Welcome to mid Rats with sal from Commander Salamander, an Eagle one from Eagle Speak at Seer Shore your home for a discussion of national security issues in all things maritime. And good day everybody. Glad to have you a board and have always of our live show. I'd like to extend an invitation if you are so inclined, to scroll down to the bottom of the show page and
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show on a regular basis. And on today's show, we're going to dive into a topic we've touched on a lot recently, because as people look at China and they look at the developments in the Red Sea, there's an issue that keeps popping above the background noise, and that has to do with the US merchant marine and our maritime industry, especially with some of these We saw
these issues come out in the latest buzz proposal by the President. And if people are policy and policy shaped decisions, then you get around to asking a question, why would a nation like the United States of America wind up neglecting what really should be a core sector not just of its economy, but really its strategic advantage given its location in its industrial capacity. And of course we're
talking not just about military, we're talking about our civilian maritime industry. And our guest today we're going to use his recent article you can find it on g Captain in addition to a few other locations, titled the Urgent Need for US Maritime Reform. The guest and author of that is William Cahill. He's the president of Applied Maritime Sciences, a maritime technology and strategy consultancy, but he's really a coast guardsman at heart. Will it's great to have you on
mid Rights at last, guys. Thank you so much for having me on, and also thank you for what you do. I think mid Rats and your daily drumbeat of bringing some strategic thinking and logic to maritime and national security affairs is more valuable than you can realize. And I've been a fan for years, so it's just it's a delight to be on here with you guys to talk about an issue that it does require urgent attention and that I'm very
passionate about. And also thank you to the fantastic team over at the Boyd Institute who offered me the opportunity to put pen to paper on some potential policy options on how we can bring America's maritime approach into a more competitive mindset that is framed for a renewed era of great power competition, rather than continuing to hold on to things that don't seem to be working very well. And I like this fact that it's not a short article, but it's not too long.
I stripped out all the graphics and everything, and it printed out to about five pages, very digestible, but it got a lot of the ish heavy. Probably won't touch on them on the next hour, but that's okay.
Well, we'll try to hit the broad points. But when you look at trying to improve our nation's situation and perhaps repairing errors of the past while looking at what we need to do for the future, you need that creative friction, that argument, that critical thinking and critical feedback on how we're doing things to make sure that we're not static in collecting dust, that we continue
to improve things. And I think it's like the third section, and I've this a little bit in free shipt and so i'll our guests this is coming up because it really did kind of tickle that part of the brain. About the third sentence of the article. You brought up a two phrase, two word phrase that I think it's really powerful when you look at it and when you hear it. If it doesn't make you internally at least think of two or three more questions, you'd need to go back and read the read the
three sentences again. And it's a phrase policy neglect and first thing that came out in my mind, and you actually address these in part further of the article. It's a policy entitlement, policy inertia. But that's just what came out of my mind for the listener, because I think it really does frame a lot of your arguments and a lot of the things you point out later
on in the article and really address broader issues even outside the article. What how do you define that policy neglect and how it manifests itself in this topic. Yeah, great, great framing. And let me let me start out with little historical context, Like if you go back in time and you look at our first really kind of cohesive national maritime strategy, there was a lot of goodness in there, and I would say that's the Merchant Marine Act of
nineteen twenty. And if you look at the preamble, and I'm paraphrasing here, it is necessary for national defense and the proper growth of its foreign and domestic commerce, that the US have the best equipped, most suitable vessels to
carry the greater portion of commerce and to serve as a naval auxiliary. And it is the policy of the United States to do whatever may be necessary to develop and encourage the maintenance of such a merchant marine in the making of rules and rigs and the administration of shipping laws to keep always in view this purpose as a primary objective to be attained. So that was written one hundred and twenty four years ago, and it sure doesn't look like we've done that.
That's pretty righteous stuff. So if we can figure out a way, if we're going to actually treat the sector in a Mahonian fashion where we have a robust domestic American maritime sector that serves as a naval auxiliary and provides the workforce and dynamis and competition to allow the US to connect and trade competitively globally,
we need to actually have a maritime sector. We have some scintillas of a maritime sector, but when you compare and can trust that what's taking place in the world where we have you know, over fifty thousand deep draft, self propelled ocean going vessels that are moving eighty percent of global trade, So over fifty thousand vessels, and how many have an American flag about one hundred and seventy five. I mean, it's just mind blowing when people hear these figures,
like how is the US not really part of that ecosystem. That's a market. It's a market we're not really competing in with a few exceptions, and it's coming home to roost. So we basically need to look at what works, so we see that. You know, it's been great to see Secretary at dey'll Toro discussing some new options and kind of looking at this through
you know, more strategic lens. And you know, you saw the recent study that the Chinese ship building industrial base is over two hundred and thirty times as expansive as America's. I think that's probably not much of a surprise to most people have been involved in the sector for a while, certainly on the policy front. But does this matter, what can we do about it? How should we go about it? And we could kind of see the playbook
to some degree through policy lens. When you look at competitive maritime nations around the world, and one of the things that they have in commons is constant turn of their policies and the constant evolution, constant flux of taking an assessment of what's actually working, what's required to be competitive, and how do we adjust to maintain a position of the market authority and power and maintain the industry.
