WEBVTT - Trump's Plan To Make US Shipbuilding Great Again 0:00:01.160 --> 0:00:05.520 China dominates the global shipbuilding industry, controlling more than seventy 0:00:05.559 --> 0:00:09.160 percent of the audiobook for key segments like container ships 0:00:09.200 --> 0:00:13.080 and tankers. The US is far behind, constructing less than 0:00:13.119 --> 0:00:16.599 one percent of global commercial ships, and that gap is 0:00:16.680 --> 0:00:20.960 raising concerns in Washington about competitiveness and national security. 0:00:21.560 --> 0:00:26.040 President Trump has pledged to revive the industry. As part 0:00:26.040 --> 0:00:29.600 of that goal, he's proposed fees on Chinese built ships 0:00:29.760 --> 0:00:33.840 entering US sports. The critics say these measures are far 0:00:33.880 --> 0:00:37.599 from enough to challenge China's dominance in the sector. So 0:00:37.680 --> 0:00:41.320 what else could the government do? What role could South 0:00:41.360 --> 0:00:42.520 Korea and Japan play? 0:00:43.440 --> 0:00:43.800 And in the. 0:00:43.800 --> 0:00:47.479 Meantime, how will these new fees impact the global shipping industry. 0:00:49.000 --> 0:00:52.800 You're listening to Asia Centric from Bloomberg Intelligence. I'm Katy 0:00:52.840 --> 0:00:54.360 Dmitrieva in Hong Kong. 0:00:54.560 --> 0:00:57.360 And I'm John Lee, also in Hong Kong. Here to 0:00:57.400 --> 0:01:01.200 discuss these issues is Adam Ferer. He is the senior 0:01:01.360 --> 0:01:07.000 geoeconomics analyst for Asia Pacific at Bloomberg Economics based in Washington, DC, 0:01:07.600 --> 0:01:11.559 and Kenneth Low shipping and logistics analysts but Bloomberg Intelligence 0:01:11.800 --> 0:01:15.160 dialing in from Singapore. Adam and Kenneth, Welcome to the show. 0:01:15.400 --> 0:01:16.000 Great to be here. 0:01:16.120 --> 0:01:20.520 You just to set the scene. Adam wondering if you 0:01:20.560 --> 0:01:24.600 can tell us why we're even talking about shipbuilding, Why, 0:01:25.240 --> 0:01:28.840 why is it so important? Why is Trump focusing on 0:01:29.040 --> 0:01:32.000 trying to get the US more dominant in this space? 0:01:33.120 --> 0:01:35.520 So, to start with, as you led in the intro, 0:01:35.920 --> 0:01:39.919 the United States has fallen significantly behind in shipbuilding since 0:01:40.200 --> 0:01:43.720 basically the end of World War Two. The United States 0:01:43.760 --> 0:01:46.880 has progressively lost its footing as a primary builder of 0:01:46.920 --> 0:01:50.760 commercial ships in the world, forfeiting that position to emerging 0:01:50.800 --> 0:01:54.200 powers in the Indo Pacific, in particular Japan and Korea, 0:01:54.240 --> 0:01:58.640 initially but eventually China, which has increasingly risen as the 0:01:58.680 --> 0:02:03.240 primary point of production for both commercial ships and arguably 0:02:03.280 --> 0:02:06.840 the fastest producers of naval vessels now on Earth, almost 0:02:07.000 --> 0:02:11.000 entirely for the People's Liberation Army Navy. Now, the concerns 0:02:11.040 --> 0:02:13.880 about shipping our bipartisan here in the United States and 0:02:13.919 --> 0:02:16.959 are long running, but it is clear that President Trump 0:02:17.000 --> 0:02:19.880 has somewhat been bitten by the shipping bug and has 0:02:19.960 --> 0:02:22.519 taken this issue head on and is trying to use 0:02:22.600 --> 0:02:25.960 the power of the office to force the industry to 0:02:26.080 --> 0:02:29.640 change significantly and drive investment in the United States to 0:02:29.720 --> 0:02:34.080 push out both commercial shipping developments and potentially naval developments 0:02:34.120 --> 0:02:36.640 as well. And that's really where it comes down to 0:02:36.760 --> 0:02:39.839 this core question of the US national security and how 0:02:39.919 --> 0:02:43.520 shipbuilding kind of relates to it. Overall, you have this 0:02:43.639 --> 0:02:46.080 question of the commercial benefits of a ship being built 0:02:46.080 --> 0:02:49.720 in the United States, jobs and technology development, all of 0:02:49.720 --> 0:02:53.960 those things. But for Trump and for this administration, it's 0:02:54.040 --> 0:02:57.280 all about national security and ensuring that the United States 0:02:57.320 --> 0:03:00.760 has the tools it needs in a crisis scenario. So 0:03:01.000 --> 0:03:05.120 on one front, it is the tangible question of military construction. 