U.S. Maritime Policy Needs an Overhaul
U.S. maritime policy is a grievous failure. Whether evaluated in terms of effectively meeting national security requirements or bolstering the country’s economy, America can point to few successes. Inefficient commercial shipbuilding barely registers as a rounding error in global output while costly U.S.-flagged shipping is typically only employed when other options are exhausted. A shocking lack of competitiveness has led to both considerable economic harm and the withering of these maritime industries into shells of their former selves. Such are the fruits of a maritime approach rooted far more in status quo bias and the guiding hand of entrenched special interests than 21st-century needs and realities.
Belatedly, the scale of dysfunction has begun to register in Washington and a long overdue conversation has begun over how to reverse matters. Most of the solutions put forth, however, are tepid and unequal to the task before them.
Tinkering at the margins will not do. To unlock the country’s maritime potential and address its glaring national security deficiencies, policymakers should resolutely advocate for measures that place them at odds with powerful groups seeking to perpetuate the status quo. In particular, they should focus on reforming outdated protectionist laws that impede the use of allied resources and replacing indirect assistance to the maritime industry with targeted aid whose costs and benefits are transparent. Absent such action, maritime decay will continue apace and the United States will persist in ceding the oceans to a world that refuses to stand in its own way.
The Costs of a Failed Approach
Although numerous metrics demonstrate the maritime industry’s descent into mediocrity, few capture it more starkly than the state of commercial shipbuilding. Despite American manufacturing and technological prowess, U.S. shipyards’ output in recent years has ranked just 15th in the world. So gross is the industry’s lack of competitiveness — building ships for four or more times the average world price — and so paltry is the demand for its offerings that the sector’s collective output amounts to just a fraction of one percent of the global total.
Not only a far cry from the dominant shipbuilding triumvirate of China, Japan, and South Korea, U.S. numbers also trail the likes of much smaller players such as Finland, the Netherlands, and Norway.
A requirement that vessels used in intra-U.S. waterborne commerce be domestically constructed — mandated by the 1920 Jones Act — means that this shipbuilding inefficiency poisons American shipping. Burdened by excess capital costs, the competitiveness of water transport is such that despite numerous geographical factors tilting in its favor — including a vast coastline home to 40 percent of the U.S. population, expansive inland waterways, the Great Lakes, and shipping-dependent non-contiguous states and territories — the mode accounted for less than 4 percent of freight moved last year. Water transport has deteriorated into almost niche status and what should be a key asset providing efficient transportation across the country’s vast expanse goes woefully underutilized.
This has consequences for the broader U.S. economy, including some of the country’s most strategic industries. Thanks to pricey (or in some cases, non-existent) shipping, U.S. refineries purchase oil from abroad instead of the Gulf Coast, Puerto Rico meets its bulk liquefied gas needs from distant Nigeria and other sources instead of the U.S. mainland, and steel is imported instead of purchased domestically. The competitiveness of American firms is undermined and the viability of domestic supply chains is shattered.
Frustratingly, these are but a small sampling of the costs incurred.
National Security Needs Unmet
Beyond sapping the country’s economic vitality — the sine qua non of U.S. power — these maritime shortcomings also have implications for the country’s defense. Americans have become alarmed to learn over the past year, for example, that China’s shipbuilding capacity exceeds that of the United States by a factor of 232 (although its capacity to produce complex naval vessels is almost certainly less) and that a single Chinese shipyard has more capacity than all U.S. yards combined.
Perhaps more important than this relative disparity is the country’s inability to build new Navy ships and maintain existing ones. Decades of uncompetitive shipbuilding have degraded the industrial base to the point where there isn’t sufficient shipyard capacity to meet U.S. national security needs.
Shipbuilding’s travails, meanwhile, are matched if not exceeded by those of the U.S.-flagged oceangoing fleet. Currently comprised of approximately 185 large cargo ships — fewer than 170 of which are deemed militarily useful — its numbers have more than halved over the last 40 years. The dwindling fleet corresponds with dwindling crews, and a 2017 government report found the United States would face a deficit of at least 1,838 mariners in the event of a sustained sealift operation. Understandably, questions have been raised over the fleet’s ability to meet U.S. sealift requirements.
The decline in oceangoing ships partially reflects the domestic fleet’s devolution into one increasingly centered on tugboats and barges. Whereas self-propelled ships accounted for over 75 percent of coastwise cargo carried as recently as 1980 (and 90 percent in 1960) with the remainder carried by barge, by 2022 that number had slipped to 51 percent.
Much of this barge cargo is moved by articulated tug barges, a vessel type superficially similar to self-propelled ships but that lacks their efficiency in moving cargo over long distances. According to the Congressional Research Service, the vessels’ usage is attributable to the high cost of building and crewing Jones Act-compliant ships. That roughly two-thirds of all the world’s tugboats used in articulated tug barges are found in the United States further suggests their employment reflects uniquely costly conditions created by the Jones Act. Rather than use self-propelled ships, Americans frequently make do with a simulacrum (one whose mariners do not require the necessary licenses to crew sealift ships).