And meanwhile, in the US, that's not what we're doing. So that was kind of the premise for the article, because we've been effectively neglecting the necessary policies to develop this critical strategic industry. Well, what are some of the factors that have restrained our merchant or maritime industries from from developing as
they as we as we believe they should have. Well, so an interesting historical context to that is there is at least a century worth of GAO and various other studies that come up with the same conclusions because we've actually been pretty far behind for you know, basically ever since the Antebellum period. But America was was absolutely dominant as a shipbuilder and a true maritime nation leading up to the Civil War, and we built clipperships, you know, the most beautiful,
capable sailing vessels in the world. And then we kicked off the Civil War. In the meantime, the Brits invented steel, iron hauls, steam engines. We you know, a bunch of Northeast ship owners flagged out their vessels to avoid getting them sunk in the war. We passed laws to prevent them from coming back in because that was traitorous. The war ended, steam power had taken off, we didn't have any, and the appetite for wood and sale was a lot less because the world had evolved, and we've basically
been trying to play catch up ever since. So we've had a couple fits and starts, you know, between Obviously, liberty ships are often referred to as, you know, an indication of America's amazing industrial base, and we turned that on pretty quickly. It's pretty amazing we pulled off on that, but that wasn't really a commercial play, and that fleet quickly dissipated away. There were laws passed associated with that. We had a similar build up towards
the end of World War One. So we've had a couple surges. It doesn't look like we can replicate that. Now. We've been basically sitting back and it's become just such a hyper politicized sector that now every decision is focused very locally on how many jobs specifically in this congressional district rather than kind of
the fate of nation. Are we a maritime nation or not? And that's what we need to decide, and I think it's also telling how much of a knock on effect the fact that we don't we don't sustain much of a maritime industry here, And you could almost look at the same thing for you know, you mentioned the United Kingdom, is it has a knock on effect
on a lot industries. There was a very frightening chart that I saw a couple of weeks ago that had all of our precision weapons that everybody says we need to build more of, and it traced out the supply chain of where the material came from, and if we engage in a war west of the International Dateline, we're not going to have access to those sources anymore. And you get down to the point that I guess we'll be looking for as many
surplus dumb bombs as possible. But we still have a few blast furnaces here, but the UK is shutting down their last blast furnace. And I'm maybe using the wrong term, but we had one last remaining plate ten mill I believe it was in West Virginia that is now shutting down. We lost the ability to mine lead here about half a decade plus ago, and it's part of the challenge we have in maintaining our industry is we've made a mistake that
other nations have not made. And you know that maybe this is the time to talk about subsidies or tax incentives, but that we've lost the realization that the demand signal that comes from a sovereign shipbuilding industry doesn't just give you better control over your goods that travel at sea, but it also reinforces a lot of very strategic heavy industries that once they disappear, you can't recreate them in any short period of time. Yeah, that's that's great framing styles. The
maritime sectors are absolutely enabling the story. And there's a there's an interesting piece recently about how, you know, China has been working up the value chain of shipbuilding and is now starting to build cruise ships, and cruise ships have so many component they might have two million components in a cruise ship and there might be four thousand different firms that that supports, and the type of knock
on effects of having that demand signal within one one nation's economy has pretty strategic implications. And it's interesting that you mentioned steel because that's that was kind of the impetus for you know, for for my work on this on the associated policies. When I served on the National Security Council as Director Director for Strategic Planning, I was in the Strategy Office helping having a small part and helping
write the twenty seventeen National Security Strategy. UH. And you know, our main focus was shift you basically reorienting whole of government approach to confront China's economic aggression and kind of see it clearly. And it was interesting because present was very focused on bringing back some of these industries like steel and aluminum, and
well we had uncovered in my office. My boss was a hedge fund guy and a nuclear physicist and looked you had his own Bloomberg terminal and started looking at commodities and was like, whoa, there's something here with steel and metal, Like what's going on here in the US. And as it turns out, you know, we've shifted a lot of our steel production in this country
from oxygen blast furnaces to mini mills where we melt down scrap metal. So what because basically we've run out of a lot of the veins up and by the Great Lakes where you would be pulling tchnite out of the earth. It's just not as productive as it once was. You know, a lot of China steel is coming from Australia and other parts of the world being shipped in.
Meanwhile, we have an abundance of scrap metal, which is a much more economically viable production method for steel, because with an oxygen blast furnace, you basically have to be at ninety plus percent utilization to be running profitably, and if you don't have the feedstock to do that, you don't have the proximity to energy, energy costs, or high a lot of factors there versus a mini mill where you basically click a large reastack you can adjust the amount
of feedstock and power in and steal out. And so you would think that this would be something we'd be really good at. And it turns out the US is the number one exporter of scrap metal on the planet by a significant margin. This is my numbers are a couple of years old, but I think we're around twenty million tons a year of scrap metal that we ship out of the country, and the next highest was either Japan or Germany at about
seven million tons. And guess who who buys that scrap metal and melts it down and turns it into capital assets and shipyards and ships and infrastructure that gives back for a century or more. Well, not people that like us very much, And so why do we share all this strategic commodity out of the
country. Well, we should be turning these supply chains inwards. And it turned out that part of the reason was we couldn't get the scrap metal to our own coastal minimals because we don't have any Jones Act bulkers zero, So
we don't have that type of ship. So there's a limited amount of scrap that moves in smaller slugs and rail and barges and inland of the waterways to some degree, but a lot of the heavy stuff that basically congeals in major coastal areas and gets shipped out because it's much cheaper to sell it and transport it that way than not getting in front it back into the US production.
