American yards could experience strong windfalls from US President Donald Trump's and the Republican-controlled Congress' defense, energy and tax initiatives, even though few explicit policy statements on shipbuilding have been made.
In reality, many stars will need to align for the scenario of more American ships, built by more American workers on American soil, to actually happen.
The potential is certainly there. Newbuilding businesses of both naval and commercial shipbuilders in the US are closely linked with government policies, and a new administration that promises to put American jobs first could do well to find ways to revitalize the labor-intensive industry.
However, it will take sophisticated, coherent economic planning for the benefits to be realized, in addition to strong consensus and co-ordination between the White House and Congress. There is much left to be seen on this front.
Among other things, President Trump has promised to expand the naval fleet to 350 ships from the current 274, with US yards welcoming such an ambition.
"There is underutilized shipbuilding capacity right now in the US," said Mark Yonge, a managing member of Maritime Transport and Logistics Advisors. "An increase in navy building would certainly be welcome news for military shipbuilders… there is not a lot [of business] on the horizon at present."
Matthew Paxton, president of the Shipbuilders Council of America, also said the capacity is there. "The US shipyard industrial base - people and facilities - can support a quick ramp-up, increasing the size of the fleet in a timely manner," he said.
The president's plan has been echoed by the Pentagon (which has proposed a 355-vessel fleet), but its heavy costs have been met with skepticism. The Congress Budget Office said the expansion could cost $25bn a year for 30 years, a tall order when automatic budget cuts, known as the sequester, are still in place.
According to the Budget Control Act of 2011, budget cuts, including some in the defense sector, will be made automatically if spending caps are exceeded. This has created a lot of uncertainty for navy yards' financial planning across ship classes, with the annual standoff over federal expenditure in Congress.
"The navy's shipbuilding plan for the next 30 years would cost almost one third more than it has spent over the past 30 years," a CBO report said. "Implementing the navy's shipbuilding plan might be difficult under current law."
President Trump has vowed to repeal the defense sequester and proposed to increase defense spending by $54bn. However, the plan is expected to meet obstacles in Congress, as President Trump has also pledged to make the savings by cutting expenditure in other sectors such as foreign aid in order to maintain budget neutrality.
On top of this, military yards might not necessarily benefit from more orders. With submarines accounting for the largest chunk of the proposed naval spending, President Trump told Fox News: "We're lacking submarines, and we're going to build new submarines, but the price is too high, so I'm cutting the prices way down."
Commercial fleet building
In the American shipbuilding industry, navy yards such as Bath Iron Works and Huntington Ingalls Industries play a significant role, with others such as Philly Shipyard focusing on constructing domestic vessels.
Some yards, such as General Dynamics NASSCO, have invested in facilities for both military and commercial shipbuilding.
Commercial shipbuilders are keeping an eye on the Republican administration's policy proposals. President Trump's America First Energy Plan, if fulfilled, would boost US energy exports and demand for tanker barges.
Moreover, in theory, the border adjustment tax, proposed by some Republican members of Congress and supported by President Trump to some extent, would be equivalent to a 20% tax on imports. To avoid such costs, companies may move products between US ports, which may eventually lead to more shipbuilding.
Pal Lothe Magnussen, president of Jones Act tonnage provider American Shipping Co, predicts more demand for coastal crude shipping as shale production is recovering on a rebound in the oil price. This, if combined with a border tax, could potentially lead to more newbuilding needs when yard slots are limited, he added.
"Only NASSCO and Philly Shipyard are building those tankers, and the earliest slot you can get is probably for 2020 delivery," said Mr. Magnussen.
However, the policies are all still in their infancy, and it is far from certain how they will affect trade flows.
Regarding tankers, much of the shipping requirement will depend on the prices of oil, auto fuels and freight, even if crude and related products are indeed to be levied with border tax (which not many people expect) and energy exports increase (which has already started to happen). It will take even longer for any positive effect to trickle down to shipbuilding.
"A border tax would encourage more domestic crude oil movements on Jones Act tonnage, it would probably send clean product from the US Gulf to destinations further north [of] Jacksonville," MJLF analyst Court Smith said.
"[But] I do not think that either of these trades rebounding would encourage new tanker construction now given the idle capacity in the fleet."
Disclosure: I/we have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.
I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it. I have no business relationship with any company whose stock is mentioned in this article.