SHIPS for America Act: The Numbers Don’t Float
On April 30, Senators Mark Kelly (D-AZ) and Todd Young (R-IN) and Congressmen Trent Kelly (R-MS-1) and John Garamendi (D-CA-8) reintroduced the SHIPS for America Act, potentially reshaping U.S. maritime policy, backed by US taxpayer dollars.
The SHIPS for America Act’s hallmark is the creation of a “Strategic Commercial Fleet” of 250 U.S.-built, U.S.-flagged vessels by 2035 that engage in the international market and could also be called upon by the U.S. government in moments of need. To create the Strategic Commercial Fleet, the U.S. government will enter into 7-year contracts with owners of qualifying U.S.-built, U.S.-flagged vessels (note: certain foreign-built vessels will be accepted until more US-built vessels are available).
Qualification: U.S.-built, U.S.-flagged vessels, U.S. crew
Stipend?: Yes, to effectively compete with foreign-flagged and foreign-built vessels in the global market when not serving the U.S. government
Budget: $2.1 billion — or $8.4 million per vessel
The proposed SHIPS for America Act is comparable to the active Tanker Security Program (TSP).
Qualification: Foreign-built, U.S.-flagged vessels, U.S. crew
Stipend?: Yes, to cover the increased operating expense (opex) of utilizing U.S. crews aboard their ships
Budget: $6 million per year per vessel
One goal that sets the SHIPS for America Act apart is having U.S.-built vessels with government contracts that include financial support for the increased capital expenditure (capex) of building vessels in the U.S. instead of at a foreign shipyard.
While TSP has just an opex consideration, which costs $6 million per year, the SHIPS for America Act is meant to cover both opex and capex–so how does this fit into the policy’s $2.1 billion budget?
Cost to build an MR Product Tanker (U.S.): $250 million
Cost to build an MR Product Tanker (South Korea): $50 million
Capex: $200 million
Capex per year (over proposed 7-year contract): $29 million
If we add a $29 million capex subsidy to the $6 million opex subsidy (based on today’s TSP stipend), that means the SHIPS for America Act will pay as much as $35 million per vessel per year in subsidies. A budget of $2.1 billion per year would only allow for a fleet of 60 vessels––well short of the stated goal of 250 vessels.
In summary, something has to give.
The target size of the Strategic Commercial Fleet must be reduced by 76%, or,
U.S. shipyards must figure out a way to reduce the cost of vessel construction by 80%, or,
The SHIPS Act budget needs to be increased from $2.1 billion per year to $8.8 billion per year.
The SHIPS Act policy vision is ambitious, patriotic, and geopolitically strategic—but unless U.S. shipbuilding costs collapse or budgets balloon, the numbers don’t float.
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Addendum: On a closer rereading of the SHIPS Act, the capex subsidy can be recouped over a 21 year horizon regardless of whether the operating agreement is renewed beyond the initial seven year term (as the balance will get paid through a termination payment even if operating agreement isn't renewed), but the opex subsidy is dependent on whether the operating agreement is renewed (the logic being that the shipowner could make the decision in the event of non-renewal not to continue bear the increased opex of operating under the U.S. flag with U.S. crew). Using my original example, the math then looks like this: $200 million U.S.-build cost differential divided by 21 years equals $9.5 million per year in capex subsidies. If we add $8.5 million in opex subsidies (reflecting the figures highlighted by Senator Kelly's teams) that gets us to $18 million per year in total on a per ship basis. Multiplying that figure by 250 vessels gets to $4.5 billion which is still more than double the proposed $2.1 billion max budget in the bill but is admittedly less than what I had put forward above.