We just can't do it. So that kind of opened up this whole aperture of like, WHOA, what's going on with the US fleet and the fact that we don't really have one, and then how does that impact US production in all these strategic industries. Yeah, you know, I think we're you touch on the Jones Act, you touch on some of the other laws impact us. And I'm looking at the effect of some of the NIMBI stuff where people don't want large steel mills in their neighborhood. They don't want you know,
these non ecological UH things being around. I mean, I know I was at Hunter's Point Naval Shipyard, and I know that left a lot of debris. I know, Mayor Island Shipyard. We had all these these government run shipyards. We're down to too very few at the at the present time. You know, it's not just the the UH. This is a long way of saying it's not just the maritime laws that are impacting this, but
there's a whole host of other reasons. Some of this stuff is has was bracked out of existence or just just nobody can afford to do the the studies, UH to to justify putting a ship od new shipyard, say into into
San Francisco Bay. Yeah, I think that's that's a great point wherek the you know, what we saw is a significant factor in UH mitigating the development of coastal maritime heavy industries is real estate near the water is just expensive and it's going to go to the highest bidder, and often the highest bidder is going to be very politically connected and is going to get you know, is going to want to have some beautiful condos on the water, something that produces
high ROI. And it's tough to compete if you have a you know, proposition to expand a shipyard or even a port or any of these you know, coastal heavy industries that that's an absolute challenge, especially in you know, in in a democracy where that is capitalism based, where ROI is a factor. But it goes back to, you know the fact that we need to decide as a as a people, are we a maritime nation? Does it matter? And then we need to have policies that set up the capability to
allow that to flourish. And you know, one of the places, for example, that we were identifying as a really good candidate for new shipyard would
be Puerto Rico. If you if you look at the economic profile of Puerto Rico and you look at the geographical if you look at trade lanes basically going from Panama Canal to anywhere, you're going through this American island that's literally called rich Port and has very little port activity and very little maritime activity and has optimal year round weather for shipbuilding, and a workforce that is largely unemployed.
There's plenty of opportunities to line there to make a big deal on new shipyards. And there's there's all the reasons in the world where we should be looking all over the country to find, especially in special economic zones and areas where we can build the necessary work force over time a partner with allies, we should be building war shipyards. There's no question that that would be a smart move. I like to bring up to people where they talk about, well,
you know, I don't care what Eric used to do. You know, it's too hard. We can't get there. It really can't be. Because let's go right on the edge of a living memory nineteen fourty five to nineteen fifty right after World War two kind of states and stood afort the entire planet as just a powerhouse. So now a maritime industry was beyond the powerhouse.
It was unassailable, and there were nations is mainland in China we called it beat and especially after the Korean War, South Korea, which was completely destroyed. If you look at what the RAF and the Eighth Air Force did to the port of Hamburg that I was at a few years go, that
was completely obliterated, and then they took the obliteration and shredded it. However, when you look at today, very very high standard of living, high tax, high income Hamburg, and then you work down from there South Korea and in China, they had these incredible shipbuilding businesses that had to do because of focus and policy. Are there some things that we could learn from the Germans and the Koreans and the Chinese in their rise that we could use as
a benchmark if we make the decision that we want. Yeah, absolutely, Yeah, Again, the playbook is in front of us. You know, that's that's been the biggest challenge for growing American shipbuilding has been that the capex is just untenable. You know, typically building an equivalent ship with the same design and same components. You know, domestically in the US, you're looking
at three to five x versus international market rates. And often that is you know, what is often blamed is, hey, we have a higher standard of living, we have higher wages. It's just you know, we and you know, they've got subsidies and the list goes on. Well, the fact is if you actually compare apples to apples on wages, US shipyard wages are lower than Korea and Japan and Germany, And so how are they doing it? And what it is is, in part it's dramatically higher productivity.