0:03:05.680 --> 0:03:08.280 For those who follow any of this closely, we all 0:03:08.320 --> 0:03:10.720 know that the United States is struggling to meet the 0:03:10.760 --> 0:03:13.320 demands of the United States Navy and has progressively been 0:03:13.360 --> 0:03:17.639 seeing its dominance on the seas questioned, and that has 0:03:17.680 --> 0:03:20.080 been partially due to the fact that it simply cannot 0:03:20.200 --> 0:03:22.560 move and build ships as fast as it wants to 0:03:22.880 --> 0:03:24.960 and is unable to actually expand the size of the 0:03:25.000 --> 0:03:27.880 Navy as they see it today. The delays right now 0:03:27.919 --> 0:03:31.640 on major shipping could range between twelve and thirty six 0:03:31.680 --> 0:03:35.680 months on major production, all because the US shipbuilding facilities 0:03:35.760 --> 0:03:40.320 lack kind of basic infrastructure are dated in their technology 0:03:40.400 --> 0:03:43.720 and are unable to compete. And with that as well, 0:03:43.760 --> 0:03:47.040 you have this question of merchant ships and the need 0:03:47.120 --> 0:03:49.680 to be able to marshal a large number of merchant 0:03:49.680 --> 0:03:52.880 ships in the event of a crisis, particularly one as 0:03:52.920 --> 0:03:55.320 far away as as something in the Indo Pacific, maybe 0:03:55.360 --> 0:03:58.880 a Taiwan contingency or a North Korean contingency where you're 0:03:58.920 --> 0:04:00.960 going to need to move large number of troops and 0:04:01.000 --> 0:04:04.440 equipment quickly. But if the United States does not have 0:04:04.640 --> 0:04:07.440 enough ships that it owns and operates and can build, 0:04:07.880 --> 0:04:10.440 it feels that it could be at a disadvantage, and 0:04:10.560 --> 0:04:13.280 particularly in a China scenario, that the Chinese could use 0:04:13.280 --> 0:04:14.600 that against them. 0:04:14.920 --> 0:04:20.039 So if Americans aren't building ships, then who's making the 0:04:20.120 --> 0:04:21.800 ships for the US right now? 0:04:22.360 --> 0:04:24.840 So naval vessels are still produced in the United States, 0:04:24.920 --> 0:04:27.960 They're just produced slowly and at a rate that not 0:04:28.080 --> 0:04:32.240 meeting needs merchant ships. Though while the US does have 0:04:32.320 --> 0:04:35.960 a very small production capability, we're talking about the production 0:04:36.040 --> 0:04:39.440 of about five large ocean going vessels a year, which 0:04:39.560 --> 0:04:43.400 is ministry compared to other producers. When we compare that 0:04:43.560 --> 0:04:48.360 just to one of China's major shipping organizations. They produced 0:04:48.400 --> 0:04:51.920 over two hundred and fifty vessels in twenty twenty four, 0:04:52.480 --> 0:04:55.600 which just for context, is more than the United States 0:04:55.640 --> 0:04:59.280 produced in all of World War Two by tonnage, and 0:04:59.400 --> 0:05:02.520 so the numbers are not even close. When it comes 0:05:02.600 --> 0:05:04.960 to ships that enter and exit the United States bring 0:05:05.000 --> 0:05:07.479 all the goods the US consumes. Those ships are made 0:05:07.480 --> 0:05:10.400 all around the world, but particularly in Korea, Japan and 0:05:10.480 --> 0:05:13.680 now increasingly China. 0:05:13.839 --> 0:05:17.120 Asia Centric is produced by Bloomberg Intelligence. We're more than 0:05:17.160 --> 0:05:21.040 five hundred experienced analysts and strategists work around the clock 0:05:21.080 --> 0:05:24.599 to bring you timely, world class research. Our coverage spans 0:05:24.600 --> 0:05:28.920 two hundred market industries, currencies, commodities, and industries, as well 0:05:28.960 --> 0:05:31.960 as over two thousand equities and credits. To learn more 0:05:31.960 --> 0:05:36.200 about Bloomberg Intelligence, visit BI go on the Bloomberg terminal. 0:05:36.760 --> 0:05:39.240 If you like what you're hear, don't forget to subscribe. 0:05:39.279 --> 0:05:43.480 And Shair Adam, do you need a strong commercial shipbuilding 0:05:43.520 --> 0:05:46.960 industry to also have a strong navy? Are they complementary 0:05:47.000 --> 0:05:47.479 to each other? 