Who Killed America's Shipbuilding Industry?

The Atlantic

28-05-2025

Tom Stimson / FPG / Getty
Despite being economically and militarily reliant on shipping, the U.S. has an astonishing lack of maritime capacity.
'He who commands the sea has command of everything,' the ancient Athenian general Themistocles said. By that standard, the United States has command of very little.
America depends on ocean shipping. About 80 percent of its international trade by weight traverses the seas. The U.S. needs ships to deliver nearly 90 percent of its armed forces' supplies and equipment, including fuel, ammunition, and food. Commercial shipyard capacity is essential for surge construction of warships and sealift-support ships that transport equipment and troops in times of national emergency.
Yet the U.S. has an astonishing lack of maritime capacity. Of the tens of thousands of large vessels that dot the oceans, a mere 0.13 percent are built in the United States. China, by contrast, fulfills roughly 60 percent of all new shipbuilding orders and has amassed more than 200 times America's shipbuilding capacity.
Not only do most U.S. imports and exports travel on foreign-built ships, but those ships are owned and crewed almost exclusively by nine giant carriers based in Europe and Asia. By the end of 2024, these carriers had organized into three cartels that controlled about 90 percent of the U.S. containerized-shipping trade.
From the July 1870 issue: The shipping of the United States
After a ship arrives at a U.S. port, the crane that lifts containers from its cargo hold will probably have been made by a single Chinese corporation that produces 80 percent of all ship-to-shore cranes in the United States. China also makes 86 percent of the truck chassis onto which containers are loaded. Some 95 percent of the containers themselves are built in China.
In the early days of the pandemic, some consequences of America's loss of control over ocean shipping were suddenly thrown into relief. Foreign cartels raised the cost of spot contracts on certain shipping lanes by up to 1,000 percent while making a record $190 billion in windfall profits. They also rejected hundreds of millions of dollars' worth of U.S. agricultural exports, preferring to race back to China with empty containers to fill with more profitable Chinese imports while American-grown food rotted on the docks.
The national-security implications of America's lack of shipbuilding and shipping capacity are also becoming dire. Because so few commercial ships fly the American flag and employ American mariners, the U.S. faces a critical shortage of civilian sailors needed to crew Navy support vessels. In November 2024, the Navy confirmed that it would lay up 17 support vessels, some delivered as recently as January 2024, because of crew shortages. More alarming are shortages of support ships themselves. The U.S. would need more than 100 fuel tankers in the event of a conflict in the Pacific. It has access to about 15.
This should never have happened. In the middle of the 20th century, the U.S. had a thriving, well-regulated ocean-shipping industry. Then the country turned its back on the system that made it all possible.
At the turn of the 20th century, the ocean-shipping industry was plagued by a phenomenon known as 'ruinous competition.' Carriers engaged in ruthless rate wars, reasoning that even if they moved cargo often at below-average cost, this would at least help defray the high fixed cost of operating a freighter. But the strategy was unsustainable. Years of continuous losses pushed many in the industry to the brink of insolvency. To avoid total collapse, the carriers banded together to form unregulated cartels in order to reduce supply and fix prices.
The cartels provided some stability, but at the public's expense. They offered secretive rebates to large operators that agreed to ship exclusively on cartel vessels, and they often refused to deal with shippers that did business with competitors. The cartels also engaged in price discrimination, offering steep discounts and rebates to big shippers—and recouping their losses by charging higher prices to smaller shippers that lacked the power to demand favorable terms. The resulting unequal prices and access to transportation services harmed smaller manufacturers, farmers, and ports.
At the same time that cartels were squeezing U.S. shippers, the U.S. government was neglecting maritime policy. Since the end of the Civil War, the United States had refused to allocate public resources to shipbuilding, while foreign governments, especially the British, subsidized their shipping and shipbuilding steeply. By 1901, U.S.-built vessels carried a mere 8 percent of national trade, and U.S. shipyards were left with little business aside from naval contracts.
The combined results of cartelization and government inaction were perilous. After World War I broke out in Europe in 1914, Great Britain, France, and Italy immediately diverted most of their shipping capacity to support their war efforts. Because the United States was so reliant on European shipping, freight rates soared. Foreign lines increased the rate to charter a vessel or ship key goods by about 20 times.
The United States was effectively cut off from the rest of the world. As the maritime historian Salvatore R. Mercogliano noted in Sea History magazine, 'The domestic economy went into a recession as goods piled up on the docks and imports stopped arriving in American ports.'
