Make America great again! Invest in US shipping, shipbuilding and steel

Over the last forty-five years, the decision by US companies and the US government to support deregulation and outsourcing of ocean shipping has forced US shippers to rely on foreign flag carriers with few ships left in the US fleet.

This vacuum has allowed China to grow its shipbuilding, and ocean shipping and build new container terminals at ports around the world, according to Arnav Rao, Transportation Policy Analyst at the Open Markets Institute: “We saw bankruptcy after bankruptcy merger after merger happen in the ocean carrier industry … American President Lines (APL) and SeaLand were bought up and to foreign competitors who were subsidized and had lower cost structures. So that, that's really how China and these other players got ahead in that space.”

In an interview with AJOT, Rao argues that the Trump administration’s criticism of Chinese investments in terminals accessing the Panama Canal misses the point: China is investing in new container terminal operations around the world and the United States is not.

Rao said the maritime gap between the United States and China can be best understood by the fact that China operates 5,500 ocean-going vessels worldwide while the United States has a fleet of 87 vessels.

At the Open Markets Institute, Rao researches maritime trade and transportation policies. Before joining Open Markets, Rao worked in the U.S. Senate for Senator Jack Reed (D-Rhode Island). Previously, he worked for the government affairs divisions of Tesla and Union Pacific Railroad. Rao is a Georgia Tech graduate.

Rao said that while the United States cut back subsidies and supports for U.S. shipbuilding and U.S flag vessels, China invested billions of dollars in shipbuilding: “A report by the Center for Strategic and International Studies (CSIS) showed that Chinese shippers and shipbuilders averaged about $15 billion per year in combination of state financing and subsidies. They provide direct subsidies and indirect subsidies through intellectual property theft and through cheaper inputs. The Chinese steel industry, for example, was very heavily subsidized.”

Nippon Steel’s Acquisition of US Steel Could Help US Shipbuilding

Rao notes that steel accounts for 60% of the cost of the construction of a container ship.

Rao said, "A strong shipbuilding sector requires a strong domestic supply chain for shipbuilding - including steel. President Biden’s decision to block the proposed acquisition of U.S. Steel by Nippon Steel was a necessary step to ensuring that critical U.S. steelmaking capacity is not offshored, but it will not be sufficient to revive shipbuilding or the steelmaking industry. U.S. shipbuilding and steelmaking needs a system of tariffs and subsidy to ensure that key inputs are made in America."

Others have argued the United States could have helped its steel industry and U.S. shipbuilders’ access to competitively priced steel by supporting Japan’s Nippon Steel’s acquisition of U.S. Steel. Rao argues Nippon Steel could have injected new funding into modernized U.S. steel production that would have supported lower cost ship construction. Instead, the Biden administration rejected the Nippon Steel bid for US Steel on national security grounds. The result is the United States robbed itself of the ability to modernize steel-making that could have also supported new U.S. shipbuilding—in support of US national security.

Shipping’s National Security Impact

As part of the outsourcing trend of the last forty-five years, Rao argues, that US manufacturers imported steel from foreign countries that subsidized their steel industries, such as China’s, and denied sales to US steelmakers.

The loss of US shipbuilding and shipping has then had the impact of reducing the number of shipyards of not just commercial ships but also warships and military sealift ships for the US Navy. For example, Rao says, the US military sealift capacity lacks 90-100 ocean-going tankers to fuel warships in a wartime emergency.

President Trump’s criticism of China’s investment in container terminals at the Panama Canal misses the broader issue, he says. China is way ahead of the United States in shipbuilding and in shipping and is moving ahead of the United States in the construction of naval warships.

The key to China’s success is leveraging the investments it has made in mass-producing commercial tankers, bulk carriers, and container ships and constructing warships, such as aircraft carriers in the same shipyards thereby reducing costs and increasing production:

“A report by the Center for Strategic and International Studies (CSIS) showed that Chinese shippers and shipbuilders averaged about $15 billion per year in combination of state financing and, subsidies. And not only do they do, they provide direct subsidies, they provide indirect subsidies … (utilizing) intellectual property theft and cheaper inputs. The Chinese steel industry, for example, was very heavily subsidized.”

SHIPS ACT

One hope for the United States is the proposed SHIPS which seeks to expand the U.S. flag fleet by 250 ships in 10 years by creating the Strategic Commercial Fleet Program. This would support building a fleet of commercially operated, U.S.-flagged, American-crewed, domestically built merchant vessels that can operate competitively in international commerce. 