0:05:48.720 --> 0:05:51.680 So they absolutely are complementary, and you know, as we've 0:05:51.680 --> 0:05:54.000 seen over the past several decades, the answer at the 0:05:54.040 --> 0:05:57.159 core is no. You can build out a navy and 0:05:57.200 --> 0:06:00.719 a quite advanced one without a significant commercial ship industry, 0:06:01.200 --> 0:06:05.359 but you lose those complementary benefits that you were alluding 0:06:05.400 --> 0:06:08.960 to at the beginning, without the ability to build out 0:06:09.000 --> 0:06:13.400 a large workforce, to leverage the acquisition of large amounts 0:06:13.440 --> 0:06:17.240 of supplies, expand production facilities. All of these things are 0:06:17.240 --> 0:06:19.520 benefits that the Chinese benefit from on a day to 0:06:19.600 --> 0:06:22.719 day basis and the United States does not. For example, 0:06:22.760 --> 0:06:26.240 many Chinese shipyards produce both commercial and naval ships right 0:06:26.240 --> 0:06:30.240 next to each other, with individual experts moving between ships 0:06:30.440 --> 0:06:32.680 day to day. And that's something the United States simply 0:06:32.680 --> 0:06:33.000 can't do. 0:06:33.920 --> 0:06:36.240 So, Kenneth, maybe i'll bring you in here. The Trump 0:06:36.279 --> 0:06:40.320 administration has tried to target this issue of the lack 0:06:40.360 --> 0:06:43.560 of shipbuilding within the US by adding fees onto Chinese 0:06:43.560 --> 0:06:46.680 built ships that enter the US. So what do you 0:06:46.720 --> 0:06:50.000 see will be the impact of that on shipping? And 0:06:50.080 --> 0:06:52.159 you know, you look at logistics for example, how is 0:06:52.160 --> 0:06:55.520 this going to impact people's ability to get their goods 0:06:55.920 --> 0:06:56.520 in the US. 0:06:57.279 --> 0:07:00.320 You know, the proposed US levees that's going to be 0:07:00.320 --> 0:07:03.839 put in place by the US TRIDE Representative and the USTR, 0:07:04.440 --> 0:07:08.480 and the target date for implementation is October this year. 0:07:09.120 --> 0:07:12.320 You know, Bi, we have developed our own in house 0:07:12.480 --> 0:07:15.480 on the dative model to project the impact of these 0:07:15.600 --> 0:07:19.320 levees on the shipping and ship building industries. So based 0:07:19.320 --> 0:07:23.400 on our calculations, we estimate that the US levees should 0:07:23.560 --> 0:07:27.720 sum up to somewhere around ten billion dollars annually. And 0:07:28.000 --> 0:07:31.840 what's notable is more than forty percent of that amount 0:07:32.400 --> 0:07:37.080 comes from Chinese Costco Group alone. That is not surprising 0:07:37.120 --> 0:07:40.800 given that the levees are aimed squarely at leveling the 0:07:40.920 --> 0:07:45.920 playing field between the US and Chinese shipping players and shipbuilders. 0:07:46.240 --> 0:07:50.480 Perhaps what's more surprising or less obvious to people outside 0:07:50.480 --> 0:07:54.080 of the industry is that the levees are set to 0:07:54.320 --> 0:07:58.679 penalize shipping companies outside of China as well. So based 0:07:58.680 --> 0:08:03.880 on our calculations, actually Switzerland's MS Mediterranean shipping company, they 0:08:03.920 --> 0:08:07.680 are second in place, right behind Costco in terms of 0:08:07.840 --> 0:08:11.440 the expected levees to be paid in total per year. 0:08:11.960 --> 0:08:15.400 So you know, this shows that while the proposal aims 0:08:15.440 --> 0:08:18.320 to punish or you know, in a way imposed a 0:08:18.520 --> 0:08:22.000 levee on Chinese shipping and stribulers, they do go much 0:08:22.080 --> 0:08:25.920 further than that, and everyone in the industry in consumers 0:08:26.040 --> 0:08:29.920 will feel the impact as well. However, our model also 0:08:29.960 --> 0:08:33.640 suggests that it's not the end of the world for 0:08:33.840 --> 0:08:38.800 shipping companies and consumers, So even Costco group themselves, they 0:08:38.800 --> 0:08:43.760 could potentially reduce the impact of the proposed levees significantly 0:08:44.440 --> 0:08:48.000 by basically spreading out the levees that they aim