Episode Transcript
[00:00:02] Speaker A: Hello, I'm Mike King and you're listening to a clip from episode 40 of the Freight Buyers Club. I'm talking to John McCown, maritime veteran, author and former liner executive, and Sal McCogliano, maritime historian and creator of what's Going on with Shipping. We're talking about White House plans to rebuild U.S. maritime dominance. We're also looking at controversial port fees on Chinese built vessels, shipbuilding policy, the Jones Act, America's Maritime labor crisis, US rejection of IMO emissions and Section 301 investigations and choke point strategy. Big thanks to Domico Express Group for supporting independent journalism. Enjoy.
Welcome back. As promised, we're now going deep on US shipping policy and what it's trying to achieve and do. And to do this, I'd like to introduce my first guest who's a non resident senior fellow at the Centre for Maritime Security, which is the Navy's think tank. He's an author, former shipping line operator, and he was mentored by the great founder of containerization himself, Malcolm Klein. John McCown, welcome back to the Freight Buyers Club.
[00:01:10] Speaker B: Very pleased to be here, Mike.
[00:01:12] Speaker A: Great to have you on. And he's joined by, I was thinking, how am I going to describe him? I think he's going to have to be one of the breakout stars of shipping media. As the creator of the rather addictive and very charismatic what's going on with shipping YouTube phenomena, he's also almost gets forgotten, I think occasionally. A renowned maritime academic and a historian at Campbell University, no less. It's Salmicogliano. Welcome, Sal.
[00:01:38] Speaker C: Mike, thank you for having me. I'm excited to be on.
[00:01:41] Speaker A: Me too, me too.
I know from speaking to you both previously that at heart, you guys want what's best for U.S. shipping, for U.S. mariners, for U.S. industry in the U.S. economy. So I wonder, just to kick off, could you perhaps briefly first explain what you think this Trump administration is doing right, and where there's room for improvement? And I just want to throw some context in for watchers and listeners. On April 9, the White House issued an executive order call Restoring America's Maritime Dominance. It aims to rebuild the US commercial shipbuilding sector and maritime workforce. And following that, a number of in action plans are in progress. All this designed to strengthen the US Maritime industrial base. So, Sal, do you want to kick us off?
[00:02:30] Speaker C: Yeah. You know, I think it's hard to understand from outside the United States. I think one of the things that's been going on for 40 something years has been just a batch of sea blindness in the United States, particularly in the Commercial side, the US has become enamored with the naval side. And, you know, having a big navy and a large kind of capabilities to support a navy has been really the focus. And what we have basically done in the United States was outsource our commercial shipping. Overseas ships were built overseas. We allowed foreign companies to basically take up the onus. And I think now there's kind of a little bit of a realization that not that the US Wants to take a dominant role by any means, but it really wants to take back some position within U.S. shipping and world shipping. And so one of the things we're seeing here is a variety of issues. You have obviously the tariffs that you've talked about extensively. But we also have a proposal by the Trump administration to get shipbuilding back going, commercial shipbuilding, through an executive order and a shop opened up in the National Security Council. We also have the introduction of the Ships Act. This is by Senator Mark Kelly, the only member of the US Senate, who's a merchant mariner himself, along with Senator Young. So it's Republican and Democrat together doing this. So very bipartisan. And I think what we're seeing is an attempt by the United States to really start shifting back and start rebuilding that commercial infrastructure, because in a way, it also helps the Navy side. One of the problems is being so dependent on Navy contracts in US Shipyards. It's really diminished our ability to be very efficient. And so, yeah, there's the overarching issue of China and the dominance that China shows throughout the entire maritime sector. But still, I think the US Wants to get back into a position where. Where it can once again be a player in world shipping.
[00:04:16] Speaker A: John, I presume you agree that it's great having US Shipping front and center with this administration. I mean, how do you think they're going about it?
