Further, U. S. flag vessels employed in other trade lanes likely will not be competitive with their foreign counterparts for the backhaul of goods to the United States. For example, while U. S. flag vessels may be able to carry U. S. export cargoes to Europe or South America, shippers will not find their freight rates attractive compared with foreign counterparts, and so such vessels will be more likely to sail empty back to the United States leading to higher freight rates in an ever upward spiral. How will U. S.-flagged vessels ever become competitive with foreign- flagged vessels unless the cost of their construction and operation are comparable? That is a fundamental conundrum that the United States has not been able to solve.
VOCCs or NVOCCs have to charter such vessels? Whose responsibility will it be to meet the mandated quota of Chinese goods aboard U. S. flag vessels? The bill provides that a final rule will be issued four years after enactment determining the parties subject to these carriage requirements. Given that the vast majority of goods coming from China are carried aboard container ships, will these U. S. flag vessels necessarily be container ships? If so, how does that translate into support for U. S. military sealift operations?
The SHIPS Act is designed to streamline the Coast Guard’ s regulatory oversight process to expedite the construction of new ships.
Given that U. S. flag vessels cost six to eight times more to build and two to three times more to operate than a comparable foreign- flagged vessel, the cost to transport Chinese goods into the United States will necessarily rise leading to higher consumer prices for Chinese goods.
U. S.-flagged vessels have remained viable primarily by carrying required dedicated cargoes. That requirement will increase under the SHIPS Act, which mandates that 100 percent of U. S. Government cargo be carried aboard U. S. flag ships. Previously, the Cargo Preference Act of 1954 required at least 50 percent of civilian agency and agricultural cargo be carried on U. S. flag vessels, and the Military Cargo Preference Act of 1904 required that 100 percent of cargo purchased for the U. S. military be carried on U. S. flag ships.
While there are continuing questions about the commercial viability of U. S.-built flag vessels, the SHIPS Act will lay the groundwork for creating a revitalized U. S. shipbuilding industry that can graft onto technological advances in ship design and construction to reduce shipbuilding costs going forward. Such an industry will have knock-on effects in terms of developing ancillary expertise and manufacturing capabilities to produce necessary equipment and component parts that are available domestically and not subject to supply- chain disruptions. Revitalizing the U. S. industrial shipbuilding base will also increase the demand for merchant mariners to operate these vessels. In sum, even with the trade hurdles it creates, the SHIPS Act is a major step forward to developing a sustainable shipbuilding industry and merchant marine in the United States. p – 2025 BLANK ROME LLP
This article was first published in Texas Lawyer on March 12, 2025.
Reprinted with permission from Texas Lawyer © 2025 ALM Media Properties, LLC. All rights reserved. Further duplication without permission is prohibited, contact 877.257.3382 or reprints @ alm. com.
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