And so if you look at what the Japanese have been doing with high levels of automated laser welding, what the Finns do with amazing icebreaker technology with explosion welding large plates to similar metals, these are things that are largely anathema here in the US. There's there's a lot of political inertia against things because it's often seen as a threat to jobs. But pretty soon you don't have any jobs because you don't have an industry. And it turns out a really good
way to be uncompetitive is to not compete. And so we do have opportunity, and I would say a mandate here to turn on some policy solutions. And we look at the amount of money that gets poured into silly things that we can't point a finger at what it accomplished. You know, it's mind boggling that like money is not an issue. We are a wealthy nation. Yes, we're running crazy deficits, but let's at least get something for it. And if we're going to be a maritime nation, then we need to
put some more resources towards that. But we have to do them in smart performance, spased accountable forms of support. They can't simply be well, we can't point to where the money went, which has been a large part of what one we have had a little bit of this, you know, subsidization. It's really tough to point to what we're getting. Well, let's suppose we went to Charleston, South Carolina, where the shipyards, i mean,
the dry docks are still there. They may be commercialized right now, but is it is it possible for some great tax policy in your mind to come in and say, okay, we will we don't want to subsidize you, but we're going to open the gates so you can employ people, will train people all that stuff to build the ships. And then and then we have a Merchant Marine Academy and and in fact, we have several of them around
the country. Uh are we are? We just training maritime officers that have no place to go except to work in the offices of mariad or on some MSc ships where are all these people going uh, well they well they certainly aren't going to see uh. And and the ones that do are often having, despite graduating with the unlimited credentials, UH, are often having to serve as able body seamen to do their time for the union before they can they
can join US officer. UH. And that's that's uh. You know, when the barrier to injury is that high where you're producing these arguably national assets of these trained mariners at our state maritime academies and Merchant Marine Academy, but then they can't get a job in the in the industry, and you know, their their mariads pretty kg. With the data on you know what percent
of graduates from the maritime academies get underway. You know, we could track that with strategic sealift officers, and there's there's some level of fidelity with that, but you know, we don't even there's there's argument we don't even know how many merchant mariners we have evidently. Uh. You know, there was a merchant Mariner Working Group study a few years back that's often cited by policymakers as pay you know, in a full scale strategic sealift enduring kinetic situation,
we're going to be about eighteen hundred mariners short. Now, if you look at that report, I would say that was largely sam as dot in in the NSC because we actually did some analysis and allow of that report didn't make much sense. The sad thing is we don't know how many we have.
We know what the Coast Guard Credentialing Center, how many credentials are produced, and that sited in the report it was something like thirty thousand more merchant unlimited credential merchant mariners than the Merchant Mariner Working Group says, And they said, well, that will require additional study to figure out the delta. So if it's a is it a thirty thousand surplus or is an eighteen hundred deficit.
The fact that we don't know how many merchant mariners we have and the fact that we send out you know, Marid sends out periodic surveys to say hey, are you still active or would you mobilize if you want it? If we needed clift and like I could tell you, China is not rolling nice
on strategic mobility. The US needs to get its We need to figure out what we require, you know, mobility capability requirements, study what do we require of the auxiliary merchant fleet, and then if it's a strategic comparative, we need to fund it. We need to make it happen, because that's
not what we're doing. Yeah, it's always amazed me. You know, here we are a nation of three hundred and thirty million, with our pretty much our own continent, with our Canada being America's hat and Mexico being our
mid skill level production floor. We're very blessed. And yet you have other nations like Norway and Denmark that have what five and a half million population, but you do see them heavily in the maritime arena, and they historically, unless you want to throw the Vikings in the mix here, they don't have any more of a maritime tradition than we once had. And we are in
many ways in controlling our own destiny. People are policy policy directs a nation, and we really shouldn't be able to blame anybody but ourselves when we look at what other nations are doing. And you use another phrase in your article that I kind of liked because it tickled by my optimistic cynicism in a way,
as you called the street abyss K Street. Most people listeners here know that's the K Street in DC where a lot of the lobbyists are that are keeping us where so many of our laws and regulations are from the eighteen nineties, in the nineteen twenties and the years in between, not within living memory. Who's paying who the lobby for what in K Street that has dug out this abyss for our maritime industry. Well, let me just first say that
K Streets doing their job right. I mean they're doing damn good job. Like they're doing damn good job of what they're you know, the folks that are paying them and saying whatever you do prevent change, man, they're winning.
Now that has significant negative impacts to our national strategic competitiveness. But I had an interesting discussion the other day with the buddy on the Hill and we were discussing kind of some of the themes of the piece I put out and some of the discussions its churning up, and you know, he said, well, so, like what are the solutions, Like what do we do? And I said, well, what's the goal? You have to start
with the goal And he said, well, that's easy. It's marginal improvement over the status quo, and I said, dude, that's what got us here. Like we are so two hundred and thirty times the ship buildings past with us in China? How is that acceptable? Ten thousand plus merchant chips often with party members on board and duly use capability of the sigant collection, and what do we like? How is this? It's so far behind, We are so far behind. It's such a big gap that marginal improvement over
the status quo never gets us there, not even close. And I would argue, I think I mentioned in the piece. You know, one thing I haven't really seen articulated is we're kind of dropping the ball. As allies. We're not a very good ally if we're not pulling our weight. We do so much in multilateral and international operations and I mean we're pulling, you know, pulling the cart in so many ways, but when it comes to maritime, we're not pulling our weight here, and we our allies deserve better,
America deserves better. And a big part of the challenge is k Street's really good at doing their job, and these guys get paid extremely well, and the money that gets spent on lobbying to prevent change is really attractive money for politicians because it doesn't matter which party you are. All we ask is, don't do anything, and we'll max out your campaign and you can go into open secrets and you can map this all out. And I saw it
play out in every discussion when I was on the NSC. You know, once you get up to the cabinet level or so in discussions, well what is Lejah Faris say? And then that's where things kind of fall apart, and so you'd have these ridiculously strategic, ready to go solutions and then you you know, get to the principal's committee level and it starts falling apart on
anything maritime because what is Legia Fari say? And Legia Faras is answering often to their their next employer over on K Street, and anything maritime, no change, We can't do change. That's too scary, you know. So that's that's something we have to resolve for. And I think part of it is just this education piece and having these discussions and not really vilifying anyone.