In response to the emergency, Congress passed a series of bills that poured public funds into bolstering U.S. shipping and shipbuilding capacity. Both the immediate and long-term results were spectacular. Extensive public investment led to the construction of more than 2,300 vessels for World War I and more than 5,500 vessels during World War II. The United States became the world's preeminent shipbuilder, assembling vessels at a scale and speed previously unheard of. The U.S. built the Liberty-class cargo ship SS Robert E. Peary, for example, in a little more than four days during the height of World War II.
But Congress recognized that simply pouring money into maritime capacity was not enough. It needed to set market rules for ocean shipping, both to forestall destructive competition and to ensure that ocean carriers operated in the public interest. To do this, Congress created a new agency, the United States Shipping Board (later replaced by the Federal Maritime Commission), which was charged with regulating the industry like a public utility. Cartels were required to submit their operating agreements to the government, which in turn disapproved or altered agreements it found to be discriminatory or unfair. Carriers were not allowed to engage in price discrimination, offer deferred rebates, or employ other underhanded tactics that excluded competition. These laws were not always effectively enforced, but they were a significant improvement over the status quo.
During the 1980s, however, Congress and Ronald Reagan abandoned the regulated-competition approach. Reaganites argued that the FMC, which at the time had a budget of just $11.8 million, had become a bloated bureaucracy, and reasoned that the U.S. could achieve economic efficiency and lower shipping prices if ocean carriers were not required to treat all shippers equally. To that end, Congress passed a series of bills during the Reagan and Clinton administrations that stripped the FMC's ability to regulate ocean-carrier cartels.
The first-order effect was a return to the destructive competition and underhanded exploitation that had characterized the early-20th-century market. As the rise of containerization led to ever larger ships, fixed costs grew. This increased carriers' incentives to fill empty space on ships, even at steep discounts, because at least they would lose less money than if the space were unsold. Still, profits fell, and carriers turned to waves of mergers made possible by the federal government's simultaneous retreat from antitrust enforcement. In the seven years after President Ronald Reagan signed the Shipping Act of 1984, seven major carriers were snapped up by the competition, compared with just one during the entire period from 1966 to 1983.
American-flag carriers, which had higher costs than foreign counterparts, were particularly hurt by the rate wars, especially after the Reagan administration withdrew subsidies that had helped U.S. carriers defray the costs of paying crews livable wages. Foreign corporations acquired American President Lines and SeaLand, the two largest U.S. carriers at the time, in 1997 and 1999 respectively, leaving the United States with no globally competitive ocean carriers. Meanwhile, shipyards in Asia began to enjoy massive government subsidies.
From the April 1943 issue: We build ships
The consequences were nearly identical to the pattern in the early 1900s. Shipbuilding all but disappeared in the United States. Today, the U.S. produces five or fewer large commercial vessels a year, and shipyards almost exclusively rely on naval contracts. Worse, at a time of escalating tensions with China, the United States has virtually no surge capacity to build naval or sealift ships. In fact, China builds all the commercial ships that the U.S. government contracts to provide military support.
A bipartisan bill in Congress and a recent executive order seek to address the problem. The plans aim to levy tariffs on Chinese-owned ships and create new tax incentives to spur investment in shipyards, among other provisions. These ideas, though helpful, are too simplistic and small-bore. The central problem is not just inadequate investment or insufficient tariffs. It is the abandonment of a system of regulated competition that structures the industry to meet public purposes.
Restoring a robust version of that system would revive the government's ability to direct cartels to operate in the public interest. Carriers would be required to offer all shippers, big and small, similar prices and terms of service. This would ensure that market competition focuses on who provides the best products at the best prices instead of who enjoys the favor of a handful of foreign cartels. Government regulation of carriers would prevent them from excessively raising prices in times of tight capacity and engaging in ruinous price wars during times of slackening demand. Combined with robust public investment in shipping, shipbuilding, port services, and mariner training, this system would re-create the market rules we once used to address the challenge of unregulated monopolies in ocean shipping. A new era of American maritime greatness is possible.
Support for this project was provided by the William and Flora Hewlett Foundation.