But the maritime rot goes deeper still. The high cost of U.S.-built ships also means that existing vessels in the Jones Act fleet are kept in service far longer — sometimes decades longer — than their international counterparts. These elderly ships, in turn, frequently rely on state-owned Chinese shipyards to meet their considerable maintenance and repair needs. Incredibly, U.S. policy’s deterrence of fleet modernization is generating business for the shipyards of arguably its main geopolitical rival.
Ancient ships are similarly abundant in the grey-hulled sealift fleet, with the ships of the Ready Reserve Force averaging 44 years of age. While the purchase of some used foreign-built vessels for defense needs has been permitted as a stop-gap measure to renew the fleet, protectionist laws stymie the Department of Defense’s ability to procure new vessels or repair existing ones in allied countries. Related measures have forced the Coast Guard to turn to an inexperienced domestic shipbuilder to attempt construction of its Polar Security Cutter — a program now delayed by at least 5 years and billions over budget — instead of expert allied shipyards.
And on it goes.
Underwhelming Solutions on Offer
U.S. maritime dysfunction has reached such a scale that alarm bells have begun ringing on Capitol Hill. In January, 19 members of Congress co-signed a letter highlighting the U.S. shipping and shipbuilding industries’ alarming downward trajectory, while Rep. Mike Gallagher fired off a similar letter prior to his April departure from Congress. More recently, four members of Congress, including Sen. Mark Kelly and Rep. Mike Waltz, released a report outlining objectives and principles for a national maritime strategy to address glaring deficiencies. While attention is welcome and overdue, many of the proposed policy changes are not commensurate to the challenge at hand.
One of the Kelly-Waltz report’s few specific calls to action, for example, is to leverage “tools such as tax incentives, enhanced cargo preference, operational subsidization, and federal financing” — all of which are already in use in some form — to expand the U.S.-flagged fleet. Similarly, a recent congressional roundtable on U.S. shipping and shipbuilding saw industry and labor representatives proffer ideas that went little beyond tax incentives and new requirements that shippers utilize U.S.-flagged vessels.
On the shipbuilding front, meanwhile, a July appearance by Kelly and Waltz on the War on the Rocks podcast saw talk of unspecified federal spending, “opportunity zones” for shipyards, and reforms around permitting and environmental regulation to rejuvenate the domestic industry. While some of these ideas might be worthwhile, such policy tweaks appear unlikely to reverse the fortunes of an industry whose lack of international competitiveness stretches back at least 150 years. In other words, the vast preponderance of contemporary proposed solutions either double down on existing programs and paradigms or offer only minor improvements.
Righting the policy ship, however, requires bold new thinking. Marginal changes to status quo policy will only produce marginal changes to status quo outcomes. Given the present dire state of affairs, all options should be on the table. Measures currently under consideration will not suffice if the United States is to break free from its maritime torpor.
Towards a New Maritime Vision
Bold thinking means a willingness to re-examine all elements of U.S. maritime policy, including some regarded as sacred. Given the depth and magnitude of current problems, nothing should be considered off the table. It is in that spirit that the following suggestions are offered for consideration.
Update the Jones Act
Widely regarded as the foundation of U.S. maritime policy, many of the most deep-seated problems with the U.S. maritime industry are due to the provisions of this outdated law. Passed in 1920 but little changed from its early 19th-century antecedents, the Jones Act is almost wholly unsuited to 21st-century maritime realities.
Particularly out of step is the law’s requirement that all vessels used in intra-U.S. trade be constructed in domestic shipyards — a requirement that no other country imposes. Never mind its harmful economic effects, the U.S.-build mandate utterly fails from a purely national security perspective. Commercial shipbuilding output borders on negligible, with years sometimes passing without a single large oceangoing merchant ship being delivered.
In exchange for this meager output, the domestic fleet is rendered smaller, older, and less capable than would otherwise be the case due to crushing capital costs unrivaled in the world. It’s a bargain that makes little sense, particularly given U.S. shipyards’ heavy reliance on imported parts and components — frequently from China — for the few large ships built domestically. Any notion that the Jones Act’s high costs grant the country a shipbuilding capability free of foreign reliance is illusory.
In addition to its build requirement, the Jones Act’s restriction on foreign mariners — limited to permanent alien residents that comprise no more than 25 percent of a vessel’s unlicensed crew — is also ripe for reassessment (an idea already broached by some in the domestic maritime industry), particularly during a time of crew shortages. The law’s limit on foreign ownership also demands a second look given its deterrent effect on investment and practical enforcement difficulties.
The Jones Act is a law rooted not in immutable truths but in the conditions of a long-bygone era. Properly understood, many of its prohibitions amount to a self-imposed embargo that benefits U.S. adversaries by severing the country from allied capabilities and know-how.
