In a belated recognition that China has cornered the construction of ocean-going commercial vessels, those ships crucial to secure sea-borne supply chains, the United States is this year turning to its Asian allies to help it catch up in a hurry and thwart another geopolitical threat.
In June, South Korean shipbuilder Hanwha Ocean bought the loss-making Philly Shipyard in Philadelphia for US$100 million, a deal approved by Washington in September. This may not sound like much, but it allows a foreign shipbuilder into an industry that has been highly protected to its considerable detriment. Under America’s century-old Jones Act, vessels transporting goods between US ports must be built, owned and crewed by Americans.
China’s 13 shipyards (and growing) has more capacity than all of the American ones combined.
And earlier this year senior Washington officials including US Navy Secretary Carlos Del Toro visited Japanese shipyards with a view to handing over contracts for the construction of the kind of labour-intensive bulk carriers and tankers that American yards, beset by labour shortages, cost overruns and low wages, have neglected for decades. Simultaneously the Pentagon is also exploring the possibility of establishing military repair facilities in Australia, the Philippines, Japan, Singapore, and South Korea to try to make up lost ground.
America’s decline in commercial shipbuilding has been catastrophic. As a US Senate select committee heard earlier this year, in 1975 the Unite States was the biggest shipbuilder in the world. “Now we don’t even produce one percent of the world’s large ocean-going vessels”, said ranking member Raja Krishnamoorthi. “For every 359 large container ships China builds, we are building one.”
At the same hearing the president of the influential Alliance for American Manufacturing, Scott Paul, weighed in with some facts of his own that would have given the committee pause for thought:
“China’s shipbuilding capacity is 232 times greater than our own … Our nation has fallen frighteningly behind China as a result of decades of China Communist Party policies aimed at dominating sectors like shipbuilding with clear economic and military applications.”
America’s concerns reflect broader worries about what Paul describes as China’s “massive industrial overcapacity” that could result in “a deluge of low-cost import competition that could again close tens of thousands of US factories and lay off millions of US manufacturing workers”.
While Washington worries, China’s domination of commercial shipbuilding accelerates. In the first half of 2024, according to shipbroker BRS, its mainly state-owned and/or subsidised yards booked nearly 75% of all new orders. “China has maintained its leading position in the global shipbuilding market for the fourteenth consecutive year,” the consultancy reported, citing a shift away from bulk carriers to more complex vessels such as the higher-margin gas carriers that have become particularly strategic in the global supply chain.
And hardly a day goes by that China doesn’t book another fat contract for a commercial vessel, usually from European shipping companies. In just the first week of October, for example, Chinese ship-builders were variously contracted for up to 12 LNG carriers, four 96-metre long offshore service vessels, and up to six chemical tankers. In another fairly typical week in April, China bagged all but eight of 36 new contracts, according to Lloyds List, a bible of the industry, that cited orders for seven dry cargo carriers, four containerships, six multi-purpose vessels, one deck cargo carrier, two heavy lift ships, eight gas carriers and eight tankers.
In early 2023, China had scored 1,800 commissions for large commercial vessels compared to America’s five.
The main appeal is price in a highly labour-intensive industry. “Most of the new tanker orders are attracted by Chinese yards with a lower cost base,” adds BRS. The shipbroker anticipates Chinese yards will boost their combined capacity by 80% over the next three years as mothballed yards are recommissioned.
As the numbers show, the United States is currently out of the game. In early 2023, China had scored 1,800 commissions for large commercial vessels compared to America’s five. The concerns of Deputy Secretary of State Kurt Campbell are fully justified. As former senior White House official who was influential in the establishment of AUKUS, Campbell told a hearing: “Look at the difference in shipbuilding between the United States and China. [It’s] deeply concerning.”
In the short term the US and other nations may resort to tariffs. Canadian and European trade bodies are demanding hefty penalties against Chinese-built vessels to compensate for their heavily subsidised pricing advantage of 30-40%. Canadian shipbuilders want a 100% surtax on the grounds Chinese ships represent a “strategic and ethical threat” that is greater than EVs. The EU’s problem though is that most of China’s order book comes from Germany, Denmark, Netherlands, Greece, Turkey and other seafaring nations on its side of the world.
In future years Hanwha’s acquisition of Philly Shipyard may be seen as a turning point. The South Korean shipbuilder certainly thinks so, but it will take years to gear up the yard before it begins to compete with China’s behemoths.
And they’re getting bigger. The world’s largest port, Ningbo-Zhoushan, is adding berths that will accommodate jumbo-sized ships stacked with 32,000 containers that will probably be deployed on the Asia-Europe route. Already, as US Navy Secretary Del Toro points out, just one of China’s 13 shipyards (and growing) has more capacity than all of the American ones combined.