[00:04:26] Speaker B: I certainly do. And Sal's completely right. You know, we need a renewed focus on what we need to do to kind of build our merchant marine. And I'm all for that. You know, I think the focus should be on getting additional US Ships, you know, and billets places for our graduates of our Kings Point and state maritime academies. And the important role of Sealift and all of that is kind of coming to the fore. And it's great to see the focus on our industry, and it's been building for the last few years. Frankly, a lot of it's related to China. And it's just a realization that we've got a real Achilles heel from a national defense standpoint in terms of not having enough sea lift. Capacity. So it's great to see the focus, you know, on growing our merchant marine at the top.
[00:05:16] Speaker A: And John, the executive order, the restoring America's maritime dominance, it does cover quite a few areas. I mean, do you think it's covered all the areas it should cover or is there bits missing or bits that aren't complete?
[00:05:29] Speaker B: Well, it certainly, as you read the order, the ambition is quite bold and you know, in particular seems to have a shipbuilding focus. And I would love to see US Built ships operating in international commerce. That's kind of a tall order, though. And I guess my observation is China has certainly subsidized their maritime industry and they see that duality between the naval use and the commercial use and massive government subsidy. There's a famous naval thought leader, Alfred Mahan, who really kind of defined the way things should be done. And America kind of paid attention to him up until about the 1980s. And that was around the same time we stopped paying attention to what he said and the Chinese were starting to embrace him. But even though China is moving ahead, China isn't the only thing that has kind of changed our involvement in shipbuilding. You know, before China, it was Japan and it was Korea. So I understand the focus on the area. Again, as I said earlier, my focus or my highest priority is how we can get ships operating under US Flag wherever they're built. You know, our merchant marine has really declined to where it's mostly the Jones act and the vessels that are subsidized under the maritime security program or the tanker security program. And I think programs like that are great. But I think there's more that we can do to have really a consistent and durable source of funding so that we have more US Flagged vessels, again, wherever they're built, operating internationally. That's what I think the focus should be.
[00:07:12] Speaker A: I'll come back to that US Flag fleet because it is quite important to where this is all going. And so is the Jones act, in fact. But just on one of those points, and Sal, feel free to come in here, we're talking about this as part of this impossible existential struggle for power with China. One element of the executive order talks about getting allies to invest in maritime prosperity zones and helping rebuild US Shipbuilding capacity. I mean, really, certainly in container shipping, we're talking about Japan and Korea. Do you think the rest of the diplomacy from this administration is really helpful in terms of getting allies on board to help with things like shipbuilding or getting a bit political?
[00:07:54] Speaker C: Well, I think, you know, it's all no, no, no. I mean, it's obvious you're dealing with the Trump administration, and that's a polarizing administration. There's no doubt about it. And when you look at what has happened, not just in the Trump administration, but even prior administrations, Biden administration before it, you can see that there is a lot of polarity when it comes to US Politics. You can argue Trump all day long, and believe me, I could do it with the best of people, but one of the things he's trying to do is really bring attention to shipping in a way that it hasn't been in the United States. I can argue, you know, whether or not it's politically right to do it. But there is no denying the fact that he has gotten attention to shipping in a way no one has done it. And I think that's part of the appeal here, bringing in Japan, Korea, and potentially some of the European yards, too. Let's talk about the fins and icebreakers. Let's talk about the Dutch and dredging, for example. I think, you know, there's more openness here to bring in outside help than anything else. I think, you know, we've seen that with Hanwe buying into the Philly shipyard. We see it with Hyundai going into hii. We already had Austal from Australia down in Mobile, Fincantieri up in Wisconsin. So I do think that there is an element here to really embrace and bring in that kind of technology. And again, you know, I'm seeing more arguments toward reform of laws that have been on the books for a long time than in the past. And so, you know, you can argue with how he does it and the mechanism he does. He's not the. He's not the subtlest person in the world, and maybe that's an issue. But behind the scenes, it's hard to argue that it's not being done. I mean, we're seeing a lot of action take place. You had the president of cma, CGM in the White House. I mean, Rudolph Sade is standing right there. He got to get his press conference with the President of the United States, and he's sitting there going, I'm going to invest $20 billion out of $50 billion I made last year. I'm going to reflag 20 vessels from CMACGM into APL, his US subsidiary. And he's doing that. I mean, that's. That process is President.