to 0:08:48.040 --> 0:08:54.360 recoup across all container cargoes that they transport globally, rather 0:08:54.440 --> 0:08:57.880 than just those bounds for US pots, which would you know, 0:08:57.920 --> 0:09:01.959 attract the levees in the first place. We submit that 0:09:02.000 --> 0:09:07.720 the percentage incremental cost per container is actually somewhere around 0:09:07.800 --> 0:09:11.200 one hundred dollars per teu, just north of that figure, 0:09:11.600 --> 0:09:14.040 and in percentage terms, you know, if I compare to 0:09:14.080 --> 0:09:17.840 average prevailing phavores, that's only just under six percent. It's 0:09:17.960 --> 0:09:21.520 not insignificant, but not quite what you would expect to 0:09:21.600 --> 0:09:26.400 see in terms of the hum done to consumers and inflation. 0:09:26.880 --> 0:09:30.200 Basically, it sounds like the US is trying to target 0:09:30.320 --> 0:09:32.640 China with this, but there are all these kind of 0:09:32.679 --> 0:09:37.120 side effects because other countries are using Chinese built ships 0:09:37.160 --> 0:09:40.720 as well, right, so other countries will also face issues. 0:09:40.800 --> 0:09:44.000 So are there other moves that the Trump administration can 0:09:44.040 --> 0:09:46.960 take to short up US shipbuilding. 0:09:47.760 --> 0:09:50.640 I think we should definitely see these fees as the 0:09:50.679 --> 0:09:54.880 initial shot across the bow of Chinese shipbuilding. I think, 0:09:54.960 --> 0:09:57.640 as we've seen so far from the Trump administration, they 0:09:57.640 --> 0:10:01.960 are focused and willing to escalate to achieve their objectives. 0:10:02.040 --> 0:10:05.640 Now I can't say whether they will, but nonetheless I 0:10:05.640 --> 0:10:07.600 think once they've got a better sense for how these 0:10:07.640 --> 0:10:10.160 fees are working, I think there's certainly a chance that 0:10:10.200 --> 0:10:13.160 we could see these fees increase and other efforts evolve 0:10:13.720 --> 0:10:17.080 based on how effective they think they are. Another thing 0:10:17.080 --> 0:10:19.040 I'd point out is that there are several pieces of 0:10:19.120 --> 0:10:22.880 legislation in moving around Congress right now that relate to this. 0:10:23.440 --> 0:10:26.679 There's a specifically a shipbuilding they'll call the Shipbuilding and 0:10:26.760 --> 0:10:32.080 Harbor Infrastructure for Prosperity Act, otherwise known as SHIPS. It's 0:10:32.080 --> 0:10:36.600 the Ships Act, and it's a bipartisan arrangement that is 0:10:36.679 --> 0:10:39.199 designed to address many of the core issues that we've 0:10:39.240 --> 0:10:44.000 already started to discuss. It includes tax credits, loans, guarantees, 0:10:44.200 --> 0:10:47.240 all designed to push for more commercial shipping to be 0:10:47.280 --> 0:10:50.520 produced in the United States to help build out and 0:10:50.600 --> 0:10:54.480 expand commercial shipyards. As we've seen in doing so, help 0:10:54.520 --> 0:10:58.080 with naval construction as well. Specifically, an interesting part of 0:10:58.080 --> 0:10:59.880 that is also the establishment of something they called the 0:10:59.880 --> 0:11:04.040 Strategic Commercial Fleet, which would be two hundred and fifty 0:11:04.160 --> 0:11:07.440 US built vessels that would serve that purpose of being 0:11:07.440 --> 0:11:10.959 in reserve an event of a US crisis, and the 0:11:11.200 --> 0:11:13.160 orders that the United States puts in and pays for 0:11:13.760 --> 0:11:17.360 that would come out and hopefully revitalize commercial shipping. But 0:11:17.480 --> 0:11:19.480 none of that is guaranteed. We haven't seen that move 0:11:19.559 --> 0:11:21.559 through Congress yet, and it is a lot of money 0:11:21.559 --> 0:11:25.199 that would be required there, and given increasing concerns about 0:11:25.200 --> 0:11:29.439 the debt, notwithstanding the passage of the most recent budget bill, 0:11:30.240 --> 0:11:32.920 I think there are questions on whether that will actually 0:11:32.960 --> 0:11:33.360 move forward. 