I mean, again, this is what we know, like this is everyone involved, you know, the various carriers, the Jones Zach carriers, the shipbuilders, counseled American American Maritime Partnership. You guys are all they're doing their
jobs. This is what they know. But we need to as a nation decide, okay, like are we gonna are we gonna accept this or are we going to swing for the fences here and actually do the right thing and build up a maritime capability because it's not it's not certain that during the wartime economy that we're going to be able to summon international assistance to keep our domestic supply chains going. So we actually do have a true demand signal for having
a viable domestic maritime sector. Uh, not to mention the obvious dual use purposes. Yeah, I soon remember that post desert storm, after the some of the fiasco of getting shipping to get stuff to the various sports in Saudi Arabia, that we we once again went to the to the they said, okay, we're going to build up our capabilities, our SEALSS capabilities, and and we did for a while. And but now all those ships are good guys, they're they're thirty thirty plus years old, and and uh, you
know, we're not seeming to be able to replace them. Uh. Who you know, and we've got all these obviously, the laws like the jonesach law. Uh. I mean, it's under a lot of debate. Is
it time to take a look at that and change it? I know in your article you talked about that, but you know, talk a little bit about what why we keep we keep thinking we're going to do something and then and then, and I guess maybe it's k Street and once you once you start doing someone, you can't if it goes too far out out of hand, then they have to they have to reel it back because it would be too big a change. Yeah, A couple of thoughts. So you mentioned
desert storm. There's there's a great UH Transcom paper called I Believe So Many, So Fast, So Far, And it's a kind of a monograph retrospective on the logistical operations, and there is just amazing amounts of great information, super insightful. On the Selift side, they're very revealing about where we were in you know, nineteen ninety ninety one, where we were arguably in a
much better position in terms of being a dominant hyperpower. And so you can imagine, you know, thirty plus years later, our fleets, you know, had the domestic or our US flag fleets half the size the mentioned the Ready Reserve Fleet is thirty years older. Often, you know, we have
the world's largest steamship fleet, which is the Ready Reserve Fleet. The RRF is the you know, forty six or so auxiliary marid owned vessels that MSc would would turn on with a five day Some have a ten day readiness alert
strip alert basically to get underway and help provide strategic mobility. Now, the challenge is, you know, we we had a turbo drill a couple of years ago where basically unannounced, some of the vessels have to get get underway to test out this capability because the rest of the year they're just sitting there with a skeleton crew that's basically trying to keep the thing afloat, and something like forty percent of the vessels couldn't get underway. So again, you know,
we're our model is not working. We're we're rolling the dice on strategic mobility. That's something that we we need to figure out and get serious about rather than just continuing to admire the fact that, as you mentioned, there's always going to be like, Okay, we got to get serious about this. Like, oh, we got to I think part of the challenge is what's the demand signal? You know, what's the So there's a strategic demand
signal that's obvious if you're transcom combatant commander for example. Uh, it's clear like what are we going to do here? And then you have there's there is an alliance. You know, we're not going to go it alone, god willing, but we we owe it to the republic to be able to have the capacity to move into theater and sustain operations because if we don't that that work comes home depending on the I mean that that that's not acceptable.
And we have this amazing geography that has, you know, in traditional warfare allowed us to avoid that to a large degree. That that is quickly getting neutralized. Uh. And we need to have the the shipping capacity to maintain not only sea lift but also domestic supply chains. And just to give you an idea of how willful the current status is, as I mentioned before, we have we about one hundred and seventy some on US vessels of ships.
And part of the challenge here there's a lot of slight at hand. You know, often when you discuss with industry Reps and Lobby and Mayrad and others. Oh, well we have thirty thousand. You know, we have this robust ecosystem. The Jones Act has provided us this huge domestic shipping fleet of thirty thousand vessels. But you'd start looking into it's like, well, twenty five thousand of those are fun powered barges. Got a couple thousand tugs.