[00:09:58] Speaker A: Macron did sort of reference, almost reference that particular deal as saying, so that could be withdrawn.
[00:10:03] Speaker C: It could be. But again, you know, the question is, does Macron have the. The oversight over Saudi or Saudi, an entity onto his own. And you know, I was joking at the time during the ILA strike that Sade was always looking for that press conference and he got his press.
[00:10:18] Speaker A: Certainly got it.
[00:10:19] Speaker C: Yeah, yeah, he certainly did. So, I mean, I mean there is, there is that foreign element. I mean, there's a realization, let's be clear, we're not going back to the pre World War II days where the US had its fleet, the Germans, everyone had, you know, they were national fleets, that those are gone. And what's very clear now is it's got to be more international, but there has to be an element here where the US wants to have at least part of it back here in the United States. And I think that's what Trump is aiming for.
[00:10:45] Speaker A: Okay, thanks, Sal. Yeah, come back to the fleet in a minute. As I said, just the big news for freight buyers, Ocean container shipping. Freight buyers is our core audience and we've just had some big news on this. It's the proposal to find ships built in China. Every time they call it a US port, I was down at TPM 25 in Long beach is a massive, massive issue. People are really worried about what it means for US shippers and for the container shipping industry. And part of the reason for that is a large chunk of the global container fleet is actually Chinese built. So this is just for a bit of background. This links to a Section 301 investigation into China's targeting of the maritime logistics and shipbuilding sectors. And down at tpm, the likes of Sorentoft, the World Shipping Council were saying this is going to cost the industry $20 billion. Right. Wasn't very clear exactly how that was broken down, but that was the ballpark figure. Now we've now had a US Trade Representative revision of this plan, which as far as I can tell, this is my best guess. Sal, you might have looked at this in more detail or you, John, you can break it down into three elements. Starting October, Chinese built vessels will be charged based on their net tonnage when they enter US ports at $18 per net vessel tonnage or $120 per container, whatever's highest. And then this rises to $33 per net tonnage of the vessel, or $250 per container discharged. And then also from October 2nd part of this is Chinese carriers themselves must pay an additional $50 per net tonnage regardless of where their vessels were built. And then this increases through to April 2028 to $140.
And then the third part of this is box ships under 4000 TE or ships doing less, voyages of less than 2000 nautical miles will be exempt. So Sal, was that more or less right and is this version softer than the original? Because certainly a few Chinese carriers are saying maybe not. They're not very happy.
[00:12:47] Speaker C: So, you know, I did a video on this where I kind of took the USTR to task. I think they desperately need somebody on their staff who understand shipping a little bit better. You know, we.
[00:12:58] Speaker A: Are you putting your name forward there or John's?
[00:13:00] Speaker C: No, no, no, it's all right. I'm good. But you know, the initial, you know, I was with you, Sarn Toff gave that talk at TPM is like, it's the end of the world. This is going to be horrible because the initial look, it looked like we were talking about several million dollars every time a ship touched the US port. The USTR had two days of hearings which we didn't get to see for some reason because I guess we don't have the technology to broadcast this, you know, at the time. So all we got was transcripts eventually of it. But what we came very clear was, listen, there was a lot of opposition, they hurt a lot of opposition. And what was interesting to me is USTR incorporated that opposition. They sat there and said we're going to alter it. Here's our alteration. The problem is I don't think they figured everything out because while you get that tonnage fee on net tonnage, whatever they mean by net tonnage, because again, net tonnage is not a clear an answer to me what they mean by net tonnage. But there doesn't seem to be a maximum cap on this, which means that, that if you have ships of certain tonnage, you're talking about fines well above one to one and a half million dollars. So I think we're waiting for another revision to come out here about it. I do think this, there's going to be a fee charged to Chinese built ships and Chinese operated ships. There's no clear. It's very clear that's going to happen. However, behind the scenes, what you know as well as I do is that through their vessel share agreements, a lot of these shipping firms are going to do a lot to mitigate those costs. If I'm Costco and I have service coming to the United States, I'm going to try to get my cargo on Evergreen and CMACGM ships that are not Chinese owned or at least not mainland Chinese owned. And more importantly, we're going to try to route our non Chinese built ships into this trade in the service. I think it was really important that they noted that the fees aren't cumulative. You're not going to get it every time you come to a port. Toft was talking about the idea that we're going to cut port visits but.
