▶ 0:17:58>> maritime and fisheries will not come to order. I want to examine how to modernize, accelerate U.S. commercial shipbuilding which will have an impact on our navy shipbuilding while strengthening america's broader maritime industrial base as a foundation for economic security and national security.
▶ 0:18:17This hearing could not be more timely, the state of america's commercial shipbuilding industry is not just an economic concern but eight national security imperative that we have let slide for way too long the scale of the challenge we face today is real, urgent and I would say it is daunting.
▶ 0:18:42The united states builds less than 1% of the world's commercial ships, meanwhile our adversary, china, alone accounts for nearly half of global production backed by state planning, subsidies and, as always, coercive trade practices. This is not just an economic statistic, it is a dire warning.
▶ 0:19:04Maritime power directly tied to our ability to project influence, support our navy, mobilize, sustain commerce, and ensure resilient supply chains in times of crisis. Nowhere is this more evident than in the great state of alaska. Key economic pillars of my state , the U.S.
▶ 0:19:27Military, mining, fisheries, oil and gas, tourism are all dependent on maritime transportation to move goods, resources, ammunition and people.
▶ 0:19:44Alaska's remoteness dependence and strategic position between the pacific and arctic theaters underscore the need to ensure stable american controlled supply routes connecting the continental united states with its territories and its noncontiguous states.
▶ 0:20:05My colleague from hawaii I think would agree with that and to avoid reliance on foreign vessels for domestic and territorial trade, especially given alaska' is proximity to major foreign powers across the north pacific. We have seen what america can do when it chooses to lead.
▶ 0:20:26During world war ii as vividly captured in hertha hermon's freedoms forge -- arthur hermon's freedoms forge, we will unprepared for war into the industrial powerhouse come out building our allies in adversaries alike. We can do the speed we have done it before. That shipbuilding surge did not happen because we were forced into it.
▶ 0:20:51It happened because we chose to make the moment with purpose, coordination, and urgency. That is why the trump administration's executive order on me storing america's maritime dominance is so important. It acknowledges this is not the problem of isolated shipyards are fragmented markets, it is a national strategic challenge. I look forward to reviewing the forthcoming maritime action plan from the administration which is due next month.
▶ 0:21:23It will lay out the policies, investments and reforms needed to restore U.S. shipbuilding, competitiveness, and secure our maritime future. Three things I think are critical for success in this town, white house leadership, appropriated dollars, and legislative action that is bipartisan.
▶ 0:21:48I think that we have the beginnings of all three of these on shipbuilding. Certainly, congress has begun to act. Budget reconciliation bill, the one big beautiful bill, has made historic investments in the navy, in shipbuilding, over 25 billion dollars, and the coast guard come over $25 billion, authorizing multiple destroyers, submarine, oilers and -- and
▶ 0:22:19Nearly $9 billion in arctic ice breakers. These investments are not only critical to national defense, but also give demand signals to shipyards, suppliers and workers across the country. We are also seeing important bipartisan momentum through legislation, such as the ships for america act. I don't know if senator kelly is still here, there he is.
▶ 0:22:47To lead cosponsor and I am a lead cosponsor which recognizes the revitalization of U.S. commercial shipbuilding must be a whole of mission effort. This legislation aims to strengthen domestic production capacity, incentivize innovation and ensure our industrial base can compete globally while advancing national security goals.
▶ 0:23:12More money won't alone solve the problems, we need smarter procurement systems, ones that reward performance, improve accountability and avoid the delays and costs overruns that have plagued far too many federal programs. New approaches to contracting and digital integration are showing promise. We should build on that progress and replicate it across ship types and agencies, commercial and the U.S. navy.
▶ 0:23:42Finally, this is most importantly about people. Welders, naval architects, mariners, engineers and practices. Revitalizing america's shipbuilding means investing in a workforce that can design, build and sail the ship's for tomorrow. It means restoring the american maritime trades as a source of good jobs, national pride there communities across our great nation.
▶ 0:24:11In that regard, I want to mention to my colleagues, I certainly hope that when we vote for the cr once again at 11:30, we get enough democrats to just reopen the darn government. Enough is enough. The big federal government union came out and said support this. This impacts shipbuilding, fema.
▶ 0:24:37I was back home over the weekend and we had a big typhoon and we have tons of people in the federal government right now working without pay. Enough is enough. Reopen the government and we will negotiate on subsidies. I think many of you know senator schumer has spent the need to the far left.
▶ 0:24:58Let's reopen the government and get the workers who built our ships and public guards -- public guards paid as well. I want to turn it over to my ranking member, senator blunt rochester for comments. I think the witnesses of this very important and well intended hearing. Thank you very much.