Get how many ships? Do we have the thing that actually can move bolk commodities and provide you know, back to that preamble the Merchant Marina Act in nineteen twenty where it actually talked about moving hundreds of American commerce, like how do we get to that? Can we get to that? And part of the challenge is that it's the fleet has basically retreated into only the supply chains
that can support the extreme costs. And again, if you have a capex for the domestic side of three to five x, and then you have an apex of operating US flagship that's about three hundred percent of market rate for the rest of the world, how do you compete? You can't compete. And so that even is reflected in our domestic supply chains where if you look at the Jones a fleet which is about it's about ninety ninety or so ships right now, and you break that out by deadweight, tonnage, by application,
something like eighty percent of the fleet is product tankers. So you can basically track out the economics of well, you know, that's a that's a highly inelastic good regardless of price. People need energy, and so we can ever so slightly beat out you know, foreign imports on you know, West West Coast of Florida importing finished product from Gulf Coast refiners. So it's the most
inelastic possible supply chains that support these things. And so what we end up having is a fleet that is not the most well equipped and suitable for moving American heavy industries and anything that's manufacturing, any manufacturing that is transportation intensive, is very what will thrive in an environment and an economy that has complex supply
chains or can facilitate complex supply chains, including maritime commerce. And there's a great infographic of an airbus I think as an airbus a three twenty being built in Europe and basically breaks out where all the various components come from and how they get there, what the modal shares are, and a lot of it is various types of maritime transportation. And so if you can't replicate that in
a country, then you don't have that industry. So there are significant impacts to what industries the US can support absence having strategic mobility for the economy. That's a great lead into a question I really wanted to get to on today's show, and you set it up for it because and we've talked about a lot here and I love talking about logistics to get the other side of the International date line or you know what it's like to chug at eleven not across
the Atlantic to the far into the Mediterranean on a shallow boat. But you know, let's look, let's look internally here. Everybody should get a globe, if not get a paper chart or if you have to just bring up Google Earth. And one thing that the Good Lord has blessed the United States with is the Mississippi River. And we have improved an already good interior lines
of communication by water by for instance, the Inn Coastal Waterway. And one of the first things you learn in logistics economics one oh one is the most efficient way to move move items is by water. Uh. Then after that rail ground then air. However, you brought up an example that that really kind of set me back, and I will that's a perfect example of the problem that we have is globally in the energy marketplace, the United States is
one of the powerhouses when it comes to liquefied natural gas. But in spite of that, and in spite of our blessing of natural and improved waterways, we've got a little problem with our own huge energy product. Talked a little bit about that, the the LNG paradox that we have intentionally inflicted our economy.
How that operationalizes sure, so so the the other, uh, the other motor transportation that kind of beats everything when it comes to energy as pipelines, right, So that's that's like in an optimal system, you would have of pipelines probably for just about everything, you know, whether it be a hyper loop or it's a traditional pipeline, but pipelines make a lot of sense.
And we have this this ridiculous situation where where the number one producer of natural gas on Earth, and yet Americans are the only humans on the planet that are not allowed to buy American energy. And so that's a challenge because we don't have pipelines everywhere. We don't have nearly enough pipelines to what's called
Pad one A, which would be New England. So we've got you know, twenty million or so people up there with very restricted pipeline energy access, retiring coal plants, retiring nuclear plants, increasing the demand for natural gas, but no way to get it there aside from shipping it in. And so you know, you've got the inn. I mean, it's just it's mind
boggling that we're really good at this. And we have LNG export terminals as close as Maryland in Savannah and along the Gulf coast, but we can't move LERG to ourselves as an economy because we don't have any Jones Act compliant so we don't have any US built, US crewed, US owned US flag LNG carriers and LERG carriers are on the on the spectrum of vessel built complexity would
be very high, very challenging for a number of reasons. You have, you know, one hundred and seventy thousand cubic meter cryogenically cooled prismatic tank. You know, that's not just something you can build from from scratch from the ether. You have to have an industry that already does that or slowly build
it if there's a demand to do that. So you know that that that's a number of challenges for US if you have on occasion Russian product coming in to the US economy at very high costs to keep Grandmam from freezing during a polar vortex. UH, and then the same vessel loads up with American freedom molecules at very low costs and then goes off to somewhere like Pakistan at one third of the price. And so how how does that make any sense?
And and part of the challenge there is when when we tried to address this specific issue in NSC forty five, you would think that you would think we pushed Grandma off a cliff, God forbid an attack on the every every, every challenge that we tried to UH encounter head on and come up with pro American solutions that were strategically grounded on the maritime sidle ended in shouting matches over
the Jones Act. And so that was that was quite insightful. And you know what we what we had been working on was UH, the ability to waive Navigation and Inspection law was specifically for this challenge, and in a manner that would be accompanied by building the domestic industry and sunsetting the waiver as soon as the US have the capability, and in the meantime, the waiver would only apply to Allied owned Allied crude lergy carriers which preserve slots billets for American
mariners, because low and behold, when you don't have that type of a fleet, you don't have mariners trained to operate that type of fleet. So perhaps it would make sense to knock out all these birds with one stone and in the process make some of these LNG projects down off of Venezuela that have she Maduro and putin fingers in them vaporized, because we could supply our own energy better than depending upon operations down there that currently provide American energy, which
is again baffling. But as a result of that effort, I believe there were four to six pages of new language in the twenty twenty NBAA, basically eliminating the executive branch Navigation Inspection waiver capability, or at least truncating it to the point where it's impossible to use. So again, that was my e Street story for this one. Yeah, as an old oil and gas company lawyer, the pipeline problem into New England is caused by New York. They