[00:14:46] Speaker A: That would hurt the smaller secondary ports. Right. That was the problem.
[00:14:49] Speaker C: Right. It was a big fear for the smaller ports. We've got the revision now on the size of vessels under 4000 TEUs, under so many dead weight tonnage, the short voyage provision in there. So I think we're going to go another round here. Remember, they had to come out with a recommendation on April 17th because that was a year after they started it. They had to come out with a recommendation. But that does not mean that this recommendation is the final recommendation. I would argue and I think what we'll see is a revision to it. But I envision we will see port fees on Chinese owned and Chinese built ships.
[00:15:21] Speaker A: John, you submitted detailed feedback to the US Trade Representative. A couple of key points that you made. Fees should be clearly defined so the industry can prepare and that the money raised should be ring fenced to support US maritime development. Have you hit those two aims there and are you happy with this revised version?
[00:15:38] Speaker B: Well, the recent revised proposal is a significant improvement. That being said, it was a very low bar. I mean almost anything that came out would be an improvement. I did submit a 14 page recommendation and whether a lot of people had some of the same points, they took away some of the worst things. One of the worst things that I pointed out was that this fee would apply to empty ships that are coming in to load US exports. So that's been exempted. You know, they don't have the stacking of multiple fees and the per port thing. That being said, it looks like the fees are a little bit worse for the Chinese carriers and it's really ships wherever they build. The use of net tonnage is, is kind of particularly puzzling in container shipping because net tonnage is a measure of the interior space of a vessel. You know, half the containers on the typical container ship are on the deck. So that's not even included in net tonnage. My speculation is they didn't want to call it per tu because that made it automatically transparent and you know what the carrier would pass on. Make no mistake about it, the carriers will be passing on all of these costs. And the fact that it's kind of not as clear what the cost is, that lends itself to more than all of the costs being passed along. The simple math that I've done, even though in the case of the nine Chinese carriers that it's the higher of it will always be the net tonnage because the figures that I'm familiar with show that that net tonnage will always be more than that per container amount. The rough math tells me that a big vessel coming in based on net tonnage I'm talking about the Chinese carriers will be paying 8 million each voyage. And you know, they're going to do a fair number of voyages. You know, call it easily do 10 voyages if you're in Asia to West coast service. So that's 80 million. Obviously that ship will not be competitive. And so what is going to happen? It's good that they didn't have the, the per port thing which would have just jumbled up all of the US ports. But there's nothing that I see that is going to stop somebody from now diverting immediately to Canada or Mexico. And that's what I would expect all of the Chinese carriers to do. So you're going to be taking away rather significant volume from the dock workers. You're going to be adding cost. So that's not a good thing. Some of the terms are, you know, because it's not as complicated, it's not as fuzzy, but even the term of operator, I mean I found myself thinking, you know, the Ocean alliance is Costco. Good point zero CL Evergreen and cma, cgm. Well, you know, if Costco's moving their boxes on those other carriers is under one interpretation, somebody could say, well that's kind of a Chinese carrier, so you know, that needs to be tightened up. So it's certainly an improvement, but it's a major additional barrier. I quite frankly view it as nothing more than a blunter form of tariff. And all of those costs will be passed on to shippers and shippers will pass on all of those costs to American consumers.
[00:18:51] Speaker A: We can't avoid that T word, can we? There's no escape. I'm going to throw another one at you. There's also transshipment options certainly on the east coast anyway, which could help avoid some of these. And yeah, the alliance's partners can, can move around it. But you're, you're both seem to be in agreement this, this is going to mean higher cost for US shippers, significantly higher cost.
