What to Watch 2023: America Must Begin Growing Its Merchant Marine​

By John D. McCown

It’s incontrovertible that America would not have prevailed in WWII without its merchant marine. During the war, President Roosevelt referred to it as the “Fourth Arm of Defense.” With 1 in 26 mariners dying as 733 U.S. flag cargo ships were sunk, the casualty rate was higher than the army, navy or marines.

In 1944, General Eisenhower said, “When final victory is ours, there is no organization that will share its credit more deservedly than the merchant mariners.” Similarly, General MacArthur stated, “I hold no branch in higher esteem than the merchant marine.” The role of mariners was even highlighted by entertainer Bob Hope in a 1944 Christmas radio broadcast when he said, “Did you ever hear of the Z-Men? Sounds like a gag, doesn’t it? Well it isn’t. Z-Men are the guys without whom General Ike’s army and Admiral Nimitz’s navy couldn’t live…Z-Men are the men of the merchant marine.” All mariners had an identification card, known as a Z-card because the ID number started with the letter Z.

Driven by ships built during the war, in 1950 there were 1,087 privately owned cargo vessels registered under the U.S. flag. There were also 2,277 government owned cargo ships in the National Defense Reserve Fleet. Together, they made up half the world’s total cargo shipping tonnage. Today, there are just 178 U.S. flag cargo ships that represent 0.57% of worldwide commercial shipping tonnage.

Identifiable factors explain the geometric drop in U.S. flag participation. Most are cost related with none more prominent that the structural shift to flags of convenience. That practice resulted from vessel owners registering a ship in a country other than their own. The ship is subject to the laws of that country, including ones related to wages, safety, and taxes. Countries saw ship registries as an income source and competition resulted in ever-lower overall costs for ship owners.

The U.S. was not alone in seeing its merchant fleet decline and the switch to flags of convenience impacted all developed countries. Today 57.7% of commercial shipping capacity worldwide are registered in more than a dozen such open registries. The three largest, Panama, Liberia, and Marshall Islands, represent almost one-half of total tonnage. The U.S. flag registry now ranks 21st in terms of total shipping capacity. U.S. based ship owners also take advantage of lower costs resulting from open registries. In a ranking based on ownership, the U.S. is 11th with 2.53% of total tonnage. Ironically, the U.S. was the catalyst for the establishment of flags of convenience. In 1939, it encouraged some U.S. ship owners to re-flag in Panama so the movement of supplies on those ships to Europe would not violate the Neutrality Acts.

Alfred Mahan, referred to as “the most important American strategist of the nineteenth century” by British military historian John Keegan, maintained that a true sea power must have a vibrant merchant marine. That did not require half the world’s ships continue to fly the U.S. flag, but Mahan’s admonition is not getting the attention it deserves today.

The relative decline in the U.S. flag fleet in the second half of the 20th century is well explained by operating cost economics. With prevailing labor differences, the cost of an American crew is several times that of available alternatives. By 2000, U.S. flag vessels represented 3.21% of commercial vessel capacity worldwide. United Nations Conference on Trade And Development (UNCTAD) data on merchant fleet by flag and vessel type has detailed annual statistics going back to 1980. From UNCTAD reports and U.S. government sources, the U.S. flag commercial fleet as a percentage of worldwide tonnage went from 18.4% in 1950 to 11.7% in 1955, 8.93% in 1960, 7.32% in 1965, 5.26% in 1970, 3.18% in 1975, and 3.11% in 1980. The decline due to economic cost differences was front loaded and by 1980 had stabilized. Over the next 20 years, there was modest growth in the U.S. flag commercial fleet even as open registries went from 31.1% of global capacity to 48.1%. That fact highlights that direct government support programs stymied what would have been a continued decline. However, the cessation of some programs began to show up in the numbers. The simple truth is that the withdrawal of support is the proximate cause for much of the reduction in the U.S. flag commercial fleet since 2000.

Direct government support is a controversial subject, but the U.S. flag sector is in a special position given its national security role. There was a time when the views of Generals Eisenhower and MacArthur and Bob Hope were near universal among Americans, especially with policymakers. The passage of time, the end of the cold war, and perhaps even a view that sealift capacity is not as important in modern military conflicts have lessened the support for an industry in a unique position given its dual-use nature. Some may have taken comfort in a belief that any military sealift need that may arise can be handled with government owned cargo ships, including those in the Ready Reserve Force.

The fact of the matter is that our maritime logistics force is inadequate. In a high-end conflict, readily available American vessel capacity would only meet 65% of sealift needs. There is a shortage of at least 1,900 mariners. That manpower deficit came from the 2017 report of the Maritime Workforce Working Group, tasked by Congress to assess mariner needs. The shortfall related to the 13,600 mariners needed to crew just the Ready Reserve Force vessels that are a critical component of any initial surge capacity required.

Russia’s invasion of Ukraine is a tangible reminder that conventional wars lasting protracted periods are not over. China’s saber rattling on Taiwan cannot be ignored and an actual invasion would invariably demand the largest sealift requirements since WWII. This is a possibility for which the U.S. is insufficiently prepared.

As shown in the chart above, in 1980, the U.S. flag fleet was twice the size of China’s. Today, the China flagged fleet is almost ten times that of the U.S., representing 5.28% of global commercial shipping tonnage. Embracing Mahan’s dictum, Beijing provides significant state support to its commercial merchant marine.

But the control that China has goes beyond vessels flying its flag. By some estimates, as much as half of the world’s commercial ships are engaged in moving cargo to or from China. Given that Beijing has consistently demonstrated its willingness to engage in economic coercion, its ability to exert influence on a preponderance of the world’s shipping capacity is an international security risk.

Thus, when it comes to the commercial merchant marine, there remains both an economic and national security front. They are inextricably intertwined. The American merchant marine needs to be resuscitated and quickly. Inclusions in the FY2023 National Defense Authorization Act are promising starts, but the issue at hand demands shock therapy not growth on the margins. American policymakers need to recognize the dual-purpose nature of commercial shipping and the merchant marine with tangible legislative, regulatory, and tax policies commensurate with their value to national security.

John D. McCown is a Non-Resident Senior Fellow at the Center for Maritime Strategy.  Mr. McCown co-founded a U.S. flag shipping company he led as CEO, and he also formerly managed transport investments at a large hedge fund. He holds an MBA from Harvard Business School and his analysis centers on merchant shipping and maritime commerce.

The views expressed in this piece are the sole opinions of the author and do not necessarily reflect those of the Center for Maritime Strategy or other institutions listed.