For More U.S.-Flag Ships, Lift the Domestic‐Build Requirement

I am curious to hear you guy’s thoughts on whether it time to remove the Domestic Build Requirement in order to grow the shrunk and aged Merchant Fleet?

Maritime Administrator Mark Buzby has a problem. As head of the Maritime Administration he is charged with crewing and operating the Ready Reserve Force (RRF), a government‐​owned fleet used for the rapid deployment of U.S. military forces. Speaking at a Navy League‐​sponsored breakfast earlier this week, however, Buzby expressed worry there aren’t enough mariners to operate these ships. The RRF, while used in a military role, relies upon civilian mariners to operate them in wartime scenarios. And those mariners are in short supply.

In fact, a 2017 government reportfound that for a sustained sealift campaign the United States faces a deficit of approximately 1,800 mariners for those needed to crew the RRF and maintain commercial fleet operations—and that’s in a best‐​case scenario. The obvious remedy according to Buzby: increase the number of U.S.-flag ships to provide more employment opportunities.

“We believe we’re around 1,800 mariners short. So how do you make that up? That’s the question I get asked every single time. We need more places for people to work in peacetime. We need more…we need a larger U.S.-flag fleet by probably about 45 ships.”

Notably, Buzby is an ardent supporter of the Jones Act, the 1920 law which restricts the domestic waterborne transport of goods to vessels that are U.S.-built, U.S.-flagged, at least 75 percent U.S.-crewed, and at least 75 percent U.S.-owned. Indeed, at the same event he listed defending the law remains as among his top priorities. Yet the Jones Act’s U.S.-build requirement is a direct impediment to realizing the goal of more U.S.-flag ships.

That’s because commercial ships built in U.S. shipyards are expensive—frightfully so. A May 2019 Congressional Research Service report found that a U.S.-built tanker is roughly quadruple the price of a foreign‐​built vessel, while a U.S.-built container ship may be quintuple the price of one constructed abroad. For perspective, the same report said that the cost premium attached to U.S.-built ships shortly after the Jones Act’s passage was 20 percent.

This rise in price has correlated with a pronounced decline in the number of Jones Act‐​compliant ships. Fewer ships means fewer mariners to crew the RRF fleet.

ships

It stands to reason that if Americans had access to cheaper ships that there would be more of them. But don’t take my word for it—U.S. shipyards themselves admit that high prices are a deterrent to the use of the ships they build.

In 2007 the Metal Trades Department of the AFL-CIO filed suit against the U.S. Coast Guard over its ruling allowing the use of foreign‐​built equipment modules in the construction of ships deemed to be U.S.-built. Unsurprisingly, U.S. shipyards sided with the Coast Guard. Preventing the use of foreign‐​built components, Aker Philadelphia Shipyard and General Dynamics‐​NASSCO argued, would make U.S.-built ships more costly and less attractive to purchase. That would mean both less shipbuilding and fewer vessels in the Jones Act fleet.

As Aker (now known as the Philly Shipyard) stated:

[p]reventing shipbuilders from using more efficient methods in constructing vessels will increase the vessel owners’ capital cost. This in turn will increase the rates that the vessel owners must charge, decreasing their competitiveness and further reducing their share of the domestic transportation market. The lower market share will lead to a reduction in the size and number of vessels needed to fulfill the demand for domestic shipping.

If more expensive ships means fewer ships, the reverse logically holds true—cheaper ships means more of them. And the cheapest solution of all would be to allow Americans to transport goods using ships built in other countries, just as they can for all other forms of transportation. That’s not just a good way to expand the U.S.-flag fleet, it’s what free people should be allowed to do.

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The better way is government subsidy of modern shipyard equipment and practices I would think, the 400% premium isn’t inevitable and the economies of scale and automation achieved elsewhere can be stimulated here.

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Either way something must be done.

I couldn’t possible agree more! The US Merchant Fleet has dying for decades and MARAD seemingly does nothing about it. If we removed the shipbuilding requirements companies could actually afford ships which would grow the merchant marine tenfold.