0:11:34.080 --> 0:11:37.560 Adam, it seems to me that it's a very indirect 0:11:37.600 --> 0:11:42.800 way of trying to revive US shipbuilding by taxing Chinese 0:11:42.880 --> 0:11:45.960 built ships entering into the US. Like, why wouldn't a 0:11:45.960 --> 0:11:49.439 Shuman company say just buy a ship or order a 0:11:49.480 --> 0:11:52.880 ship from Career or Japan. It doesn't necessarily mean that 0:11:52.920 --> 0:11:55.040 they're going to buy a US built ship. 0:11:55.720 --> 0:11:57.680 Right now, what we are seeing is exactly what you said, 0:11:57.760 --> 0:12:00.800 is the movement of orders partially out of China into 0:12:00.880 --> 0:12:04.040 Korea and Japan. And not into the United States because 0:12:04.080 --> 0:12:06.400 of the way the fees are currently constructed, they don't 0:12:06.520 --> 0:12:10.800 penalize vessels constructed elsewhere, and as a result, the most 0:12:10.840 --> 0:12:14.520 capable and potent shipping industry available on Earth right now 0:12:14.559 --> 0:12:17.560 outside of China is Korea in Japan. But maybe Kenneth 0:12:17.559 --> 0:12:19.880 can talk a little bit about how they had hoped 0:12:20.120 --> 0:12:23.400 to incentivize the construction of US Belt vessels. 0:12:23.840 --> 0:12:26.440 Oh, so where do we begin. This is a very 0:12:26.440 --> 0:12:31.199 interesting and huge topic. So for starters, simply put, why 0:12:31.520 --> 0:12:35.080 the shipping companies are turning to South Coin and Japanese shipyards. 0:12:35.520 --> 0:12:38.319 There are multiple aspects to this problem. Number one is 0:12:38.360 --> 0:12:44.200 of course cost generally speaking, an average large ocean going 0:12:44.240 --> 0:12:48.600 container vessel, that's going to cost you probably five times 0:12:48.600 --> 0:12:52.800 as much to order that from Ubers shipyard compared to 0:12:53.080 --> 0:12:57.640 a self Coin shipyard. And the second aspect is in 0:12:57.720 --> 0:13:01.880 terms of the delivery timeline, it's just going to be 0:13:01.920 --> 0:13:05.320 a lot more efficient to order from a shipyard that 0:13:05.400 --> 0:13:08.600 you know could deliver in three to four years time 0:13:09.000 --> 0:13:13.040 with certainty, because you know there's economies of scale and 0:13:13.160 --> 0:13:17.880 expertise that's required to service the needs of global shipping 0:13:17.920 --> 0:13:20.760 companies in South COREA and Japan. And we are not 0:13:20.800 --> 0:13:23.560 talking about China here because we're talking about the impact 0:13:23.559 --> 0:13:28.080 of the levees targeted at the Chinese industry peers. But 0:13:28.360 --> 0:13:31.559 you know, if you consider time and cost, it definitely 0:13:31.559 --> 0:13:33.599 makes sense to order from the South Covins and the 0:13:33.679 --> 0:13:38.839 Japanese rather than the American shipyards. And the levees are 0:13:38.880 --> 0:13:42.920 not here to while they would like to see orders 0:13:42.920 --> 0:13:45.480 that US shipyards increase as a reason of the levees, 0:13:45.520 --> 0:13:49.560 they're not here solely to drive orders towards UB shipyards. 0:13:49.559 --> 0:13:54.160 So under the proposal, there are conditions that incentivize new 0:13:54.280 --> 0:13:58.600 orders from US shipyards. For instance, if you currently operate 0:13:58.800 --> 0:14:02.800 Chinese built but you put in a new order with 0:14:02.880 --> 0:14:07.760 the US shipyard, under certain conditions, there will be exemptions 0:14:07.800 --> 0:14:10.560 available to you as a shipping company. So if you 0:14:10.559 --> 0:14:13.040 place a new order with the US shipyard within the 0:14:13.160 --> 0:14:16.200 next three to five years, for instance, then that might 0:14:16.480 --> 0:14:18.960 basically reduce the amount of levies you will pay over 0:14:19.040 --> 0:14:21.480 that same period until you take delivery of the US 0:14:21.480 --> 0:14:26.560 ship But there's nothing actually stopping shipping companies from pivoting 0:14:26.600 --> 0:14:31.160 toward the South Kurrerents and the Japanese instate, So essentially 0:14:31.520 --> 0:14:36.840 the proposal is here to stop shipping companies from going 0:14:36.920 --> 0:14:39.640 straight to the Chinese. You know, in the long run, 0:14:39.760 --> 0:14:43.960 that is done with the intention of basically funneling orders 0:14:44.000 --> 0:14:47.720 away from the Chinese shipyards and reducing their dominance in 0:14:47.760 --> 0:14:51.240 the industry, which, as John mentioned at the beginning of 0:14:51.280 --> 0:14:55.080 the podcast, they control more than seventy percent of critical 0:14:55.160 --> 0:14:57.920 segments such as containerships and tanker vessels. 