Two years ago, I sold one of the last American offshore drilling vessels to a foreign buyer. The Ocean Titan was an obsolete jack-up rig, an equipment platform for deepwater exploration and development. Over its forty-year lifespan, American shipbuilding had been ravaged by rivals abroad and burdensome regulations at home. Today, the industry falls grievously short of the hope expressed by the drafters of the Merchant Marine Act of 1920: “that the United States shall have a merchant marine of the best equipped and most suitable types of vessels.”
That law, informally known as the Jones Act, played a perverse role in the slow and steady suffocation of the American shipyard. Among other stipulations aimed at protecting a robust maritime economy, the Jones Act scrubbed foreign competitors from domestic seaborne routes. Cushioned from the rigors of the global marketplace, U.S. shipping lines gradually surrendered the hotly contested international routes to more ambitious players.
Jones Act defenders argue that the protected domestic shipping lines sustain a cohort of commercial seafarers ready to serve the country in case of national emergency. But in just such an emergency – the devastation wrought by Hurricane Maria – the limited supply of Jones Act-eligible vessels artificially inflated operating costs. Last month, while working with charitable organizations to send relief shipments to remote areas of Puerto Rico, my team found that the dayrates of Jones Act-eligible offshore supply vessels were not remotely competitive with foreign-flagged vessels.
The real threat to our security is not lack of seamanship, but the loss of the skilled blue-collar workforce that manned our once-booming shipyards. From the 1970s, when the Ocean Titan launched, until today, the number of large American-flagged commercial vessels shrank by ninety percent – literally a decimation.
When commercial shipbuilding falters, naval shipbuilding follows suit. In the same period, the Department of the Navy shuttered more than half its shipyards. The remaining facilities can barely service the existing fleet, let alone the 355-ship force structure proposed by Navy planners and endorsed by President Trump on the campaign trail. The loss of these skills and facilities are a national defense crisis unfolding in slow motion.
The joined fates of a nation’s public and private yards are not lost on our allies or adversaries abroad. Korean shipbuilders are famous in the drilling community for underbidding on contracts to win business from their Asian competitors. One Korean official once explained the losses they absorbed as the cost of skill acquisition for national defense contracts. He told me, “The crews that build your drillships are the same crews that build our destroyers.” Though shipbuilding in Korea is in some sense a cautionary tale – many lost their shirts chasing volume – it remains a pivotal industry and a growth driver for the Korean economy.
American shipyards may never compete for comparatively simple vessels such as tankers or container ships, but they are still capable of producing cutting-edge, often custom, pieces of machinery. Currently, however, stringent environmental and safety regulations drive the costs of these vessels into the stratosphere.
Creative policy-making, informed by private-sector knowhow, can offset that regulatory burden. Take drilling vessels: The construction of a single vessel requires approximately six million skilled, blue-collar man hours of labor. The Bureau of Ocean Energy Management could prompt a long-term restructuring by discounting the royalty rates – the U.S. government’s cut of oil revenue – on offshore leases for American drillers who commit to using American-built and American-flagged vessels.
Lowering the upfront costs of offshore development on these conditions would bring business back to American shipyards. Economically depressed regions across the country would see benefits spidering through different sectors, including steel, heavy equipment and electronics. Stronger competition among the commercial yards would drive down the cost of military procurement. The royalty discounts would coax runaway Fortune 1000 companies back from their tax havens, with downstream tax revenues allowing the federal government to recoup the cost of the discount.
Similar economic stimulants could lure back orders for floating cranes, pipe and cable laying vessels, and other technically-demanding seacraft. By focusing on incentives rather than century-old protectionism, we can fulfill the original mission of the Jones Act and set the stage for the rebirth of the great American shipyard.
Stefano de Stefano is an energy attorney and challenging U.S. Sen. Ted Cruz, R-Texas, in the Republican primary challenger next year.