Opinion: The Urgent Need for U.S. Maritime Reform

by William Cahill (The Boyd Institute) American seapower is under attack. Not just by Iran backed Houthi rebels that have blocked US-flag ships in the Red Sea, but by a far more damaging vector. A century of policy neglect has driven America’s once great commercial maritime industry into near oblivion, and the resultant decay has come home to roost. The nucleus of American maritime policies, which sever the industry from competitive forces, have become fossilized and unmoored from 21st century realities. Consequently, our Nation’s shipping and shipbuilding industries tread water in the wake of a modern, competitive global maritime market constantly adapting to stay ahead and to win. Unleashing the intrepid American entrepreneurial spirit that has dominated so many other strategic industries would have profound economic, environmental, and national defense impacts. But this requires bold modernization of America’s maritime approach.

One of several core challenges lies in a political patchwork of laws that, despite noble policy intent, have had failed policy outcomes. The Jones Act of 1920, The Passenger Vessel Services Act of 1886, and the Foreign Dredge Act of 1906 are relics of simpler times and simpler supply chains. Each of these laws essentially prohibits the use of foreign-built and foreign-crewed vessels for revenue producing activities between U.S. coastwise points. Widely considered the world’s most draconian maritime laws, they operate unaccompanied by supporting programs that tie them into a functional national maritime strategy. As a result, American maritime is characterized by little competition, insufficient innovation, and decrepit fleets. And because we have drifted away from our roots as a maritime nation, there is little awareness from the American public.

Of the over 50,000 oceangoing ships that move >80% of today’s global trade, fewer than 200 fly the American flag. America’s shipbuilding industry sometimes goes entire years without producing a single commercial oceangoing ship. Labor shortages plague the maritime sector, and the naval shipbuilding industrial base has eroded to the point where ships are delivered billions of dollars over budget and years overdue. The lack of a viable commercial maritime industry abets the lack of a viable Navy. 

Related Book: The Abandoned Ocean: A History of United States Maritime Policy by Andrew Gibson and Arthur Donovan

Meanwhile, China controls a 10,000+ ship dual-use merchant fleet and a shipbuilding industrial base 230-times as large, with an order book of over a thousand new ships, and a rapidly expanding blue water naval fleet. 

In a protracted war, the United States will not have enough ships, mariners, or shipyards to project and sustain power overseas. Given the Nation’s economic dependence on maritime trade, this deficit will also quickly manifest as an inability to maintain a wartime economy. Ultimately, poor strategic mobility and a beleaguered domestic economy will place the homeland under direct threat. America’s adversaries are keenly aware of this Achilles heel. In fact, the continued lack of a viable American maritime sector is becoming increasingly provocative, leading China to accelerate its maritime adventurism while the United States remains in a catatonic self-embargo. Until the United States modernizes its maritime policies and reorients for rapid growth and competitiveness, we cannot pull our weight as Allies.

Building commercial ships in the U.S. is a rare feat, the predictable consequence of capital costs that routinely exceed global market rates by a factor of four or more. Crewing U.S. flag ships is also a rare feat, with a similarly prohibitive market premium that accounts for >90% of U.S.-flag 3x OpEx over market rates. These high prices, combined with few ships and shipyards, means that very little American shipping and shipbuilding takes place relative to the nation’s vast economy and favorable maritime geography. 

The resulting lack of efficient domestic maritime transportation and a diverse, capable fleet has translated to significant capital flight across transportation-intensive industries with a resultant deindustrialization of the broader American economy. It is less expensive, for example, to ship American scrap metal — the primary feedstock for the country’s advanced steel mills — to China and Turkey rather than turning these critical supply chains inward by shipping this strategic commodity domestically to America’s coastal minimills. With zero Jones Act compliant bulk carriers, the United States leads the world, by a large margin, in scrap metal exports. China uses this cheap American scrap metal to build infrastructure that returns value to its economy for decades, and to build shipyards and ships that further expand Beijing’s control of global supply chains.

Without a large, operationally diverse commercial shipping fleet, the modal share of domestic supply chains is disproportionately skewed towards environmentally damaging terrestrial transportation modes. Domestic cargo that should flow in abundance along the Nation’s coasts is often instead relegated to inefficient, dangerous, traffic-inducing truck transport, or simply replaced by foreign imports, exacerbating the trade deficit. Despite being the world’s top producer of natural gas, Americans are the only humans on earth prohibited from purchasing American LNG due to the lack of Jones Act compliant LNG carriers. 

Adding insult to injury, American ships routinely employ cheap Chinese State-owned shipyards for major overhauls and improvements, while their owners apply the savings towards lobbying to prevent competition on account of the Chinese maritime threat. Due to the lack of a viable maritime sector, American supply chain absurdities abound and self-embargoes continue as the American fleet continues to age and dwindle. 

National policies across the global maritime market are in a state of constant evolution. This often includes pitched battles between comprehensive, strategically oriented industrial policies. Asian shipbuilding subsidies are well documented and are routinely tied to productivity enhancing technologies, performance requirements, getting new yards off the ground, and working up value-chains. Efforts to “level the playing field” will remain elusive. Continuing to “protect” America’s diminutive oceangoing maritime industry into oblivion, naming ships after politicians who block reform, and religiously doubling down on the status quo is a guaranteed recipe for failure. But Beijing sure appreciates it.