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And people act like if you remove one part of the Jones Act the entire thing will die but that is simply not true. Removing the US building requirement would save the merchant marine not destroy it.

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Yeah I get what you’re saying, I feel like a lot of that stems from the outdated mindset of “that is how things have always been so it must be right.” Such thinking is just foolish.

Exactly

You would think with the militaries need and Buzby’s fear of the lack of ships for a wartime sealift would cause him to look at more viable options compared to the current system of weak subsidized, but it really hasn’t happened. Hopefully this new decade will bring about the change the merchant fleet is so desperately in need of.

Honestly if the building requirement is not removed this is the next best option. Maybe even a mixture of both could cause a massive boom in the maritime economy.

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I’m experiencing deja vu…

It stands to reason—except, it doesn’t. The ‘more’ ships you’re thinking of are——barges and actually it won’t make more new jobs, it will cost jobs. That graph shows self propelled ships over 1000 gross tons, so it doesn’t reflect the true lifeblood of American domestic maritime shipping - tugs and barges. Removing the domestic build provisions would destroy the US shipyards supplying these and put no new mariner jobs in place.

This topic and that Cato institute report have been discussed before, it’s false to think that there will be more ships built with removal of the build provisions and that more jobs will result. Cause (at best) they’d only build more barges. Owners are free to buy foreign built ships and run cargo - they just can’t trade coastwise, and since most coastwise trade is tug and barge they would get decimated on cost differential… yet despite no build provisions in international trade few do and only with subsidies and/or cargo preference. What keeps the US merchant fleet where it is the operating cost of labor. It gets bigger if people get subsidies, gets smaller when they are removed, and the history of the US merchant fleet shows this.

The topic of removing the build provisions keeps coming up, and efforts to put mariners with a belief that they’d get more jobs in trade for decimating remaining US shipyard industries is a sad thing and just incorrect.

Maybe crew citizenship should be reconsidered, as the Cato Institute (also) suggests:

https://www.cato.org/publications/cato-online-forum/why-jones-acts-us-citizenship-quota-should-be-repealed

The Cato institute is in it for the bankers and people who will make money off a non-Jones Act environment. Any portion they break off will be profitable for a small group of people and take jobs away from thousands.

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I’m not a war hawk but in the need for a self defense situation our a ability to wage war against a rival almost in equal pose has been absolutely crippled. China has been making some of our ships in the past. What happens if they decide to side against us. Do we really have the capabilities to build new ships to accommodate military sealift capabilities. Not to memtion man power has been gutted. Imagine the strain that’ll put on the Great Lakes maritime industry to deliver steel. We already have sealift on life support.

Worst idea ever.

Buzby should bring back fully funded ODS and CDS programs as well as support and participate in NSRP.

The health of the US maritime industry and seamen’s jobs has not been prioritized as being worth much for many years.

Google how much the US pays per year to not grow crops. ( also note the names of the biggest recipients) That expenditure is getting higher priority than funding programs to support US owned, built and manned ships.

Look up some of the previous discussions on this topic. The amount and type of ships in a trade follows the amount and type of trade including alternative transportation methods (trucking). If a Jones Act trade is fully served now why would building a new ship make sense? Whether built at a US yard or not. Yes your provision would allow the replacement vessels to be built cheaper but at the cost of eliminating your fellow citizens jobs.

No time to research this but what moves by water in Jones Act trade. Bulk. Liquid, gas, gravel, sand. Maybe some heavy project cargo and bare bones container shuttle. Break bulk? Not so much. So is there really a pent up demand for additional tonnage? Or is this a play to reduce costs for corporate/financial interests at the costs of ship yard jobs?

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Buzby in a recent appearance mentioned the many options they are looking at. One was buying used ships and converting them for RRF needs. Cato Institute is not for anyone or anything related to Jones Act trade. A consortium bankers and big business.

