Ying and Yankee

U.S. shipbuilding is simply not prepared to handle global trade needs today. It will not for years ahead, even with best intentions and funding. To get there will take investment in dollars, timing, and people. All which markets today have little patience.

Our contribution to global merchant fleets has been a rounding error for the last 25 years. The share of U.S. flagged ocean going fleets carrying over 1,000 gross tons in the world has gone from 17% in 1960 to 1% by 2000 where it’s drifted to .4% since. World fleets have grown 153% while U.S. fleets dropped by 94%.

The story of this collapse starts with WWII. Global economies were decimated post WWII while the U.S. industrial base cranked out more than 300,000 aircraft, and 2,500 Liberty ships alone from 1941-45. U.S. Naval fleet levels got up to 6,000 active ships during WWII.

Naturally, this caused an excess for American producers to sell off at home and abroad. By the mid 1950s, all momentum dried up for U.S. shipbuilding as the types of ships once used were going by way of tankers. The way out initially was setting up a National Bulk Carriers in Japan, who quickly used processes developed during the war to mass produce ships and infrastructure lost in Asian and southern European countries most devastated by bombings.

In 1956, the Suez Canal was blocked for the first time, forcing carriers the extra thousands of miles and days transit around the Cape of Good Hope we see happening again after the Red Sea attacks began over a year ago. The need for bigger tankers, not cargo vessels, took over. The U.S. designs and manufacturing processes were obsolete while the new tankers were a great fit for Japan and other countries needing a labor intensive industry to drive incomes while we went on the road and into the sky. By the 1970s, Japan was the primary world builder.

U.S. shipbuilding was dead in the water until the Navy set to modernize fleets in the 60s, and realized the private sector could do it cheaper. Next came Vietnam and the Nixon administration which gave the last hoorah as the Merchant Marine Act of 1936 was amended to allow subsidy and inclusion of LNG and other bulk carrier types to be made.

The U.S. oil market began to grow during this period with different needs so a lot of appropriations had difficulty being spent. The music began to stop, however, once the oil embargos of OPEC came into play in 1973.

Demand globally dropped overnight, and took almost all of European shipyards with it. Japan was maimed. The U.S. held on through defense spending and oil and gas contracts until it finally met a wall itself in 1980.

That wall was the Reagan administration, by first removing subsidies under title V. Bigger yet was the removal as guarantor of U.S. shipyard financing with title XI of the Merchant Marine Act. The O&G order boom abated by the end of the decade too. And finally, cards fell for overproduction of inland vessels that took the sector with it also. Malcom McLean’s SeaLand boxes started a divergent trend from tankers and barges reversed back into cargoland.

The U.S. got many to agree to taking away their own subsidies in 1984, but by then, South Korea began to rise along with European nations in niche markets like Ro-Ros, and finally China. The U.S. shipbuilding cut a third of its workforce and 40% of active yards by mid decade after reaching 22 the decade prior producing all variety of ship. The Jones Act would lose most significance to protect U.S. interests.

U.S. Shipbuilding dwindled into a handful of major players with specialized yards. Elevated defense spending being the only show in town fully magnetized the industry to the government from then on. This was galvanized through the 90s by way of continual conflicts abroad keeping budgets up. The projects would get more specialized while lead times grew. Global competition went for volume until it squeezed itself out while U.S. builders held to more profitable contracts.

In the year 2000, South Korea or Japan had built the ship for 77% of the global fleets on the water. Europe then China at 5% rounded things out. Around this time, world fleets that boomed in the 60s and 70s needed replacement, so the leaders in investment bet on market share. Singapore blossomed. The Korean government took to the IMF at one point to keep going. Profit wasn’t the point anyway. The liners have fared no better outside the COVID period.

The U.S. allowed commercial building to prosper elsewhere while giving cover of all trade through military prowess for multiple decades. Global production capacity was well beyond book to be able to reanimate our domestic industry on the commercial end. It was a win-win until it wasn’t. In the process, the U.S. military has had to contract with commercial liners up to transport vehicles to carry its might.

As an example, when the U.S. decided to send our military abroad for a sustained period in Afghanistan post 9/11, it contracted with a dedicated company out of Norway to help carry most of the equipment(1). It takes a village to go to war.

Over the next 15 years, China would rise to 25% market share of new shipbuilding, and then doubled it again in a third less time -bringing us to present day around half.

Their dominance of global trade equipment production gets higher considering cranes (70%), chassis (86%) and containers (95%). Under peaceful conditions this only makes things cheaper for world economies over. World economies that have also grown by leaps and bounds in tandem. Under stress (COVID) and duress (conflict), it does not.

Win-win does not mean everyone wins everywhere, as the manufacturing base in the U.S. moved into trade, making trade offs for many in wage and conditions. On the Chinese end, domestic consumption has been limited as savings and local debt vehicles incentivize unprofitable and low productivity business focused on foreign markets.

These linkages are not easy to undo, nor will they be completely undone. The U.S.’ role in global trade has changed. It dove into the sea beds instead of floating atop in boats at the turn of the century. Connecting these long lain cables are key logistics and financial hubs.

Continued U.S. safety, affluence, and influence has been dependent on bringing transparency into global freight flows by way of standardizing declarations and instituting forward operating bases of commerce custodianship. Every continent has participated in the Container Security Initiative since 2002 (1), and is up to 61 locations that screen some 80% of inbound goods to the U.S. These posts have degree of customs, coast guard, and local assimilation to ensure the data flows with accurate info. Our first line of defense as a nation. Everyone is safer because of it.

In recent days, BlackRock alongside MSC’s Terminal Investment Limited (TiL) has bought out 80% of Hong Kong based Hutchison’s terminal operations portfolio for $23B.

The 40+ ports in the deal have strategic importance outside interests in Panama alone. Many of these port operations overlap with CSI posts along with new territory. The two are side-by-side below.

The financial and geographic entanglements tighten another notch even as things feel so divided. To upend these geospatial, financial, economic and communication networks ends in catastrophe as COVID has already put on full display.

The U.S. is already decades behind the latest commercial techniques and technology while Chinese consumption needs to drive into higher levels of risk and value added industry.

Answers can come less through competition while still catering national interests.

As the author of the 2002 analysis that provides much of the earlier history in this piece suggests, instead of competing nationally, the United States can use and steward it’s own network of inland waterways.

The U.S. can take better advantage of building around its competitive advantage. Especially for US Ag. Port utilization, deepening, and revitalization could support the original intent of a Jones Act market with more coastal port-port transfers, and use of river and lake systems unique to America. Regional transportation crossing the Gulf could follow with some stock of homemade boxes and chassis that could drive down fees.

Selfishly, I’d love to see a monster dredging industry here.

Bolstering defensive capabilities could rise in tandem. A few more jobs and self sustenance closer to home will keep a strong market for higher value goods to be sold here from abroad.

Instead of trying to go head-to-head, it would be better served finding the Yings to our Yankee doodle dandy.

1. source: To Rule the Waves by Bruce D. Jones p.27