[00:19:10] Speaker B: And the big unknown really in terms of the metric of is it going to be massive inflation, you know, between this and the tariffs, which are bigger, or is it just going to put a real dent in volume? And quite frankly, I don't think anybody knows for sure. I do think I feel comfortable we'll see a dent in volume. We're not going to really see that initially probably until May on the west coast and probably not even until June on the east coast because, well, this is more the impact of the tariffs. The ship fee program isn't going to do anything until October. So who knows what may or may may not change. But the tariffs have already gone into place and as I understand them, the tariffs, the effective date, you know, was when it was loaded at the last port prior to coming to the US So we'll probably even see maybe a little bit, I'm sure there was a little bit of a bump in terms of. Right whenever it was April 9th in terms of loading as much as you can to vessels in China. But that, that 145% tariff, I can assure you is going to kind of stop crate and immediately, you know, until people figure out what's going on. And China is the source of 40% of our inbound boxes. So, you know, it's going to be a pretty big effect I think, both in terms of volume and in terms of inflation.
[00:20:32] Speaker A: I've been covering the container shipping industry for many, many years. I can't every so often we talk about oh well, maybe we'll front load ahead of this, you know, US west coast dock worker strikes or something. I was just as you were talking then, in the 12 months to October coming up, we might have had ILA strikes then ILA strikes again, then we've had tariffs, then we're going to have 90 day pause on tariffs which could have all of those things could lead to front loading. And then we're also almost talking about could we have another bump before these port fees come in. That's a lot of front load. Get your head round. Well, I'll be interested to see how that plays out. Okay, guys, what do you think of the various initiatives to build up U.S. shipbuilding expertise and capacity and this seafarer pool, John, do you think they're well thought out? And in particular I'm thinking of the various policies that are supposed to and I'll quote section 13 of the Executive order here, it says the idea is to increase the fleet of commercial vessels trading internationally under the US Flag. Are we going to see some of these services maybe on the trans pack operating purely as eventually down the road as US Flagged vessels?
[00:21:40] Speaker B: Well, I think that again, I think the focus should be on US Flag. You know, ideally we'd like to see some building, but you're not, you know, in terms of saying that we're going to build a lot of ships in the US that will trade internationally. That's again, before China was a factor, Korea and before that Japan had kind of taken over shipbuilding because our comparative advantages building a ship is labor cost and steel and neither of those are our comparative advantage. So I fully support what we can do for shipbuilding and certainly the Jones act is in place, but I think in terms of getting ships internationally, I'm a big believer in supporting that and supporting it with further programs like the tanker security program focused on the Pacific ones we need. I propose that there'd be kind of a return of a subsidy without any constraints and kind of focused on the container space and the LNG space because those are the two where that delta. In terms of our higher crew cost or the smallest percentage of the overall cost, I think there's a lot to be said for programs that incentivize, you know, kind of kickstart somebody to operate US Flag and then once they're operating, maybe that doesn't need to be a permanent subsidy, particularly in the container space. I think there are clearly some sales advantages to having US Flag. And so I think that's what should be pushed, you know, in terms of the shipbuilding gets a little outside of my area. But quite frankly we don't have a lot of capacity that some, you know, certainly we can build it, but that's going to be kind of a long term project. That's not something where we're going to see new ships, you know, within anytime soon from this policy. And but I guess we're still waiting to see the framework of what's behind the executive order. And I embrace anything in terms of additional government funding because I think what you really need to have is that consistent and durable source of both subsidy, which is right now about 5 million per vessel per year, will kind of equate the operating cost. And that's a, you go through the numbers, that's a very small price to pay for the additional utility. Again, the tanker security program was an excellent example of that.
[00:24:05] Speaker A: Sal, is there anything in the Jones act that might, maybe the reform of it might help provide incentives or carrots for people to start building up the US Flag fleet?
