charters foreign-built ships to fulfill additional sealift needs. The U.S. economy and the U.S. military would be better served without the Jones Act.”[6]

Proposed

U.S. investments in shipbuilding and shipping can fast track U.S. infrastructure modernization and national security:

  • Enhance U.S. Naval Security. The United States Navy is facing a decline in naval ships that is undermining its capabilities in Asia and around the world. Seth Cropsey, director of the Hudson Institute’s Center for American Seapower, warns: “While China’s naval power expands, America has deliberately reduced its presence on the seas. …… That means the U.S. fleet is less than half its size at the close of the Reagan administration nearly 30 years ago (and down by 13 ships since 2009).”[7] Presently, U.S. shipyards are not cost competitive with shipyards in Europe and Asia. If the United States is not to be dependent on foreign builders and foreign ocean carriers for its naval and military sealift needs, it will need new U.S. built ship.
  • Support Jones Act Protections to Promote New Shipbuilding and Shipping. The Jones Act continues to be attacked by advocates for outsourcing American mariner and shipbuilding jobs and replacing those jobs with subsidized foreign labor. The Jones Act, the Merchant Marine Act of 1920, mandates that vessels sailing between U.S. ports must be ships or tug/barges built in the United States, manned by U.S. crews and primarily owned by U.S. citizens. Some U.S. carriers such as Matson and Pasha are ordering new cargo vessels to modernize their fleets but more needs to be done.
  • Reduce Truck Congestion and Emissions on Coastal Highways. A senior California Transportation official says that road and rail congestion at major California ports is reaching a saturation point and that it is time to start transporting containerized freight by water. Kome Ajise, Chief Deputy Director for the California Department of Transportation, told participants at a Los Angeles Sustainability Coalition Summit in 2016 that California port congestion requires relief by moving containerized truckloads on a waterborne/marine highway service. States lack the revenue to replace all the necessary roads and bridges. His proposal was to shift more coastal truckloads onto waterborne transportation such as tug/barges and ships.
  • Create New Shipbuilding and Shipping Jobs. Shipbuilding, according to the MARAD report, remains a major employer in the United States with a concentration in states adjoining the Gulf of Mexico, the Mississippi River, and the Great Lakes. However, there is room for expansion to other coastal and inland parts of the country with new federal investment. The U.S. shipbuilding industry is a major generator of jobs including steel fabrication, piping, electrical systems, painting, propulsion and electrical control systems. At the same time, new U.S. built ships must each employ two sets of crews to rotate in the operation and maintenance of the vessel. So, both industries can help create new jobs and economic development.
  • Develop New Finance Strategy. New business can be quickly built up by loan guarantees that create public-private partnerships and require equity as security. Unfortunately, the MARAD loan guarantee program had been under attack by anti-spending politicians in Congress who, along with the Heritage Foundation, fail to see the value of new U.S. ships, new U.S. shipbuilding, and new U.S. jobs. An improved loan guarantee system that provides increased funding, more construction guarantees and fewer obstacles for new entrants than the existing program can fast-track new construction and jobs.
  • Expand Sustainable Freight Initiatives. New proven technology in batteries is available to deploy on the ships and tug barges of the future. These vessels will generate fewer emissions and lower fuel costs compared to conventional diesel-powered vessels. New international air quality standards are also driving ship owners and builders to look at lower emission and sustainable technologies for the global shipping market.
  • Fast-Track Development and Reduce Regulatory Delays. There needs to be a balance between respecting the environment and delaying projects for subjective reasons that do not pose valid environmental threats. For example, off-shore wind farms that fast-track zero-emission energy generation and other low emission projects have suffered from delays in regulatory approval for years as conflicting political interests sought delays in projects. These wind farms can be built in U.S. shipyards. In some cases, the objections to wind farms came from homeowners who did not want their ocean views spoiled by the sight of wind turbines. If President Trump can support fast-track approvals for new economic development including those that have low carbon and low emission impact, then the battle against global warming might still be won.
  • Support U.S. Maritime Academies. U.S. maritime academies, including the U.S. Merchant Marine Academy in New York and the California Maritime Academy at Vallejo, can provide the workforce and research to support a maritime revitalization. Each academy annually graduates qualified mariners for vessel navigation and engine operations, as well as in logistics and management applications. America’s maritime institutions have the capability of producing the young men and women needed to build and operate the cutting-edge U.S. Merchant Marine of the future, but they, too, will need more federal funding for education and research.

Conclusion

As President, Donald Trump can keep his promise to the American people by upgrading and modernizing new maritime transportation and shipbuilding, using loan guarantees and public-private partnerships. This approach could reduce the cost of road and bridge spending along coastal and inland corridors at a far lower cost than for building new highways to relieve congestion.

New technologies including battery-powered ships, LNG, LPG-hybrids and off-shore wind farms can support low-emission development with the aid of deregulation, thus resulting in respect for the environment, while allowing U.S. shipping interests to improve commerce and get the United States back to work.

 

 

[1] https://www.marad.dot.gov/ships-and-shipping/federal-ship-financing-title-xi-program-homepage/project-requirements/

[2] See Frederic C. Lane, Ships for Victory: A History of Shipbuilding under the U.S. Maritime Commission in World War II (1951) xiii

[3] https://www.marad.dot.gov/wp-content/uploads/pdf/MARAD_Econ_Study_Final_Report_2013.pdf

[4] Aaron Klein, ‘Decline in U.S. Shipbuilding Industry: A Cautionary Tale of Foreign Subsidies Destroying U.S. Jobs’ http://www.openandfairskies.com/wp-content/uploads/2015/07/Cautionary-Tale-Foreign-Subsidies-Destroying-U.S.-Jobs.pdf

[5] https://news.usni.org/2016/03/22/u-s-facing-looming-shortage-of-merchant-mariners

[6] http://www.heritage.org/research/reports/2014/05/sink-the-jones-act-restoring-americas-competitive-advantage-in-maritime-related-industries

[7] http://www.wsj.com/articles/s-o-s-for-a-declining-american-navy-1452124971

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