▶ 0:25:22Sen. Blunt: Rochester: -- Sen.
▶ 0:25:28Blunt Rochester: I want to thank my senator mark kelly for his leadership on these critical issues and for taking time to even sit down with me in his office and explain why this is so important to him. So thank you senator kelly as well.
▶ 0:25:46Blunt Rochester: Reviving our nation's shipbuilding sector it would strengthen our national security , protect our supply chains, support our small businesses and lower costs for everyday americans and while I agree this is an important topic, it is unfortunate we are holding it during a government shutdown and I would be disingenuous if I didn't say that this is not normal.
▶ 0:26:13Blunt Rochester: Millions of americans are about to see their health care costs skyrocket and a loss of snap benefits will impact the ability of people to put food on the table. So to me in this moment, we should be focused on wielding the government and making sure that this affordability crisis doesn't further impact american families.
▶ 0:26:42Blunt Rochester: Despite the president's promise to lower costs on day one, costs are going up every day. Tariffs on steel and lumber certainly don't help our shipbuilders. And I agree with the chairman that three things are required, the house has to be here to work .
▶ 0:27:07Blunt Rochester: The senate has to continue to do a strong work that we have done historically in a bipartisan way and we need the president to be a part of this. And so investing in our shipbuilding industry can help solve some of our affordability problems. And we are in desperate need. But the way we do it is together .
▶ 0:27:33Blunt Rochester: Shipbuilding is more than industry, it is a strategic capability, the cornerstone of american economic and national security, providing our nation with a skilled workforce with advanced manufacturing capacity that can build and sustain vessels essential to both U.S. commerce and defense readiness. Yet workforce shortages, supply flame -- supply chain fragility have undercut our ability to dominate in the sector.
▶ 0:28:03Blunt Rochester: We should be ringing the alarm bells but again, I am deeply concerned that this critical conversation will be overshadowed by the moment we are in and I know that I join my colleagues in saying that the american people want us to come together, opened the government and make sure our health care costs are not out of control.
▶ 0:28:29Blunt Rochester: Thank you for your continued partnership together on these critical issues and at this moment, I yield back and look forward to the testimony as well as asking our questions.
▶ 0:28:43Chair Sullivan: I think the clean cr vote is at 11:30. Let's reopen the government meant. Join the other democrat senators that have crossed senator schumer and because this is been all about him, right? Everybody knows that.
▶ 0:29:02Chair Sullivan: Let's reopen the government now with a vote on the clean cr, which she federal employees union wants to do as well but I hope this hearing can be about shipbuilding, not about what we should be doing, which is reopening the government at 11:30.
▶ 0:29:23Chair Sullivan: With that, I offer senator cantwell on this committee and I hope she will take a few minutes and sate some words about shipbuilding. My colleagues, please vote for the clean cr. Everyone knows it is the right thing to do. That is how you solve all the issues, snapped, federal workers, right now, we could solve that in an hour and a half. Pretty easy.
▶ 0:29:52Sen. Cantwell: Thank you chairman sullivan into senator blunt rochester for pulling this important hearing on shipbuilding. I appreciate the witnesses being here. Shipbuilding is a bipartisan issue and we all agree we need to do more to have american build ships to expand global trade, protect our supply chain and bolster national security.
▶ 0:30:12Sen. Cantwell: It was great to have the nominee before us who shared an enthusiastic vision of how the united states needs to regain our maritime leadership. I look forward to confirming him in the spot. Following decades of decline, the united states -- states constructs just .2% of the world's commercial shipping while china, south korea, japan build more than 90%.
▶ 0:30:41Sen. Cantwell: In 2022, china had 1794 commercial oceangoing ships in production come south korea had 734, japan had 587, europe had 319, and the united states, we were just building five. Our economy depends on trade.
▶ 0:31:01Sen. Cantwell: We know that in the pacific northwest where 40% of our state is dependent on trade, if we do not revive our shipbuilding capacity, our nation will not be able to compete at this particular moment in the pacific. That puts our economy at risk, creates a dangerous weakness in our national defense. We must continue to protect the jones act, expand and streamline title 11 loan guarantee programs and modernize our infrastructure.
▶ 0:31:30Sen. Cantwell: We must do more to get cargo preference oversight and support for legislation like senator moran's bill to move food a to the usda. We need to invest in the technology training to establish a cutting edge maritime ecosystem so that the shipyards and workers can build the most sophisticated ships in the world.
▶ 0:31:52Sen. Cantwell: In the state of washington, the maritime sector supports 174,000 jobs through maritime logistics, shipping, shipbuilding, seafood, maritime transportation and associated trades and in total sector supports $45 billion of economic revenue and shipbuilding in particular are good family wage jobs with an average salary of 120 thousand dollars. Can you imagine that, an average job? Ms.