[00:24:17] Speaker C: Well, I think you have to look at everything right now and you know, one of the things that's, that's remarkable to me and I think John would, would agree is never in our lives we've seen more attention on shipping in the United States and in reform. I mean we had the Ocean Shipping Reform act in 2022. We now have the Ships act being introduced. We've got the executive order. So, you know, I almost think there's nothing that's, that's not on the table right now. You know, the problem with the Jones act has always been it's a very polarizing event. You're either, you know, pro or anti, and you can't be in between. And that's basically where you sit on that spectrum. And you know, I run the ire of both sides because I sit there and go, listen, we got to have a discussion about it. The original Jones act, when written in 1920 by Wesley Jones, this is actually before even John and I's time was, was an idea of a national maritime strategy. It included international shipping, it included shipbuilding, it included everything. And now we're just down to this coastal trade. And I think, you know, you've got to open up the doors. You know, for example, in LNG trade, I am all for bringing foreign built LNG carriers in, in a temporary basis into the US Trade to move liquefied natural gas. It's going to take five to seven years to build a domestic LNG carrier in the United States. Bring them in. One of the provisions you see in the executive order and in the Ships act and particularly is the idea that you can bring a ship into the registry while you're building a ship in the United States. There's those provisions to do that. I think that's a key one. We saw it in the trade rep. Also. At the same time, I also think you're starting to see a change in how seafarers are looked at. You know, back in the day when you hired a US flagged ship, you may have to deal with four or five shipping unions on a single ship. I mean, it's bad enough to deal with one union, let alone deal with four or five of them. But you just saw a union in the United States, the ILA get for its workers a 62% pay raise. And everyone's like, well, wait a minute, maybe unions aren't that bad. And I've been really amazed talking with unions in the United States, how different they are than the way they have been. I think you're actually going to see more of a concurrent kind of working together relationship which could improve for American seafarers. One of the things that they're proposing is, hey, if you work in international shipping on a US ship, don't pay federal income tax, you're working internationally, that will all of a Sudden raise the rates for you. There are things that are being done that's, that's, I would say everything is open right now. I think the Jones act is open. There's obviously sacrosanct in some areas, but I think if you can come in with reasonable ideas, that's key. One of the big things I always talk about is this idea. Repeal the Jones act and you fix all the problems. That's not going to happen. It's not the, that's not the solution. You need to come up with substantial reforms to fix it. And so what we really need is reform. We need reform of it. We need a national maritime strategy. What you're seeing right now in the US and which is confusing to everybody outside the United States, including some of us in the United States, is you see all the pieces of a maritime strategy, but they haven't really congealed together into one coherent strategy. We got all the different pieces, but what we're waiting for is for someone within the administration or somebody to really take, take the handle of this, take the reins of this wild horse show and get it a little bit under control.
[00:27:20] Speaker A: Yeah, just. I didn't clarify that for listeners. The Jones act requires ships moving goods between U.S. ports to be U.S. built, U.S. owned and U.S. operated. And it's, it's polarizing because some people say it's a bit of a closed shop and it makes shipping too expensive and it doesn't create any incentives for getting back involved in international operations. Just on a point that you made there, Sal, you mentioned the ILA union deal. I was talking to someone who was very senior in US Shipping not so long ago. I won't give it away. But he was making the point that without the, you know, why would you go into shipping if you're a U.S. citizen? Why would you go in shipping? Could you get more as a union dock worker than you would if you were captain in an LNG tanker, almost, let alone a small feeder ship? So is there incentives to get US Mariners back on the high seas?
[00:28:10] Speaker C: I think we need to do a better job of that. I mean, you know, your ILA dock worker doesn't need a college degree. I mean, it's a, it's a union job. It's a good paying union job. And you know, it's one of those kind of very blue collar jobs that pay extremely, extremely well. Whereas shipping, you know, again, those multiple unions have been competing against each other. So we haven't seen really the wages for US Mariners increase as much as some would like. We do a terrible job in talking about what this industry even is to people. And you know, one of the things I do is really kind of unravel it, kind of talk about it. But there's people out there who are actively sailing to talk about this. I think for the first time talking to shipping unions, they have to go out and recruit people, something that a lot of unions have never done in the past. So they have to change their mindset in how they go get people. In the United States, we've got the U.S. merchant Marine Academy, the federal academy, we've got six state maritime academies. We're producing plenty of officers and crew personnel to crew the vessels. We just got to make it incentive enough for them to want to go to sea. And I also think we got to change our mindset. You know, the 20 year, 30 year career at sea isn't for everyone. Not everyone's going to want to do that. But you can go to sea for three, four years, kind of like I did and make a mark and then come ashore and be successful. And I think we need to kind of change that, the mindset of how it is. Plus there's new technology out there. We're putting, you know, a satellite on every things so you can get Internet connections. You're not disconnected the way you were in the past. There's better leave, there's better health benefits, there's better everything for it. So I do think you can promote mariners better. We just, it tends to be such a disjointed, out of sight industry that most people don't even know it's a choice.