0:14:58.280 --> 0:15:00.200 So the fees that are going to be implemented for 0:15:00.360 --> 0:15:05.760 Chinese built ships, they're not going to actually slow the 0:15:06.440 --> 0:15:09.680 number or the amount of goods coming into the US. Basically, 0:15:10.280 --> 0:15:13.760 you have one hundreds of thousands of container ships going 0:15:13.760 --> 0:15:18.320 into the US each year delivering everything from car parts 0:15:18.400 --> 0:15:22.000 to consumer goods. Suddenly, if they have a Chinese built ship, 0:15:22.000 --> 0:15:24.880 they're going to have to pay a fee. Is that 0:15:25.240 --> 0:15:30.680 going to make these shipping companies think twice about potentially 0:15:30.760 --> 0:15:34.480 sending those goods over into the US? Is there potentially 0:15:34.520 --> 0:15:37.120 going to be more air shipping for example, could there 0:15:37.240 --> 0:15:40.800 be more goods coming through Mexico? Like, how would it 0:15:40.840 --> 0:15:43.040 impact the shipping routes themselves. 0:15:44.040 --> 0:15:47.640 Thankfully, there are multiple options for companies such as even 0:15:47.720 --> 0:15:51.680 China's cost Group Group to reduce the impact of these levees. 0:15:51.720 --> 0:15:55.000 As I mentioned earlier, one is what be for them 0:15:55.040 --> 0:15:58.920 to try to recoop the levees that they incur by 0:15:59.040 --> 0:16:02.840 collecting a search charge a form of search charge across 0:16:02.880 --> 0:16:06.680 all container volumes transport globally rather than just those bound 0:16:06.760 --> 0:16:09.560 for the US. Another way is they could work with 0:16:09.560 --> 0:16:12.560 their alliance partners, so in container shipping, you know the 0:16:12.760 --> 0:16:17.080 three larger shipping alliances at the moment, and for Costco Group, 0:16:17.120 --> 0:16:21.720 they could potentially work with their alliance partners ever Green 0:16:21.880 --> 0:16:25.680 from Taiwan and CMAC GM from France, and what they 0:16:25.680 --> 0:16:27.880 could do between the two of them would be too 0:16:28.160 --> 0:16:31.560 deferred or re deploy the Chinese build vessels on two 0:16:31.720 --> 0:16:35.560 routes that do not involve US podcorns, and that would 0:16:35.560 --> 0:16:41.160 effectively reduce the total levees incurred by Chinese Cosscoal Group annually. 0:16:41.960 --> 0:16:47.360 And also they could potentially reduce the levees further by 0:16:47.760 --> 0:16:51.720 just adding a certain number of orders with the US 0:16:51.760 --> 0:16:54.520 shipyards as intended. So there are multiple options of the 0:16:54.840 --> 0:16:59.160 vary in terms of viability and commercial value, but there 0:16:59.160 --> 0:17:02.960 are multiple options available and exemptions as well under this 0:17:03.080 --> 0:17:05.000 proposal that they could leverach. 0:17:06.119 --> 0:17:08.439 So one thing I would just add is that at 0:17:08.440 --> 0:17:11.239 Bloomberg Economics we also ask the question, what does this 0:17:11.280 --> 0:17:14.160 look like if they don't get around it and they 0:17:14.200 --> 0:17:16.800 have to pay everything, right, and we see almost ten 0:17:16.840 --> 0:17:21.119 billion dollars and increasing year by years the fees actually 0:17:21.119 --> 0:17:25.080 go up on a fee schedule, what's the impact? And 0:17:25.160 --> 0:17:28.479 what we actually found was that when you look at 0:17:28.520 --> 0:17:32.000 the value of the goods that are actually being transported 0:17:32.520 --> 0:17:35.560 and look at that in comparison to the fee, you're 0:17:35.560 --> 0:17:40.439 actually talking about only a point seven percent increase in 0:17:40.520 --> 0:17:42.639 total costs, or, if you want to think about it 0:17:42.640 --> 0:17:44.840 from a tariff perspective, because that's what we do, a 0:17:44.920 --> 0:17:49.399 point seven percent tariff, and given where we are in 0:17:49.440 --> 0:17:52.800 the tariff picture today with over forty percent tariffs currently 0:17:52.800 --> 0:17:55.600 on Chinese goods, zero point seven percent just really doesn't 0:17:55.680 --> 0:17:59.679 change calculus. So we very well might see our drop 0:17:59.800 --> 0:18:01.919 in shipments to the United States, but that's going to 0:18:01.920 --> 0:18:05.520 be driven by those broader trade talks with China and 0:18:05.600 --> 0:18:08.959 the tariff rates that exist, rather than the fees themselves. 