{"id":35264,"date":"2024-10-11T17:12:22","date_gmt":"2024-10-11T17:12:22","guid":{"rendered":"https:\/\/keepcalmnprofit.com\/2024\/10\/11\/new-ships-offer-a-case-study-in-protectionist-dysfunction\/"},"modified":"2024-10-11T17:12:22","modified_gmt":"2024-10-11T17:12:22","slug":"new-ships-offer-a-case-study-in-protectionist-dysfunction","status":"publish","type":"post","link":"https:\/\/keepcalmnprofit.com\/2024\/10\/11\/new-ships-offer-a-case-study-in-protectionist-dysfunction\/","title":{"rendered":"New Ships Offer a Case Study in Protectionist Dysfunction"},"content":{"rendered":"

Colin Grabow<\/a>\n<\/p>\n

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Last week, the Philly Shipyard announced <\/a>the ceremonial start of construction on three Aloha class containerships. While typically a celebratory occasion, the cutting of steel for these ships should be more accurately viewed as marking a grim milestone for American shipbuilding. At $333 million each, the vessels symbolize a stunning lack of competitiveness and the failure of US maritime protectionism.<\/p>\n

The ships\u2019 price tag is almost difficult to fathom. For perspective, the same shipyard was contracted to build two Aloha class containerships\u2014i.e., almost the exact same vessel (the new ships feature a more advanced LNG propulsion system)\u2014in 2013 for $209 million each<\/a>. That\u2019s an increase of well over $100 million in nine years (the new vessels were ordered in 2022<\/a>).\u00a0<\/p>\n

Further, consider that two LNG-powered containerships were ordered<\/a> from a South Korean shipyard in 2022 for over $200 million less per ship<\/em> than the new Aloha class vessels despite having more than double their cargo capacity.<\/p>\n

Why the vast price difference? As one Danish maritime publication put it<\/a>, \u201cIt\u2019s not because the ships are built from gold plates instead of steel plates, but the US shipbuilding industry is way, way too expensive because it\u2019s not competitive.\u201d<\/p>\n

This lack of competitiveness is a natural outcome of not having to compete. Instead of carving out a specialized niche within the global market, US shipyards almost exclusively operate within a captive domestic market created by the 1920 Jones Act<\/a> (large Navy and Coast Guard contracts restricted to<\/a> US shipyards<\/a> also encourage this domestic orientation). Among its provisions, the law requires that vessels transporting goods within the United States be constructed in domestic shipyards.<\/p>\n

In theory, such protectionism ensures the existence of capable shipyards to meet the country\u2019s national security needs. Indeed, Jones Act advocates insist the law helps provide a \u201cmodern<\/a>\u201d and \u201crobust<\/a>\u201d shipbuilding industrial base.<\/p>\n

But these claims are at odds with the facts.<\/p>\n

Far from robust, US shipyards\u2019 collective output ranked just 15th globally from 2019\u20132023.<\/p>\n

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These numbers make it more difficult for US shipyards to justify the investments needed to stay on the industry\u2019s cutting edge, as such outlays are spread across relatively few vessels. This contributes to a pronounced technological gap<\/a> with foreign shipyards. Indeed, one member of Congress recently stated<\/a> that some US shipyards appear unchanged since the 1930s.<\/p>\n

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“When you go visit Hanwha…you go visit Hyundai, you go over to Japan…it’s like it’s looking at a 21st-century shipbuilding and ship repair exercise. You go to some of [our shipyards], it looks like it hasn’t changed since the 1930s.”<\/p>\n

A subpar protected industry? Wild stuff. https:\/\/t.co\/DmARncYiae<\/a> pic.twitter.com\/E43NV5fAe2<\/a><\/p>\n

\u2014 Colin Grabow (@cpgrabow) September 26, 2024<\/a>\n<\/p><\/div>\n<\/div>\n

The US shipbuilding industry is caught in a vicious cycle. As costs escalate, demand decreases, putting further upward pressure on costs as the economies of scale<\/a> needed to remain competitive further erode. While US-built ships cost roughly double<\/a> that of ships constructed abroad as recently as the 1970s, today they can be four or more times<\/a> the world price.<\/p>\n