have vetoed having a pipeline go up there. So yeah, it is totally nimby and what we talked about earlier, but we can talk about that for hour. What we really need to do is get through some of your solutions for the for the mess working. And you've listed some in your in your paper, and I don't want to read them out loud, but you kind of run down what we can do with with the with in your in your as you said out in your paper, what can we do about the mess
we got? Well, so again, you know, one thing we can do is look at what works, and we see, you know, there's a couple of different paths here. We see China's gone from you know, fifteen years ago they were kind of a blip on the reader and shipbuilding and today they're the you know, fifty plus fifty plus percent of ship's order last
or built Chinese shipyards. And and that becomes a strategic problem domestically for US as well, because we even have US flag carriers constantly spending money in Chinese state owned shipyards, which is baffling as well because with the money they save, they then you know, throw galas to Basically it's wild, it makes no sense. But we should absolutely have a prohibition on US flag and Jones JAFF shipwork in Chinese state owned shipyards. Like that's number one. Very easy
solution on that. Let's stop paying tribute to the Chinese maritime sector. So a couple of things. We need to look at what works from a holistic perspective, and we need to attach comparative advantages and leverage those. One thing that's going to be I think really big and that we're working on in my
team is applying some nuclear logic to the maritime sector. So we have this amazing seventy one percent of the globe covered in water, we have this massive shipping logistic industry, and a huge amount of capital decisions in shipping and shipbuilding by the carriers are driven by things like emissions caps from the International Maritime Organization. IMO. The real answer to resolve a lot of these things is a return to civil nuclear propulsion. Now this isn't an a savannah, this is
advanced generation for small modular reactors. There's all the reasons in the world. Why the US should be at the forefront of this and currently on the microreactor side and the SMR side, US is years ahead of everyone. So we should leverage that advantage to kickstart American dynamism in the maritime sector. And there's many reasons why why that makes sense. But it's a it's a it's a very it's a win win all around growing strategic industry with one that we need
to rebuild. Let's marry those together. And we've got the capital, we've got the workforce on the on the nuclear side, we can we can blend those two things in a very smart way. I'm convinced. So another area we you know, another solution that makes all the sense in the world, is we do need to modernize our various maritime loss So not just the Jones Act, Merchant of the Foreign Gradi Act of nineteen oh six, Passenger Vessels Services Act. We need to look at how what is the goal. Are
we trying to build national shipping capability? Are we trying to build strategical mobility? None of it's working. How do we accomplish that? Well, one thoughtful way that seems to make a lot of sense would be to work with our allies, and the bar Is solo that I believe we could do this in a way that lifts all ships, so to say, and doesn't harm what we have, and we could structure this in a way that does no
harm by having basically the price of admission. If you want to enter into the US domestic shipping market, which some of our allies have intimated very strong interest in doing because it's a latent opportunity because it's so undeveloped, one of the options would be then the price of admission is some percentage of your fleet needs to be built in the US, so there's your demand signal. And also some percentage, perhaps the majority of billets aboard whatever vessels you admit,
need to be preserved for American merchant manners. And again the bar Is solo that anything like this, anything would help, but we need to swing for the fences, and I think this one would have a number of advantages. Now, part of the challenge, as I mentioned before, is if the policy it's hyper political, and even if you look into the SEC filings of some of the JONZAC carriers, you look at the ten K risk section, the number one thing for risk of all the carriers is any modification of the
law, and that includes partnering with allies like explicitly. You actually find that in in the ten case. And there's another interesting incentive asymmetry here where the next biggest risk is any competition, and that's specifically that's not just competition from foreign carriers, that's competition from domestic careers or within one's own fleet. So any increase in capaci long one's fleet reduces the rates, and so that's spelled
out. So then there's a disincentive to recapitalizing or expanding fleets, and over time that drives cargo into oblivion. And then you have challenges like that I've never seen articulated, but is observable with things like the Maritime Security Program, which is the five plus million dollars per haul stipends that basically enroll in the
Visa Voluntary Intermodal Sealiftact. So basically U S flag vessel foreign belt US flag, so US crew often end of life would otherwise be on the shores of the Bengal or for breaking, but you know, half back Lloyd or Marisk might be able to eke out a couple more years of operations and the numbers might work with with these stip ins dangerous if you say subsidies. Mara doesn't like that. And so part of the challenge is every time that there's stipe
and there. Right now it's about five million a ship. There's efforts under way to revise that up to six and a half seven and a half eight and a half million per year per ship. What that does is that drives up It's the same workforce laborpool for the Jones athleete domestically, and so as soon as that the preponderance of that differential is labor. So three x on op X for US flag, ninety plus percent of that is labor, just
what it is. And so when the MSP rates go up, that drives up the cost of labor within the Jones ax fleet as well, because it's the same labor pool that's competing for those bills. So you end up having this disincentive to shifting because it becomes more expensive within the Jones athlete every time the MSP increases. So we have to kind of figure out how to square those circles. Because again the intent is good, it's just not working.
And there's also the intellectual competition I've gone on. I wanted to circle back to something and on a not unrelated topic, I tweeted it out earlier today, since twenty fourteen one thing that I've just beat my head against the wall.
I love the National Guard and I love reservists to death, but I've always thought that, while making it incredibly professionally rewarding for your ambitious young officers, that we really should send our best senior threes junior fours as observers to Ukraine even right now, just to be able to learn and to get a
different perspective. And you've brought up an interesting idea going back to the merchant mercer marine academies that I kind of like talk for a little bit about your maritime fullbright exchange idea and how do you think this could help the larger issue? Yeah, so absolutely. I think as we've discussed, like the workforce is a big challenge, we have to make the maritime sector, especially seafaring jobs which you're often away from home a lot like how do you compete?