0:18:09.359 --> 0:18:13.240 And so you know, certainly an individual company, as our 0:18:13.280 --> 0:18:16.760 reporting indicates, if Costco paid the full fee, they would 0:18:16.800 --> 0:18:20.320 actually take a large hit on their profits, but they 0:18:20.359 --> 0:18:23.520 have the ability likely to pass that on to a 0:18:23.600 --> 0:18:27.520 variety of different entities within the supply chain or the process, 0:18:27.560 --> 0:18:30.680 the logistics process of shipping in a manner that most 0:18:30.680 --> 0:18:33.080 folks will be willing to pay. And you know you 0:18:33.160 --> 0:18:37.320 mentioned airshipping, but the costs are so drastically different between 0:18:37.359 --> 0:18:41.160 the two, with ship bound goods being just so much 0:18:41.240 --> 0:18:44.040 cheaper that it just won't make a big difference. 0:18:45.400 --> 0:18:48.040 So not a huge impact, especially when we look at 0:18:48.280 --> 0:18:51.920 the comparison with tariffs and the huge impact that that'll have. 0:18:52.160 --> 0:18:55.800 So consumers shouldn't be too worried I guess come October 0:18:55.840 --> 0:18:58.159 at least about these shipping. 0:18:58.280 --> 0:19:00.960 Yeah, I would like to just chooin youm figure for 0:19:01.240 --> 0:19:04.680 comparison for context, So if we're talking about Chinese Costco Group, 0:19:04.800 --> 0:19:08.320 which would be the one attracting the largest levies under 0:19:08.320 --> 0:19:11.439 the proposal, but it's on our calculations that's only going 0:19:11.480 --> 0:19:14.000 to come up to one hundred and eighteen dollars per 0:19:14.119 --> 0:19:17.760 TEU per twenty foot equivalent unit. You know these standard 0:19:17.800 --> 0:19:20.800 containers that you see, and for context, you could stuff 0:19:20.880 --> 0:19:24.680 anywhere between one hundred and fifty to three hundred thousand 0:19:24.760 --> 0:19:27.960 T shirts in such a container. So that's one hundred 0:19:28.000 --> 0:19:31.320 and eighteen dollars divided by two hundred thousand T shirts. 0:19:31.520 --> 0:19:33.720 It's not even going to show up as a decimal point. 0:19:35.359 --> 0:19:37.879 Yeah, some good context, Adam. 0:19:37.920 --> 0:19:42.400 I wanted to just take a broader view on America's 0:19:42.680 --> 0:19:45.200 efforts to revive its super building sector. Now, you alluded 0:19:45.200 --> 0:19:48.760 to the fact that America really hasn't been competitive in 0:19:48.800 --> 0:19:50.640 this space since did you say World War Two? 0:19:51.359 --> 0:19:51.439 Like? 0:19:51.560 --> 0:19:54.159 How difficult? And I know we've touched on it, but 0:19:54.200 --> 0:19:57.480 how difficult will it be for America to really start 0:19:57.560 --> 0:19:59.760 challenging China's dominance in this sector? 0:20:00.400 --> 0:20:02.440 To be frank, I don't think anybody's talking about the 0:20:02.520 --> 0:20:06.040 United States challenging China's dominance in this sector, but rather 0:20:06.760 --> 0:20:10.920 America significantly improving its ability to produce ships and put 0:20:10.960 --> 0:20:14.639 itself in a position where it is a competitor at 0:20:14.680 --> 0:20:18.399 all in the space, and moreover, where it could reach 0:20:18.720 --> 0:20:21.919 the economies of scale that would allow it to produce 0:20:21.920 --> 0:20:25.200 ships more efficiently, build out a workforce that is capable 0:20:25.240 --> 0:20:29.000 of doing so, and again leverage that to improve its 0:20:29.080 --> 0:20:34.439 naval capacity. The United States, there's a big deal right now. 0:20:35.200 --> 0:20:37.960 During the Biden administration, there was a deal to work 0:20:38.000 --> 0:20:41.960 with Australia and the United Kingdom on the construction of 0:20:42.119 --> 0:20:46.159 nuclear submarines under