[00:29:51] Speaker A: Quick final round then, guys. Thanks for that, Sal. And I would urge anyone out there to check out his channel because it does really make shipping very accessible for people. So two things just to finish off. What do you both think about the US rejecting recent IMO emissions rules and not even showing up at the vote in the imo? And if anyone's listening, they want a full explainer on those rules. I've done1 on YouTube. And then a second point. The Federal Maritime Commission is investigating whether to ban vessels from US ports if they're linked to unfair practices of major global choke points. Commented due by May 13. So what are your thoughts, Sal? Do you want to go first?
[00:30:30] Speaker C: Yeah. Well, number one, I think we need to be on the imo. I mean, we need representation there. I think one of the big problems is we don't have a very good permanent presence on the imo. And I think that's a detractor for the United States. We need that permanent presence. I do think that, you know, in part of the IMO issues has been the IMO has been pushing emissions on shipping for quite a while now. And I don't think everybody realizes the impact that's having on shipping in many ways. And, you know, some of the provisions could potentially make ships being built today obsolete within 10, 15 years, meaning you're going to have to pay more for new ships. And so, you know, I'm all for making everything cleaner and greener. I understand that. I understand that ships emit a lot of pollution based on their size, but per pound, they are the most efficient means we have to move cargo on the planet. And so I think we need a more realistic. But the way to be more realistic is not to not participate. It is to participate, but we need a better job of being able to talk about that. I think the IMO's reductions have been escalating, going from a 50% reduction by 2050 to almost 100% by 2050. I think that's, you know, we're talking about the largest objects ever made by human beings becoming carbon neutral. And I have the solution to that, Mike. It's called a sailboat. But the problem is you can't make a 24,000 TEU sailboat. It just doesn't work really well. And then, you know, I'll let John talk about the Federal Maritime Commission, because I think the Federal Maritime Commission is playing a bigger role in the United States than ever before before. I think you really see them stepping up in a way. And this new hearing on choke points is a really interesting one.
[00:32:03] Speaker A: Yeah. So the, for anyone listening, Federal Maritime Commission, its powers were massively expanded under the Biden administration. This is the Ocean Shipping Reform act that Sal mentioned earlier. John, your thoughts on the FMC's role? I was actually wondering if it might have some of its powers stripped as part of doge, but that doesn't seem to be the case.
[00:32:20] Speaker B: Yeah, well, first on the imo, I agree totally with Sal. I think we need to be at the table. You know, this is going to happen whether we're involved or not. But it's important, I think on that and almost everything, for us to be at the table and play a leading role on the FMC investigation. I think it's worth. I mean, we're keenly aware of the impact the Red Sea had on container shipping rates. And we're doing. Perhaps more could have been done to stop that. I'm just not sure where it, you know, and I think the, some of the places they've mentioned were well aware that those are choke points. I'm not sure if by defining that this is a problem. I'm just, I'm a little puzzled in terms of what the endpoint is and I guess an overriding concern I have and this is what the tariffs and the UST are. And I guess even with this there are a lot of things we're doing that seem to have a, you know, in the end just kind of a anti trade view. You know, there's almost kind of a view that the trade isn't good. And I certainly disagree with that. I think that the US has benefited immensely by trade, the world has benefited by trade. But I will be following with interest what the FMC does. I would hope that the Panama Canal, for instance, I've been puzzled by the action of the US government related to that. And that clearly is a choke point. I mean, I guess somebody could say, well, somebody could do something within the Panama Canal. But does that translate into we're telling Panama they have to give us the canal? I don't, I don't know.