How do you make that attractive? So it's something we need to we need to tackle, and one way to get much better would be across the maritime sector would be to look at our partners and allies who are just knocking out
of the park and figure out how to learn from them directly. And you know, the State Department has this great fulbright program, and wouldn't it wouldn't it be spectacular for the strategic industry if the government could fund Americans going over to our partners and allies with comparative advantage in maritime sector and learning from the
best. And I would see this as a as an expansive program, not necessarily just for people seeking naval architecture degrees or merchant Marine Academy grads or naval officers. This could be the model of cross pollinating work, or at least pollinating and coming back and then maybe there's some type of exchange could be expansive for even our our ratings and uh aboard our ships and our maintainers and our
shipbuilders. This should be like absolutely happening at scale, but certainly would be smart to start where we have the most control, which would probably be what kind of like what you're suggesting with with some of our you know, top performers coming out of various government sponsored training pipelines, let's get get them overseas and learn from the people who are doing really well with this and that you know, relationships matter, uh, And it's not just the the intellectual stimulation
and learning that is being brought back, but it's lifelong relationships with people who are really good at this industry that we need to get much better at. So I gather as part of that the shipyard concept that we're asking that the Japanese and the Koreans to come help us out. I mean that that's a
program that would benefit a great deal. I would think from having our engineers and architects and marine architects and stuff go over and see how they're doing things and the technology which you've already talked about, and what Finland is doing, what of these other countries are doing helping to assemble these merchant ships in ways that I'm not sure we have anywhere in the country, the capability of DONA. I could be wrong, but it seems to me that that would be
a very important thing for our guys to see. Absolutely. I think it's extremely refreshing to hear the Secretary of Navy going with developing policy options to bring our allies here to the US to help build our industrial base, and not to mention there's potentially, you know, if they're thinking strategically, which often you know they do press better than us, that provides some defense in depth
of their strategic industry. Because when the balloons go up in indopay com, you can guarantee that those those shipyards, our allies shipyards there are targets. So having some defense in depth and building that here in the US would have profound benefits, especially because competition is so low currently. I mean, we only have three active shipyards in the US building vessels over one hundred you know, ships over one hundred and fifty meters, like we don't we're not building
any ships, you know, certainly not at a meaningful rate. So there would be all types of reasons would be beneficial to us, perhaps a little more a little more difficult articularly why it's beneficial to them, But there are
reasons. Again, the defense in depth one would be particularly strategy. Now, there is a little bit of cognitive dissonance when we have, you know, announcement about US steal being bought by Nippon, and then there's a lot of political furor over hey, well, you're taking away this American industry. Well, but can you come over here to Bill Chips. You know,
like there's a little bit of dissonance there that we need to reconcile. But we should absolutely to look at all of the commercial industries that we're thriving in have massive international supply chains. You you mentioned earlier that some of those are going to be put to test if China decides to make it challenging for us. So we need to keep that in mind as we build this this early
new partnership. And part of the challenge too is, you know, a lot a lot of the steel for shipbuilding that's imported is coming from China. A lot of the vessel components are coming from China, thankfully, h engines high high propulsion systems often coming from Northern Europe, uh some Korean firms. But the shipbuilding and what little limited shipbuilding was taking place in the US is
already backed by significant international supply chains. But somehow we're still again three to five x is expensive using the same components and everything, So we have to address that with productivity enhancing investments. Amen to that, it would be nice to have a little bit of the sparkly stuff that you see in other places that with then Livy memory, their shipyards were nothing but mud banks and reeds. Uh And and well we have reached the end of the hour. Been
a great fast hour for the for the listener. If they wanted to keep track of you, where's a good place for them to keep an eyeball? And he has some other projects that you're working on that we should keep an eye out for. Yeah, so I think that that was that was I feel like we just started, uh started getting there and we didn't even get into the ports issues. But uh, work to do on all that.
I am. I'm mostly active on LinkedIn, uh not not really out there on the socials other than that, but I find that to be a pretty pretty potent uh venue for some cerebral activity. Uh. And the main, main, main thing my my team's working on right now is figuring out ways to accelerate, uh the development and partnerships and regulations necessary to set the conditions for a lot more American dynamism in the maritime sector, particularly leveraging our growing
nuclear advantage. And then I would say we're also looking at things like artificial intelligence, robotics at sea, and perhaps some advanced manufacturing offshore, including shipyards, so stay tuned. Well, I know Paul actually asked about AI and in shipyard and ships earlier on in the show, so maybe we could have a conversation later on on that when y'all get some work done on it. Thank you very much and I hope you have a great spring. Likewise,
pleasure to join you guys, and thanks for what you do. Thank you will. It was good show and we appreciate it, and we appreciate everybody. Join us for another edition in mid Rats until next time. I hope you have a great navy and Coast Guard day. Cheers, replies name Mike Mooney wants to marry me and all leave a friend of Codily for you'll be to blame. Hold me sid folding all the name. It's along way, It's a long way. It's a long way. Go well listen, well,
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