According to a December 19 press release: “Senator Mark Kelly (D-AZ), Senator Todd Young (R-IN), Representative John Garamendi (D-CA-8), and Representative Trent Kelly (R-MS-1) introduced the Shipbuilding and Harbor Infrastructure for Prosperity and Security (SHIPS) for America Act, comprehensive legislation to revitalize the United States shipbuilding and commercial maritime industries. After decades of neglect, the United States has a weakened shipbuilding capacity, a declining commercial shipping fleet that is dwarfed by China, and a diminished ability to supply the U.S. military during wartime.

This historic bipartisan proposal would restore American leadership across the oceans by establishing national oversight and consistent funding for US maritime policy, incentivizing domestic shipbuilding, enabling U.S.-flagged vessels to better compete in international commerce, rebuilding the U.S. shipyard industrial base, and expanding the mariner and shipyard workforce.

“We’ve always been a maritime nation, but the truth is we’ve lost ground to China, who now dominates international shipping and can build merchant and military ships much more quickly than we can,” said Sen. Kelly, a US Navy veteran and the first US Merchant Marine Academy graduate to serve in Congress. “The SHIPS for America Act is the answer to this challenge …”

Rao is uncertain that Congress will pass the full legislative proposal for the SHIPS ACT. He believes the tax credits might be one aspect that is enacted.

FMC Enforcement Could Be Undermined

Today, US exporters including agriculture exporters, are dependent on a small group of ocean carriers that dominate global markets: “The industry's become so concentrated that carriers can now slow steam and provide blank sailings and generally a worse service product to shippers overall. And, and at the same time, charge them exorbitant rates and engage in peak season surcharges.”

In 2024, Peter Friedmann, executive director, Agriculture Transportation Coalition (AgTC) hailed the new rule issued by the Federal Maritime Commission (FMC) implementing the Ocean Shipping Reform Act which also addresses Detention and Demurrage fees assessed on shippers by ocean carriers.

In an interview with AJOT, Friedmann said: “The real effect of the (FMC) rule was the requirement that under the Ocean Shipping Reform Act, carriers must disclose to shippers why it is that they are charging the fee for Detention and Demurrage. What was the event? Often the carriers did not know. The carriers need to know why it is that they were charging the fee. When they found out in many cases the issue could be resolved …”

Rao worries that FMCs powers to help US shippers and exporters will be diminished by the Trump Administrations mass firings of federal employees that will also rob the FMC of the specialists needed to investigate and regulate unfair ocean carrier practices.

Threat to Farm Exports

In addition, farm organizations are warning that President Trump’s executive order that put a freeze on all foreign aid and dismantled the U.S. Agency for International Development (USAID) hurts American farm exports because the freeze curtails purchases of US grains exported to support food programs.

A February 18th report in Successful Farming explains: “USAID is one of the biggest purchasers of sorghum and other excess grains. Without their purchases, those grains could flood the market and drive down prices. More than 450 producers around the country have contracts with USAID, according to an analysis by the Institute for Development Impact, and the agency’s purchases at grain elevators benefit many more. Food for Peace, one of USAID’s programs, provided nearly 4 billion pounds of American-grown food to 58 million people globally in 2022, according to the U.N. World Food Programme.”

China Expands Container Terminal Construction to Latin America

China is continuing to expand its so-called ‘Belt and Road’ initiatives that have seen the construction of new container terminals in Latin America, Asia, Europe, and in Africa, as Rao explains:

“China has control in the vast majority of the world's largest ports if they're not exclusively Chinese controlled, they have a terminal that's Chinese controlled or has Chinese influence. And … the Chinese have understood … that if they want to be a major power on the world stage, they have to be a major maritime power. And they … put their money where their mouth is … And because of the cost structures of U.S. companies … building new ports and new terminals, U.S. bids, just aren't competitive with subsidized Chinese bids.”

On November 14th, China’s new container terminal at Chancay, Peru was inaugurated and will expand the network of Chinese shipping in South America. The terminal is designed for a throughput capacity of 1 million TEUs, 6 million tons of bulk cargo, and 160,000 vehicles annually. US officials are worried that this terminal will expand China’s influence in South America. Peruvian government officials have countered that if the United States is so concerned about China’s investments in Peru and Latin America, then it should make more investments in the region rather than criticizing China.