While the United States’ shipbuilding and ship repair industries have foundered, China has made it an industrial priority. By the end of fiscal year 2028, the U.S. Navy will have 291 battle force ships, four less than the 295 it currently has. At the same time, the People’s Liberation Army Navy (PLAN) is expected to reach 440 battle force ships, a growth of nearly 140 in a decade.Already outnumbered, the U.S. Navy will be unable to deploy many of its ships because of abysmal readiness rates.
Currently, the United States can expect to prevail in a potential contested Taiwan scenario, but victory is not assured in the long run as the PLAN continues to grow. Without a major paradigm shift, the only way to counter this overwhelming mass is with more mass.
A New Course
Money alone will not create the maritime industrial base the United States needs. Despite getting the funds for two Arleigh Burke–class destroyers a year, the United States has only been able to build one and a half a year on average. Going forward, the United States should consider two new strategies: the Chinese and the Norwegian. The strategies are not mutually exclusive, and the best results will be achieved if both are implemented; however, this might not be possible because of political and monetary constraints. The Chinese strategy would mirror China’s scrap-and-build subsidy used to ensure the health of its shipbuilding industry during the economic downturn of 2008. The Norwegian strategy would follow the Norwegian shipbuilding company Vard. Vard manufactures its hulls in Romania, where labor is cheap, and then outfits them in Norway, where it has the skilled labor to do this complicated work.
The Chinese Strategy
The Chinese strategy focuses on a strong commercial shipbuilding sector to create the necessary infrastructure and supply chain for a robust military shipbuilding capability, both in a steady state and in a surge. In 1993, China’s market share of the world’s commercial shipbuilding was 3 percent. Today, China is building nearly half of the world’s commercial ships and has more than 55 percent of new orders. Conversely, when the United States was six ships shy of a 600–fleet Navy in 1987, the nation’s 69 shipyards had no commercial customers; they were utterly dependent on the Navy. Today, the United States has only four shipyards constructing large oceangoing commercial ships, and they account for only 0.35 percent of all new commercial ship construction. According to the 2023 IBIS World report, roughly one of every six renminbi China spends on shipbuilding is on ships ordered by the People’s Liberation Army Navy. In the United States, the numbers are nearly opposite; the military accounts for more than six of every seven dollars spent on shipbuilding and ship repair.
The core element of the Chinese strategy is the scrap-and-build subsidy implemented following the 2008 financial crisis. Implemented in 2010, the subsidy provided funds to Chinese firms to upgrade their fleet at a significantly discounted cost. When China implemented the subsidy, the age of the Chinese commercial fleet was at or below the world’s average, between 10 and 25 years old, depending on ship type. Four years later, no ship type had an average age more than 10. In addition, modernizing led to a more reliable, fuel-efficient, and competitive fleet.
The United States should implement a similar scrap-and-build subsidy. In 2016, the average age of a U.S. Jones Act ship was 33, compared to a world average of 13. As of January 2022, the U.S. Jones Act fleet consisted of 99 ships. For about a fifth of the cost of the subsidy already provided to semiconductor manufacturers, the United States could subsidize the replacement of each ship in the Jones Act fleet by $100 million. For reference, the two Kanaloa-class vessels—the largest combination container/roll-on, roll-off ships ever built in the United States—cost Matson, Inc. $250 million apiece in 2020.
In addition, this subsidy is an ideal candidate for Inflation Reduction Act funds, which set aside $370 billion for tax breaks and subsidies to efforts that cut U.S. greenhouse-gas emissions and boost green industries. Further incentives are possible through programs such as the Justice40 Initiative, which set aside about $40 billion for labor training and workforce development to mitigate climate change. More funds also are available through the Bipartisan Infrastructure Law, which seeks to reduce carbon emissions and improve critical infrastructure. Turning over the Jones Act fleet would reduce greenhouse gas pollution and improve the Maritime Transportation System. Beyond creating the industrial base needed to build warships, a strong commercial fleet is also a national security interest.
A strong domestic shipbuilding capacity would ensure a robust U.S.-flagged commercial fleet. As described in the 1989 National Security Directive 28, U.S.-owned commercial ocean carriers are critical to the nation’s power projection during times of war. Further, a strong commercial shipbuilding industry would support the military shipbuilding industry in turn. The two industries tend to be cyclical; as one ebbs, the other can flow, helping stabilize the workforce. Commercial ship construction drives demand in the supply chain, increasing resiliency as more companies join the industry to meet the growing demand and decreasing the number of sole-source suppliers. Commercial shipbuilding is generally more competitive than government shipbuilding, which drives capital investments in productivity improvements. The more efficient a shipyard, the more profitable it is.