A common trait amongst leading maritime nations is a consistent churn of policy dynamism. By contrast, America’s static laws have entombed its domestic maritime industry. Any form of proposed modernization is immediately attacked by well-paid lobbyists and their government marionettes as the removal of life-support. Problem admiration and shaking fists at an unfair global playing field are the order of the day. Patriotic assertions abound. But nothing changes. Over time, this negative feedback loop has created more jobs for lawyers than for mariners. The world has continued to compete for the oceans and much of America’s once great maritime industry has retreated deeper and deeper into the K-street abyss. American strategic industries deserve better than palliative care, galas, and patriotic assertions.

Smart, common sense policy reforms can ignite the Nation’s dormant maritime potential pretty quickly. Here are some ways to modernize legacy policy approaches to spark a new era of American maritime dynamism:

Leverage America’s advanced nuclear comparative advantage

• American policy should treat advanced nuclear maritime applications like the Space Race. The Nation’s laws and regulations should pour policy entrepreneurship and resources into gaining first mover status as the global leader in maritime nuclear.  America is already leading the world in the development of small modular reactors (SMR). This is the future of maritime propulsion. Transportable, floating power generation will be a key to energy security and climate resiliency, as well as a host of other high value activities that can take place safely across the 71% of the earth’s surface encompassed by the ocean. Fast, clean, safe, commercial nuclear propulsion, will unlock entirely new business models, redesign global trade patterns, and enable high speed direct to market/ship eVTOL tradelanes, additive manufacturing, large scale vertical farming, desalination, carbon capture, ocean uranium harvesting, and many dual-use applications — all at sea, backed by well designed, marinized SMR systems. American policymakers must prioritize streamlining licensing, regulatory, and financing pathways to unleash this potential at the pace of relevance.

Integrate the Allied shipbuilding industrial base, reconnect domestic supply chains, incentivize U.S.-flag shipping

• Modernize domestic shipping laws to support the nation’s complex supply chains and to return transportation-intensive industries back to America. Do this in a manner that improves national resilience, grows U.S. maritime jobs, bolsters the Alliance, and displaces valuable economic activity away from China. Permit Allied owned and Allied built vessels to participate in domestic supply chains in return for a percentage of billets reserved for American merchant mariners, a percentage of the admitted fleet being built in American shipyards, and a majority of the admitted fleet repairs preserved for American shipyards. This incentivizes valuable new billets, fills order books for beleaguered American yards, and unlocks valuable dormant supply chains, which our Allies have repeatedly sought to bolster — use this as leverage with USTR for broader strategic trade bargains.
• Develop strategically focused public funding mechanisms to  kickstart advanced domestic shipbuilding capabilities, including additive manufacturing and highly automated processes. Identify economic opportunity zones for establishment of brand new, cutting edge domestic shipyards in partnership with leading Allied shipbuilders.
• Reduce tariffs for trade employing U.S.-flag ships.
• Provide the U.S. maritime shipping and shipbuilding industry the world’s most favorable tax structure. Incentivize investment – tie it to performance, growth, and commitment for dual-use employment.

Impel a modal shift from land to water for key domestic supply chains

• Reverse course on American deindustrialization abetted by poor domestic maritime freight connectivity. Moving freight on land is expensive, dangerous, and carbon intensive. Moving freight on the water can be orders of magnitude better by each measure. America needs to move much more freight on the water and less freight on land where manufacturing and trade geography can be optimized thusly. Quickly orient American policy to incubate and license highly automated cargo vessel fleets and new, advanced shoreside infrastructure. Rethink the legacy port model for these fleets, optimizing for high-productivity, low-cost hinterland connectivity. Begin by enhancing and growing strategic commodity flows in logical tradelanes including underutilized inland waterways.

Build the needed workforce

• Incentivize growth of the Merchant Marine and bring seafaring jobs back into the American ethos. Provide tax exemptions for American Merchant Mariner earnings at sea. Fund credentialing, provide military interoperability training, and enable VA benefit eligibility for unlimited credentialed mariners who sign on to sealift mobilization commitments. 
• Accelerate citizenship pathways. There is a massive, well documented, and growing shortage of American labor in the nation’s shipyards and aboard its commercial fleets. At the same time, there is a surplus of undocumented people hiding in the shadows within America’s border. An accelerated pathway to citizenship, tied to performance and service obligations, modeled after the pathway to citizenship through military service, could be an ideal solution to help resolve both strategic challenges.
• Establish a Maritime Fulbright Exchange. Create fully funded exchanges for budding American naval architects, marine engineers, and seafarers to learn from global Allied leaders abroad and to serve aboard Allied owned and built ships, bringing back valuable knowledge and relationships.

America’s ability to rapidly build out a large domestic maritime industry in WWI and WWII was vital to Allied victory in both wars. This wartime growth was followed by peacetime lassitude, allowing our maritime sector to wither on the vine. Given modern geostrategic realities, America will not be able to pull off the needed expansion a third time, absent a seismic reorientation. Beijing is quite pleased with the current trajectory. Quite simply, American policymakers must take bold actions today, grounded in strategic logic and evolving away from the political inertia and fecklessness that underpin the established order. American prosperity and security are inextricably linked to the ocean, and the Nation must return to its maritime roots, using 21st century policies. Integrating the Allied shipbuilding industrial base, leveraging cutting edge technology, and returning Americans to the sea have become non-negotiable requirements to assure another American century. 

This article was republished with permission of the author and The Boyd Institute. Read the original article here: America’s maritime policies need a reboot

William Cahill is President of Applied Maritime Sciences. Previously, he served in the White House as a Director for Strategic Planning on the National Security Council and as Maritime Advisor on the Council of Economic Advisers. Before that, he spent twenty years as a U.S. Coast Guard search and rescue helicopter pilot and cutterman.