[00:33:55] Speaker A: It's very unclear, isn't it? Can I just, I'll just throw something out there. I mean, there was major global choke point when there was docking issues, the strikes on the US west coast, but it wasn't even strikes, it was a slowdown. I mean, would that be. Could you invest a self investigation? I mean, maybe there's going to be all sorts of congestion issues at European ports because so much capacity is being diverted to Europe and not to the US as a result of tariffs. I mean, that's going to be a choke point.
[00:34:21] Speaker B: Well, not only that, but the, if you go back to Covid, you know, the biggest choke point in my view, that really was kind of a key catalyst for what happened was the, you know, 110 ships off the coast of Southern California. And however that happened, that spread throughout the world. And if you look at the rates, ironically the, the rates that I think are the most important, the CTS container crate statistics, Asia to Europe went up twice as much as Asia to North America. So it's kind of, you almost kind of say, wow, America got a cold and Europe got pneumonia.
[00:34:58] Speaker A: I mean, people are really unhappy with detention and demurrage fees. And during that Covid period as well.
[00:35:03] Speaker C: Sal.
[00:35:03] Speaker A: Sorry, you come on in.
[00:35:05] Speaker C: No, no, I just want to add, you know, the choke point one is really interesting again because I was just sitting in a meeting where I'm listening to a government official tell Me that, you know, we didn't experience a real big inflation hit because of the diversion around the Red Sea. And I'm like, well, wait a minute, what do you mean? You know, it's like rates are up and we're having a definite impact. It's like, it may not be in your face like you think it is, but it's having an impact. And you know, I go to this idea of the FMC report on choke points and Trump on tariffs and even in the Panama example, for example, if you listen to how Trump is talking about Panama now, now you listen to Senator Rubio, excuse me, Secretary Rubio, and everything. It's US and Panama together trying to fight against Chinese influence. And it's interesting how he changes that. That song, you know, it goes, it's Panama and China versus the U.S. now it's the U.S. and Panama versus China. And I think that's part of his thing. It's like not going to the imo. If the US went to the IMO and debated about climate change, that's no story. But when the US doesn't go to the imo, that's a story. And then all of a sudden now you can go, and I don't agree with this strategy at all, but this seems to be what's happening. And maybe with the fmc, raising this issue with choke points is a really interesting one because, you know, as you well know, Mike, we've seen this repeatedly, as John just said, from ever given in the Suez to the diversion around the Houthis to a potential South China Sea issue. What we're seeing in the Baltic and the Black Sea, the Panama Canal with the low water levels, I mean, it's just really cognizant of the impact that choke points are having. And so maybe this is an effort to level that kind of attention on these issues and really make people more aware. I mean, we had a very visible example of that with the Dolly taking out the Francis Scott Key Bridge in Baltimore and shutting down 2 to 3% of U.S. import exports in a U.S. port, which isn't a major U.S. port. It's like a second tier port. Baltimore, Sorry, Baltimore, but it's just, it's not one of the big ones. But again, I think that's where we're at right now is in seeing how this plays out.
[00:37:02] Speaker A: Yeah, I mean, that's interesting. Baltimore and the ever given being very good examples of where shipping actually caused the choke point, whereas all the rest were pretty much caused by factors beyond the control of shipping. Anyway, thanks so much today, guys. John Macau, non resident senior fellow at the center for Maritime Security, and Sam Michael Giliano, host and creator of what's Going on with Shipping. Thanks for joining me today on the Freight Buyers Club.
[00:37:24] Speaker B: Thank you.
[00:37:25] Speaker C: Thank you.
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[00:37:40] Speaker B: This podcast wouldn't have been possible without.
[00:37:43] Speaker C: The fantastic editing of Karen Ball and Tom Matthews. And finally, thank you all for listening. The next episode will be with you soon.