Their price goes higher still if one accounts for the numerous subsidies provided to the shipbuilding industry. Philly Shipyard, for example, received<\/a> $438 million in 1997 and another $42 million in 2011 to pay for various upgrades. It also benefits from a $1 per year lease<\/a> from the quasi-public Philadelphia Shipyard Development Corp, and<\/a> numerous<\/a> federal <\/a>programs<\/a> meant to promote domestic shipbuilding.<\/p>\n

And that\u2019s on top of the Jones Act, itself a significant subsidy to US shipyards.<\/p>\n

The icing on this protectionist cake is that the few<\/a> large commercial ships delivered by domestic shipyards are only superficially \u201cUS-built.\u201d While assembled<\/em> in the United States, these ships heavily<\/a> rely<\/a> on imported parts and components. The previous two Aloha class ships (designed<\/a> by a South Korean firm) feature<\/a> foreign-built engines, propellers, and other key machinery. Even much of the steel was imported<\/a>.<\/p>\n

According to one Philly Shipyard executive, at least half<\/a> of the parts and components in a US-built ship are foreign-sourced.<\/p>\n

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While there\u2019s nothing objectionable about imports, their use shatters any notion that costly Jones Act protectionism frees the United States from relying on foreigners for its shipbuilding needs.\u00a0<\/p>\n

If meant to ensure a vibrant shipbuilding industry, the Jones Act\u2019s\u00a0prohibition\u00a0on foreign-built vessels has clearly come up short. But this failed policy also inflicts\u00a0myriad\u00a0harms. High domestic shipping costs\u2014largely due<\/a> to the inflated cost of buying the actual ship\u2014serve as a de facto tax on intra-US commerce that hurts businesses<\/a> and consumers<\/a>. There\u2019s more pollution<\/a>, congestion<\/a>, and wear and tear on highways as cargo is diverted to less costly transport modes such as trucking and rail. Foreign trading partners maintain barriers<\/a> to US exports in retaliation for Jones Act protectionism.\u00a0<\/p>\n

Not least of all, forcing Americans to pay inflated prices for new ships is also a transparently self-defeating method of encouraging a healthy and capable US merchant marine\u2014ostensibly one of the Jones Act\u2019s chief tasks.\u00a0<\/p>\n

When Philly Shipyard\u2019s new containerships are finally delivered, they will no doubt be greeted with much pomp and circumstance. One of them might even be named after a politician<\/a> with a well-established record of advocating on behalf of the shipping industry. For most Americans, however, these ships represent dysfunctional protectionism for which there is precious little to celebrate.\u00a0<\/p>","protected":false},"excerpt":{"rendered":"

Colin Grabow Last week, the Philly Shipyard announced the ceremonial start of construction on three Aloha class containerships. While typically a celebratory occasion, the cutting of steel for these ships should be more accurately viewed as marking a grim milestone for American shipbuilding. At $333 million each, the vessels symbolize a stunning lack of competitiveness <\/p>\n","protected":false},"author":0,"featured_media":35265,"comment_status":"closed","ping_status":"closed","sticky":false,"template":"","format":"standard","meta":{"footnotes":""},"categories":[22],"tags":[],"class_list":{"0":"post-35264","1":"post","2":"type-post","3":"status-publish","4":"format-standard","5":"has-post-thumbnail","7":"category-investing"},"_links":{"self":[{"href":"https:\/\/keepcalmnprofit.com\/wp-json\/wp\/v2\/posts\/35264"}],"collection":[{"href":"https:\/\/keepcalmnprofit.com\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/keepcalmnprofit.com\/wp-json\/wp\/v2\/types\/post"}],"replies":[{"embeddable":true,"href":"https:\/\/keepcalmnprofit.com\/wp-json\/wp\/v2\/comments?post=35264"}],"version-history":[{"count":0,"href":"https:\/\/keepcalmnprofit.com\/wp-json\/wp\/v2\/posts\/35264\/revisions"}],"wp:featuredmedia":[{"embeddable":true,"href":"https:\/\/keepcalmnprofit.com\/wp-json\/wp\/v2\/media\/35265"}],"wp:attachment":[{"href":"https:\/\/keepcalmnprofit.com\/wp-json\/wp\/v2\/media?parent=35264"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/keepcalmnprofit.com\/wp-json\/wp\/v2\/categories?post=35264"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/keepcalmnprofit.com\/wp-json\/wp\/v2\/tags?post=35264"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}