And what cargoes are they going to carry between US ports? Alaska oil production is at 15% of its highs. More cargoes to PR/Hawaii/Alaska? Except those fleets have all just been renewed. Who makes those owners whole for their investments?
About the only new cargo I can see would be LNG from the GOM to New England. I would be ok with a waiver for 3 or 4 foreign built ships there but thats it. Large cruise ships - probably too expensive with US crews.

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“That’s because commercial ships built in U.S. shipyards are expensive—frightfully so. A May 2019 Congressional Research Service report found that a U.S.-built tanker is roughly quadruple the price of a foreign‐​built vessel, while a U.S.-built container ship may be quintuple the price of one constructed abroad. For perspective, the same report said that the cost premium attached to U.S.-built ships shortly after the Jones Act’s passage was 20 percent.”

OK. So my question is “why”. Are the wages of US shipyard workers that much higher then the guys in S. Korea or Japan, or the other “first-line” producers?

You mean like how US mariners earn five times their non US counterparts? Probably. It’s almost like a law that forces someone to buy a certain product or hire a certain citizen leads to inflated costs due to market capture. Of course that’s part of it, but it doesn’t change the economics. A US Mariner financial needs are based in living in America and a standard above those of shipyard or mariner workers in foreign countries. Their wages will reflect this to a degree as it does in Korea.

So on one level—if this is where you’re headed by asking—-it sounds fair, “get rid of this law, it’s just gouging!” But that’s not the true picture. What the law does, like it or not, is force industry to pay in a meaningful way that introduces positive impacts to US communities, not just shipyards but those who teach welding or naval architecture and truck drivers moving materials. Think about the prosperity, the boom times of the bayou have brought, all the money it brought in, all the tuitions a few years of boom paid for only because the US law insisted on building US and hiring US. They didn’t last forever but they got some people homes, got their kids schooling, who knows how much health care either from work insurance or having money and if this one law gets removed to satisfy small interests, it’s all gone in any future boom for wind power or mining or back to oil and gas not to mention the tugs and barges that are vital.

It’s tempting to think about this as some industry to be sloughed off like Nike making sneakers in Asia. Why not make ships cheaper? Isn’t that good? “I thought globalism was good for consumers, why not for ships?”

Such comparisons are dangerous abstractions. These are two dissimilar things. Consumer goods versus industrial. What’s better for the US? cheaper sneakers for the entire population? sounds good, sorry about low paying jobs lost. Cheaper ships at the cost of all shipbuilding and ship related industries being lost? Won’t affect consumer prices for all Americans, not even a little bit—but takes out thousands and thousands of jobs across the US forever or until the US has the living standards of Vietnam shipyard workers.

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You got my question all wrong. I worked in the industry for 23 years - recently retired. I’m not comparing US wages to “fish-heads and rice wages”, I’m asking a “straight-up and genuine question” regarding the other first-world nation wages. Not the third world.

Oh, in that case, first world countries wise, there’s subsidies and cabotage in those as well, and often, a sense of enlightened self interest to invest at home.

Consider this report and all that Norway does, pay special note to the wages sections.

Latest available figures for shipyard workers around the world:
Japan:
https://www.salaryexpert.com/salary/job/joiner-shipbuilding/japan

Shipyard wages in S.Korea has been falling the last few years due to the slump in orders:

US shipyard welder wages:
https://www.indeed.com/career/welder/salaries?rawkeyword=shipyard+welder&from=acme-keyword-salaries&keyword=shipyard+welder

Welder wages, Netherlands:
https://www.payscale.com/research/NL/Job=Welder/Hourly_Rate

Welder wages, Norway:
http://www.salaryexplorer.com/salary-survey.php?job=6194&jobtype=3&loctype=1&loc=162

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There is not, nor has there ever been, any requirement that US flag ocean going ships engaged in foreign trade be built in the US.

Only the Jones Act domestic trade has a US build requirement. There are plenty of Jones Act qualified US built ships. The domestic trade is fully served.

There is no room for any significant growth in the domestic trade, “short sea shipping” unless it can take business away from trucks and rail. The only way to compete with trucks and rail would be to break the longshoremen’ s union (or require that every truck and rail car in American be loaded by 17 men making $150,000 a year each).

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