While the Canadian Great Lakes fleet is becoming more modernized, the US fleet is comprised of antique ships due to a grossly uncompetitive domestic shipbuilding sector.
Last week a U.S. shipyard on the Great Lakes did something sadly unusual: it launched a new commercial ship. The Mark W. Barker, a self-unloading freighter that still needs some work, is set to be delivered next spring. It will be the first new ship added to the US-flagged Great Lakes fleet since 1983 when that happens.
Put another way, the last time the Great Lakes fleet saw a new ship was the same year Michael Jackson unveiled the moonwalk and the first cell phone was released for commercial use.
In stark contrast, Canada's Great Lakes fleet has been rapidly expanding with new ships. In the last ten years, Canada Steamship Lines (CSL) has received six new freighters, while Algoma Central Corporation has received eleven. And more ships are on the way.
Algoma Central says that it expects the new ships to be 45 percent more energy efficient than the vessels they are replacing, owing to a combination of new engines, increased cargo capacity, and an advanced hull form. CSL similarly predicts various efficiency gains from its new vessels.
So why aren’t American shipping companies following suit? The answer in large part lies in differing policies towards imported ships. Ships engaged in domestic trade in the United States must comply with the Jones Act, which among other restrictions forbids the use of ships built abroad. Canada, meanwhile, allows foreign‐built ships to be purchased duty‐free for domestic use following its repeal of a 25 percent tariff in 2010.
As a result, the U.S. Maritime Administration admitted in a 2013 report that Canadians can now buy their ships at prices “substantially below what they would cost to build in North American shipyards.” One Great Lakes shipping expert points out that Canadians can buy three foreign‐built ships for the same price it would take to construct one at home.
The tariff’s repeal appears to have played a decisive role in Canada’s fleet modernization. “The bottom line was the import duty was lifted,” said an official with the Canadian Shipowners Association in 2015. “That generated considerable investment by our membership.”
Imagine the impact of the Jones Act's U.S.-built requirement, which practically has the same effect as a tariff of several hundred percent on new ships if a 25% duty is a barrier to new ships.
Unfortunately, little imagination is required. While the Canadian Great Lakes fleet becomes increasingly modernized the U.S. fleet—chained to a vastly uncompetitive domestic shipbuilding industry—features ships that were mostly built in the 1970s and decades prior. Incredibly, one vessel in the Great Lakes fleet, the St. Mary’s Challenger, was built in 1906 as a freighter and still served that purpose all the way until 2013 when it was converted to use as an unpowered barge.
Due to the freshwater climate of the Great Lakes, which, unlike saltwater, does not quickly rust steel, this dependence on antique vessels is only possible. It does, however, thin out with time and require replacing. Engines and other parts must also be updated, both to keep up with wear and tear and to take use of newer technology. As the example of Canada's navy demonstrates, buying a new ship makes economical sense at some time.
But American ship operators are highly reluctant to do so given the high capital costs involved, and instead make do with measures such as “repowering” the old ships with new engines. But that’s still far from cheap, with engine upgrades pegged in 2009 at $22 million. In comparison, Canadian firm Algoma Central has purchased entirely new ships for $50 million.
It's impossible to tell what national interest the United States' current approach is designed to serve. It is clear that it is not fostering a more effective water transportation network on the Great Lakes, which has negative effects for companies that rely on these laker ships as part of their supply chain, including area steel manufacturers. It's also not helping the domestic shipping sector, since the necessity for new ships to be built in the United States has driven up the cost of new ships dramatically (although vessel operators no doubt appreciate that such high prices protect their position by deterring new competitors from entering the market).
It’s not even clear it is serving the interests of U.S. shipbuilders in the region. As one study points out, U.S. government policy “…has not resulted in a healthy merchant shipbuilding base especially in the [Great Lakes Marine Transportation System].” Indeed, many of the ships found in the U.S. Great Lakes fleet were constructed in shipyards that no longer exist. The shipyard currently building the Mark W. Barker, Fincantieri Bay Shipbuilding, is a modest operation with a typical output of 2–3 tugboats and barges per year.
Ships and other boats that cost much more than those built elsewhere simply do not have a wide market.
On the Great Lakes, we are witnessing a fascinating natural experiment in protectionism vs. free trade. Canada's adoption of the latter has resulted in fresh investment and upgraded boats, whereas the US has an old fleet and minimal commercial shipbuilding. The best option is obvious. By repealing the Jones Act's restriction that ships be manufactured in the United States, Washington should follow Ottawa's lead and enable unrestricted commerce in ships. Or, better still, completely repeal the statute.