something called Aucus. And this is all 0:20:46.200 --> 0:20:49.879 built around the Virginia class nuclear submarine. And the entire 0:20:49.920 --> 0:20:54.360 premise of this agreement was that by increasing the order 0:20:54.359 --> 0:20:57.760 book for this submarine and increasing the amount of funds 0:20:57.800 --> 0:21:01.160 flowing into the program, with Australia buying in and potentially 0:21:01.160 --> 0:21:04.240 the United Kingdom as well, that the United States would 0:21:04.240 --> 0:21:07.679 be able to improve its ability to produce ships because 0:21:07.720 --> 0:21:12.400 it is falling woefully behind in producing these advanced submarines 0:21:12.440 --> 0:21:16.520 that it needs for its strategic position in the Indo Pacific. 0:21:17.200 --> 0:21:20.239 So the US is looking in every place to do this, 0:21:20.440 --> 0:21:23.520 and the idea here is to just give even more 0:21:23.840 --> 0:21:26.880 support and funding to drive that development. 0:21:27.760 --> 0:21:31.200 We talked a bit about it earlier, but the role 0:21:31.320 --> 0:21:36.080 of South Korea, Japan, sort of America's allies in Asia, 0:21:36.640 --> 0:21:39.240 how could they help with this US effort. 0:21:40.200 --> 0:21:43.920 So they're actually competing priorities here. If we're looking at 0:21:44.040 --> 0:21:47.800 simply trying to improve US shipbuilding, we want to push 0:21:47.840 --> 0:21:50.600 as much money and as many contracts as possible to 0:21:50.720 --> 0:21:54.560 US shipbuilders and encourage foreign firms like those in Korea 0:21:54.640 --> 0:21:57.120 and Japan to invest in the United States as they've 0:21:57.160 --> 0:22:01.639 started to do. However, if the competing priority here is 0:22:01.680 --> 0:22:04.240 to increase the size and efficiency of the US Navy 0:22:04.280 --> 0:22:07.919 as fast as possible, and to do that, we actually need, 0:22:08.200 --> 0:22:11.160 or at least folks are considering actually using the shipyards 0:22:11.160 --> 0:22:14.000 in Korea and Japan to both do maintenance on our 0:22:14.000 --> 0:22:18.399 current fleet and potentially actually construct elements of our current fleet, 0:22:18.560 --> 0:22:21.879 and so there is this tension that exists between the 0:22:21.920 --> 0:22:26.520 two objectives. Both Korea and Japan are very much aware 0:22:26.560 --> 0:22:28.920 of how focused the United States is on this issue 0:22:29.400 --> 0:22:33.440 and have already made large proposals in regards to how 0:22:33.480 --> 0:22:36.080 they could help the United States build out and improve 0:22:36.119 --> 0:22:39.679 the shipbuilding industry as part of these trade or tariff 0:22:39.720 --> 0:22:41.119 negotiations that are ongoing. 0:22:41.320 --> 0:22:41.480 Now. 0:22:41.520 --> 0:22:44.120 We obviously haven't seen either of those come to fruition yet, 0:22:44.119 --> 0:22:46.479 so we don't know what that looks like, but that 0:22:46.600 --> 0:22:50.440 is absolutely on the table, and both sides hope that 0:22:50.440 --> 0:22:52.439 that will be enough to help get them some reprieve 0:22:52.520 --> 0:22:53.680 on reciprocal tariffs. 0:22:54.840 --> 0:22:58.560 So, from my perspective of revitalizing the US shipbuilding industry, 0:22:58.640 --> 0:23:01.000 that's going to take much more, much more than just 0:23:01.040 --> 0:23:06.000 the proposed levees targeting China. Again, China holds about sixty 0:23:06.080 --> 0:23:08.840 four percent of the world's vessel or the book if 0:23:08.840 --> 0:23:12.240 we look across all vessel types. This compares with less 0:23:12.240 --> 0:23:15.520 than one percent of our market share that the US holds. 0:23:15.880 --> 0:23:20.320 And the problem is constructing the shipyard, staffing with skilled workers, 0:23:20.359 --> 0:23:24.040 and producing ships on a commercially viable skill. All these 0:23:24.080 --> 0:23:27.240 things could easily take more than ten years. So while 0:23:27.280 --> 0:23:30.000 the proposal by the US here they aim to finance 0:23:30.080 --> 0:23:33.520 these investments using the levees collected, that still leaves the 0:23:33.560 --> 0:23:36.560 issue of rapidly raising a huge pool of trained workers, 0:23:36.800 --> 0:23:39.840