Although some voices, including Kelly and Waltz, maintain that the Jones Act should not be revisited because it ensures access to ships in case of war or national emergency (a claim perhaps rooted more in theory than reality), this is entirely the wrong framing. The question should not be whether the Jones Act provides some de minimis levels of shipping (and shipbuilding), but rather whether it creates these resources efficiently and in sufficient quantities. The answer is a resounding “no.” If maritime policy was written from scratch today, few would arrive at the Jones Act as an optimal means of addressing U.S. national security needs.
Eliminate Cargo Preference Laws
Due to their high operating costs (approximately $7 million higher per year than those of equivalent internationally flagged vessels) and ensuing lack of competitiveness, U.S.-flagged ships depend heavily on laws mandating their use for government-impelled cargo. This is a deeply flawed approach to promoting a U.S.-flagged fleet.
The harm inflicted by cargo preference is at least two-fold. First, requiring the use of these ships imposes high costs on the military — which has expressed past concerns about the financial burden of U.S.-flagged shipping — and civilian government agencies subject to cargo preference laws. Second, access to mandated cargo disincentivizes cost control, thus undermining the competitiveness that ought to undergird commercial U.S.-flagged shipping.
Targeted maritime subsidy programs should be direct and transparent, with clear dollar amounts that enable the cost-benefit analyses essential to good public policy. As has long been recognized, cargo preference is the opposite of this.
Reform (and Possibly Expand) Subsidy Programs
A superior method to indirect subsidies is more direct aids such as the Maritime Security Program and Tanker Security Program. Each program provides an annual stipend to participating vessels in exchange for the Defense Department’s assured access to them during armed conflicts or national emergencies. The costs and benefits are visible and easily measurable.
While the concept is sound, such programs should be reformed by establishing a bidding system to ensure the stipend — currently set by statute — matches market conditions and incentivizes cost control. In addition, funding for these programs and determinations over their size — reflecting perceived sealift requirements — should come from the Department of Defense.
If defense officials determine current shipping to be inadequate, the number of participating vessels could be expanded (ideally funded with savings from the discontinuation of cargo preference).
Establish a Second Ship Registry
Commercial vessels registering under the U.S. flag are internationally uncompetitive largely due to numerous accompanying requirements, including the employment of U.S. citizen mariners, payment of U.S. taxes (e.g., payroll taxes and a 50 percent tariff on vessel repairs performed abroad), and subjection to U.S. laws (including the ability to file lawsuits over personal injuries, which raises vessel insurance costs). A straightforward means of expanding the size of the U.S.-flagged fleet would be to establish a second ship registry akin to those operated by Denmark, Germany, Norway, and others that feature less onerous conditions. This new registry could distinguish itself from the legacy U.S. registry by offering a competitive tonnage tax and relaxing the U.S. citizen mariner requirement (which could be applied only to senior officer positions, or removed and replaced with a generous tax credit for those companies that hire U.S. citizen mariners).
Although availing themselves of many of the privileges of U.S. flagging, such as U.S. Navy protection, such vessels would be ineligible for coastwise commerce or participation in U.S. subsidy programs linked to sealift needs.
Update Restrictions on Military Use of Foreign Shipyards
While there is value in preserving a U.S.-controlled shipbuilding industrial base to construct Navy and Coast Guard vessels, such considerations should be weighed against the benefits of constructing and repairing vessels on time and cost-effectively. Meeting military shipbuilding needs requires that the balance between these two considerations — almost currently entirely tipped toward the former via protectionist statutes — be more evenly struck.
Fortunately, there is growing recognition, including from members of Congress and the secretary of the Navy, of the necessity for the United States to avail itself of abundant and competitive allied shipbuilding and repair capabilities. Indeed, the Commission on the National Defense Strategy recently called for the expanded use of such shipyards to address maintenance and shipbuilding needs.
This is not advocacy for wholesale outsourcing but to recognize that for some vessels in some circumstances, the cost and time savings of allied construction and maintenance are of such magnitude that they outweigh other considerations. Among the candidates for such treatment are the disastrous Polar Security Cutter acquisition as well as non-combatant support and sealift vessels whose overseas construction offers higher quality, faster timelines, and dramatic cost-savings — no small matter in an era of record budget deficits.
The Path Ahead
These proposals do not constitute an exhaustive list of those worthy of examination. Other items, such as reforming overzealous environmental laws that hamper shipyard development and establishing a Merchant Marine Reserve to address concerns over mariner numbers and reliability, also merit strategizing. But these should be adjuncts to reform instead of their centerpieces. Redesigning the main pillars of U.S. maritime policy to comport with modern realities should be at the forefront of modernization.
True maritime reform advocacy is not for the faint of heart. The protections and policies highlighted for reform have accreted a collection of powerful special interest groups willing to dedicate considerable resources to their preservation. But confronting them is what’s required to craft a maritime policy that meets American economic and national security needs. The simplest approach would be to continue with the policies that have led to the abysmal status quo — or worse yet, further strengthen them — but that road’s destitute destination is already known. The country’s maritime future depends on a decisive break with its failed legacy approach.
Colin Grabow is the associate director of the Cato Institute’s Herbert A. Stiefel Center for Trade Policy Studies. He can be found discussing maritime topics on X at @cpgrabow.