▶ 0:32:18Sen. Cantwell: Snow is here representing her family shipyard which has grown to more than 100 employees today. As our shipbuilding and maritime economy is at a crossroads, encourage my colleagues to listen to Ms. snow on how they plan to bring more talent to the shipyard and by recruiting talent, she is meeting the demand for employees but also providing us with how this issue may be applied across the country. Mr.
▶ 0:32:47Sen. Cantwell: Paxton, when it comes to thinking big, you represent one of the biggest in the country, including a ship there that has operated in the state of washington and I look forward to hearing from you about how you can boost capacity from larger guards including financing and your support for workforce challenges. Mr. vogel, I welcome your views on construction management hot and how we better support.
▶ 0:33:14Sen. Cantwell: We have worked on many issues, including getting the port at anchorage fully supported and the capacity it will take to continue to deliver important products there. And Dr.
▶ 0:33:30Sen. Cantwell: Mercogliano, I look forward to working with my colleagues. I think the -- thank the president and the sector of transportation have all said they want to make this maritime revival and national priority.
▶ 0:34:00Sen. Cantwell: I do too. I look forward to hearing the comments at today's hearing.
▶ 0:34:03Chair Sullivan: Now, I also want to welcome our witnesses. Mr. paxton, who is the president of the shipbuilders council of america. He represents those who own and operate shipyards across the united states in maritime industrial suppliers. Mr.
▶ 0:34:23Chair Sullivan: Vogel, president of legal affairs and operations at tote services which delivers ship management, technical solutions and vessel construction management and customers across the maritime industry. Dr. mercogliano, a professor at campbell university is the chairman of political science and also a former deck officer in the U.S.
▶ 0:34:53Chair Sullivan: Merchant marine and Ms. snow has already been introduced by senator cantwell as a talent acquisition and engagement manager at the snow and company inc., a family owned and operating shipbuilding company in seattle. With that, I would like each of our witnesses, they have five minutes to give opening statements. A longer statement can be submitted for the record. Mr. paxton, we will begin with you.
▶ 0:35:23Mr. Paxton: On behalf of the shipbuilders of america, I would like to chairman sullivan, ranking member rochester, senator cantwell, senator baldwin, senator young and senator kelly. Thank you for your leadership on the ship for america act. I am the president of the shipbuilders council of america. I represent over 100 75 companies that own and operate shipyards across the united states and suppliers that comprise the maritime industrial base.
▶ 0:35:55Mr. Paxton: Art members build and modernize and maintain every class from tow boats and workloads to complex in government and commercial ships for the U.S. navy, coast guard, ma, state and local governments and for the 40,000 plus vessels engaged in domestic commerce under the jones act give my testimony will focus on four simple points, first the jones act on additional to our maritime industrial and national security providing a stable market that sustains U.S. ship building capacity at no cost to the federal government.
▶ 0:36:28Mr. Paxton: Second, domestic shipbuilding is not a preference, it is a national security necessity that preserves the workforce facilities and supply chains we rely on in times of crisis and conflict. Third, accomplish should enact legislation to set a maritime strategy, rebuild the commercial capacity and restores resiliency across the shipyard and we are not -- and mariner ecosystem. They do not compete on a global level. The disparity between the U.S.
▶ 0:36:59Mr. Paxton: And international markets is driven by a pervasive foreign industrial targeting and nonmarket practices. It is repeatedly document a by the office of the U.S. trade representative. Additionally, there is a persistent distortion in international statistics for the organization for economic cooperation and development that provides global tonnage measurements omits much of what america builds our commercial and government markets.
▶ 0:37:29Mr. Paxton: Counting what we actually build matters for policy which we will be discussing today, for investment international defense . American shipyards build some of the most advanced vessels in the world. It is undeniable. Our men and women deliver for the four navy, coast guard and commercial markets every day. We are contending with a global commercial market skewed by decades of foreign nonmarket intervention and by international statistics that omit much of what america actually build.
▶ 0:37:57Mr. Paxton: The jones act remains the cornerstone of the maritime security for the ships for america act is a strategic blueprint we need to restore balance, rebuild commercial capability and secure the maritime industrial base for a long time. The ships act is also complemented and echoed in the president's executive order to restore america's maritime dominance.
▶ 0:38:19Mr. Paxton: The president's directive, the white house will release eight maritime action plan on november 5 and will explicitly aim to align trade tools with industrial strategy, strengthen domestic shipbuilding and repair capacity and consider a dedicated funding mechanism such as a maritime security trust fund to support programs under the plan.
