One Simple Change to Improve America’s Ports

COMMENTARY Transportation

One Simple Change to Improve America’s Ports

Aug 7th, 2020 2 min read
COMMENTARY BY
Nicolas Loris

Deputy Director, Thomas A. Roe Institute

Nick is an economist who focuses on energy, environmental, and regulatory issues as the Herbert and Joyce Morgan fellow.
A ship is docked on the Houston Ship Channel, part of the Port of Houston, on March 6, 2019. LOREN ELLIOTT / Contributor / Getty Images

Key Takeaways

Virtually all (99%) of America’s overseas cargo moves through our 360-plus ports.

All this economic activity—and more—could be conducted far more efficiently, by increasing the size and depth of shipping channels.

Allowing foreign competition would significantly drive down costs for port projects. It would also encourage U.S. dredgers to innovate and compete for business.

Policymakers looking for ways to gin up the economy should take a hard look at America’s ports.

Virtually all (99%) of America’s overseas cargo moves through our 360-plus ports. Yet all this economic activity—and more—could be conducted far more efficiently, by increasing the size and depth of shipping channels.

According to the National Oceanic and Atmospheric Administration, “with one more inch of depth in a port, a cargo ship could carry about 50 more tractors, 5,000 televisions, 30,000 laptops, or 770,000 bushels of wheat.”

Many shipping channels force bulk carriers to “light load,” because they are too shallow to accommodate full loads. This forces larger, heavier ships to divert to deeper ports and offload cargo before entering shallow ports. For instance, vessels often must drop cargo in Halifax, Canada, before entering New York Harbor.

These inefficiencies complicate and slow supply chains, increasing transportation costs. Families pay more for the products they need and American businesses are put at a competitive disadvantage. As a 2017 Army Corps of Engineers study noted, “for many exported grains and other bulk commodities where there is international competition, a few cents per ton of additional cost makes U.S. products less attractive.”

Workers at the ports, suffer, too, because they’re missing out on more business.

So what’s the hold-up? Dredging shipping channels and ports takes time and money. But the real problem is a more than century-old law that dramatically increases the time and cost necessary to complete dredging projects.

The Foreign Dredge Act of 1906 requires any dredging in U.S. waters to be done by vessels built, owned, and operated in America. Restricting competition excludes the world’s largest dredging companies that could provide better, cheaper services.

Belgian and Dutch dredgers, which have developed expertise in dredging because much of their respective coasts are at or below sea level, are the best in the world. One Dutch company, Van Oord, owns more than three times the entire capacity of all U.S. hopper dredges. Van Oord projects that it could complete projects in U.S. waters three times faster at 60% of the cost.

The U.S. Army Corps of Engineers is most affected by this law, because it’s responsible for maintaining and improving America’s ports, harbors, and shipping channels. The anti-competitive act is costing the Corps—and U.S. taxpayers—upwards of $1 billion per year.

Usually, policies like the Foreign Dredge Act are justified on the basis of protecting jobs or national security. However, both arguments fall short: Both employment and overall economic activity would increase if the U.S. market were open to greater competition.

Army Corps data show that the dredging market is extremely concentrated. Only five private U.S. companies have hopper dredges, and one of them has only one. From 2015 through 2019, 65% of all Army Corps contracts received only one or two bids. In fiscal year 2020 so far, 14 of 16 contracts have had only one bidder.

Allowing foreign competition would significantly drive down costs for port projects. It would also encourage U.S. dredgers to innovate and compete for business.

Furthermore, the Foreign Dredge Act likely does more to harm than help national security. Clogged ports hinder sea-lift capability. Moreover, about 90% of the firms specializing in dredging are European; they present no national security risk. And if there were any reason to believe that a particular foreign company did, in fact, present a valid national security risk, the Department of Defense can make that determination. There is simply no reason to retain the blanket prohibition on foreign firms that exists today.

Both former Vice President Joseph R. Biden’s “Build Back Better” plan and President Trump’s “America First” agenda embrace economic nationalism. But a true America-first approach would open dredging to international competition, putting the economic interests of the majority of American consumers and businesses over the politically connected ones.

This piece originally appeared in The Washington Times