The case of US Shipbuilding Industry
The case of US Shipbuilding Industry
The global shifts in shipbuilding Industry and how US is losing its way.
Gulzar Natrajan runs an excellent substack called Urbanomics. He recently commented on the decline of the shipping Industry in the US. You can read it here.
Shipbuilding is a critical Industry.
The ability to build ships has been the driver of global power. Therefore, it is important for a country, particularly the US, to maintain industrial dominance in shipping. Even today, the US makes some of the most sophisticated ships (particularly naval ships, submarines, etc.) in the world.
Unfortunately, industrial dominance does not mean producing a few high-end aircraft carriers or submarines. Rather, it means the ability to deliver meaningful volume in terms of the number of ships. The volume creates and spreads the know-how required for innovation.
The US lost this ability long ago.
The centre of shipbuilding has moved across the world.
You can see how the centre of shipbuilding has moved around the world. It also closely matches the economic might of those countries.
India was a hotbed of shipbuilding till the 1600s.
The centre of shipbuilding moved to Europe.
The UK and Scandinavian countries were the centres of shipbuilding during this time.
Even today, almost 80% of icebreaking ships are made in Finland.
The US was the next centre of shipbuilding.
Critical ship-building technologies were transferred to the US during World War I, and by the end of World War II, the US had become the global centre of shipbuilding.
The Emergency Shipbuilding Program (late 1940 – September 1945) run by the U.S. Maritime Commission, built almost 6,000 ships. [Source: US Department of Transportation]
Japan became an important player in Shipbuilding (mainly commercial ships), and by the 1990s, Japan was the largest producer of trading ships.
By the 2010s, South Korea overtook Japan. Thanks to reform, directed initiatives, and subsidies from the South Korean Ministry of Trade, Industry, and Energy (MOTIE), it became the leader in commercial shipbuilding. South Korea also maintains a healthy naval presence, thus allowing the development of naval ships in addition to its commercial dominance.
China pursued a state-backed approach to upset South Korea by 2020. Today, China is the leading producer of ships (both commercial and naval). The ascent of China is quite stark.
The change in shipbuilding industry can be noted in through these diagrams
The Decline of US Industry
To understand, let us formulate the issue using the BCG Matrix as a template. The BCG matrix (below) highlights
Usually, the industry kills itself by lobbying!
The easiest way to convert a "Star” into a “Cash Cow” is to get help from politicians. By lobbying politicians, the shipping Industry got the Jones Act in 1920.
CATO Insitute has produced an excellent piece on the Jones Act.
Jones Act aims to ensure adequate domestic shipbuilding capacity and a ready supply of merchant mariners to be available in times of war or other national emergencies. For this, it restricts domestic shipping services to vessels that are U.S.-built, U.S.-owned, U.S.-flagged, and U.S.-staffed.
This act was a trade barrier for nascent US shipbuilders to catch up to European shipyards. Today, it acts in the reverse manner. It has become a protectionist crutch that prevents US shipbuilders from becoming world-class.
The paradoxical result is that instead of gaining and maintaining shipbuilding, the US is losing inland shipping transportation options and sailing know-how.
Lessons for India
India used to be a dominant shipbuilder before the 1600s. We need to revive shipbuilding industry and become global leader in this industry. I have detailed some ideas in this post.
The main takeaway from the US experience is that there is no substitute for competitiveness. If India has to succeed in the current situation of trade protectionism, we have to be hyper-competitive in terms of technology.
It is time we applied hypercompetitiveness as a strategy across all industries.
Update:
Please check the links in Colin Grabow's comments below.
"This act was a trade barrier for nascent US shipbuilders to catch up to European shipyards. "
The JA was only a tweak to existing policy designed to benefit shipping companies in Washington state (details in this thread: https://x.com/cpgrabow/status/1471862865623752707). The US build requirement dates to at least 1817, and US shipping restrictions were first imposed in 1789 — a time when US shipbuilders were some of the world's cheapest (plentiful timber/forests helped a lot with that).
“The volume creates and spreads the know-how required for innovation.”
I find the above quote to be far reaching… a universal truth… for industry, yes… and also on a personal level? That said — There has to be a spirit of experimentation included in mass production for evolution to occur?