The Chinese strategy comes with several risks and opportunities. In the near term, the increase in demand will mean commercial shipping will compete against military shipbuilding for labor, dock space, and critical components. Fortunately, the commercial shipbuilding standard is not as exacting as the military standard, allowing new workers to be trained faster. Commercial shipbuilding also does not have the same hiring restrictions as military shipbuilding does, which requires a labor force primarily composed of U.S. citizens. Although the number of major shipyards has diminished significantly since the end of World War II, the United States still has meaningful unused capacity. During interactions with shipbuilding and ship repair industry leaders across the nation, I was repeatedly told that shipyards are being underutilized both in terms of space (i.e., more ships can be built at once) and time (i.e., more shifts can be added to build ships faster). Almost every yard I visited is running a single work shift. Taking advantage of the looser labor constraints of commercial shipbuilding would make it easier for shipyards to add night and weekend shifts, potentially tripling output. Adding a night shift has the potential to impact worker safety. This risk could be mitigated by focusing on finishing or automated work at night. If labor is still a constraint, implementing the Norwegian strategy will help.
The Norwegian Strategy
The low-skill portion of shipbuilding is best done where labor is both cheap and plentiful. In Norway, where labor rates are some of the highest in the world, Vard outsources the manufacturing of its ship hulls to Romania, where labor rates were one-seventh of Norway’s in 2019. Once the hull and early outfitting are complete, the ship is towed to Norway for the final outfitting and finishing. The hull typically accounts for about 20 to 30 percent of the overall shipbuilding cost.
The United States can easily apply this strategy to its commercial and military shipbuilding industries. The benefits would be twofold. First, it would help alleviate the shipbuilding labor shortage as each ship would require less U.S. labor. Second, it would help reduce costs, allowing the Navy to buy more ships and build them faster.
Mexico is an ideal candidate for hull construction in the commercial sector. Its labor rates are favorable; as of January 2023, on average, a Mexican welder is one-third the cost per hour of a U.S. welder—$7.10 per hour versus $20.65.Further, Mexico has a strong shipbuilding capacity along the Gulf of Mexico and the hulls can easily be towed up the East Coast to either Newport News Shipbuilding or Philadelphia Shipyard. Off-shoring hull construction to Mexico does introduce risks to the supply chain; however, the risk is minimal because of the location and the strong relationship between the United States and Mexico.
The construction of military hulls is more complicated. Although geographically close to China, Korea and Japan also are ideal locations to build U.S. warship hulls. Both countries have built warships using an Arleigh Burke–class destroyer parent design. Both have state-of-the-art shipbuilding industries with the capacity and knowledge to build and deliver the hulls on schedule. Unfortunately, getting approval to build hulls in these countries will not be easy.
The Jones Act constrains commercial shipbuilding and Title 10 U.S. Code §7309: Construction of Vessels in Foreign Shipyards: Prohibition, limits overseas military ship construction. However, a large shipbuilding subsidy, like the proposed scrap-and-build subsidy, could be contingent on repealing certain aspects of the Jones Act. This could make the entrenched commercial shipbuilders amicable to allow the importation of ship hulls. Currently, the military shipbuilding industry is unable to meet existing demand. Exporting hull construction would free labor to increase throughput, reducing overall construction time, enabling the shipyards to produce more ships faster, and improving profits. Title 10 U.S. Code §8679 states, “The President may authorize exceptions to the prohibition in subsection (a) when the President determines that it is in the national security interest of the United States to do so.” If China truly poses an existential threat to U.S. hegemony, and importing hulls results in military prime contractors making more money, then it makes sense for an exception for importing warship hulls.
Looking Forward
The lack of shipbuilding and ship repair capacity presents a dilemma. If the Navy prioritizes building new ships, it will theoretically have the capacity it needs in the future, but risks lacking the necessary readiness to oppose China now. If the Navy prioritizes ship repair, it is eating the seed corn; having the fleet it needs now at the cost of future capability. Without implementing either of the proposed strategies, the United States will not have the industrial capacity to achieve any of the three courses of action in the FY24 30–year shipbuilding plan—and ending any hope of fielding a 355–ship Navy. With China’s massive quantity advantage, the United States will be hard-pressed to defend the second island chain in a future conflict.
1. Shahool Al Bari, “Ship Building in the U.S.,” IBIS World, January 2023, 15.