▶ 0:38:43Mr. Paxton: Those priorities mirror and reinforce the aims at the ships for america act and underscore why the congo should be receptive to the forthcoming legislative proposals. This is a moment for policy clarity and national purpose. If we want credible sealift, resilience of supply chains, competitive government shipbuilding and a skilled maritime workforce ready when the nation calls, we must build ships in america and we must do it at scale.
▶ 0:39:09Mr. Paxton: The members stand ready to work with the subcommittee and congress to enact the ships for america act, reinforced the jones act, and ensure the american shipyards have a stable demand and strategic direction to deliver the seachange this hearing contemplates come when it provides commercial shipbuilding and strengthens national security for decades to come. Thank you for the opportunity to testify. I look forward to your questions.
▶ 0:39:33Chair Sullivan: Mr. vogel: Mr. vogel. Good morning chairman sullivan, ranking member braun -- blunt rochester, senator baldwin senator young, thank you for the opportunity to testify on the urgent need to revise america's commercial shipbuilding industry. The united states has always been a maritime nation and the shipbuilding industry is the backbone of our national and economic security.
▶ 0:40:02Chair Sullivan: It provides high-paying jobs and delivers on commercial and government demand for vessels. However, we face a stark reality. The U.S. produced just 0.4% of the world vessels last year. I china delivered over a half of the global fleet.
▶ 0:40:20Chair Sullivan: This is not because americans lack ingenuity or shipbuilding skill, this disparity is the direct result of foreign government market manipulations and decades of insufficient support at home to address the threat of foreign it maritime dominance.
▶ 0:40:36Chair Sullivan: Congressional support through murky legislation such as the jones act and merchant marine act of 1936 has kept our industry alive, supporting over 105,000 jobs in contributing $12 billion to our annual gdp. But to truly restore our shipbuilding strength, our nation must take decisive action to address heavily subsidized foreign competition and provide a clear demand signal for U.S. built ships.
▶ 0:41:09Chair Sullivan: U.S. shipbuilding innovation is not our weakness, it is our strength. Tote services is proud to have led the way. In partnership with nasco shipyard in california, tote delivered the first liquefied natural gas power container ship , which established the international market standard. Tote services also managed the construction of north america's first lng bunker barge, supporting the demand for U.S.
▶ 0:41:37Chair Sullivan: Lng to fuel international and domestic trade. We also pioneered the vessel construction manager acquisition strategy for government shipbuilding by applying commercial principles and removing bureaucratic barriers, the vessel construction manager acquisition strategy has delivered government ships from commercial shipyards on time and under budget, saving taxpayers billions, mitigating government risks and revitalizing
▶ 0:42:07Chair Sullivan: Struggling shipyards. In doing so, we have produced next generation of mariner training vessels, the national security multimission vessels which has resulted in a stark increase in enrollment in our state maritime academies.
▶ 0:42:21Chair Sullivan: To rebuild the government fleets and reinvigorate our commercial shipyards, congress must expand the vessel construction management acquisition strategy across agencies and ensure that billions in appropriated shipbuilding funds from the one big beautiful bill act are swiftly allocated, using an experienced construction manager. In addition, congress and the administration can encourage private investment by modernizing regulations and supporting filled charter agreements.
▶ 0:42:49Chair Sullivan: I have outlined these proposals in my written testimony. If enacted, such changes would allow american companies to use private capital for the rapid commercial construction of noncombatant government ships that ensure our national security. The ships for america act of 2025 and the forthcoming maritime action plan are critical to implementing improvements to the ship building industrial supply chain .
▶ 0:43:16Chair Sullivan: Within this context, I urge you to support tax incentives for shipyard investment, including in U.S. territories and ensure that alternative marine fuels are not disadvantaged by updating tax rules. These steps will strengthen our industrial base and restore american shipbuilding dominance. I appreciate the subcommittee efforts to restore a critical U.S. shipbuilding industrial base. Make it for your leadership and commitment to this vital industry.
▶ 0:43:45Chair Sullivan: Again, thank you for the opportunity to testify today. I am happy to answer any questions.
▶ 0:43:49Chair Sullivan: Dr. mercogliano,
▶ 0:43:56Chair Sullivan: Dr. mercogliano.
▶ 0:43:56Dr. Mercogliano: Thank you for the opportunity to testify on a subject that has defined my professional and academic career. I am a professional at campo university in north carolina. I'm a graduate of the new york maritime academy, former deck officer in the U.S. marine working both afloat and sure for the navy seal of command.
▶ 0:44:22Dr. Mercogliano: I earned an ma from east carolina and a phd from the university of alabama for my dissertation exam of the role of american shipping in national defense. I served as an adjunct professor at the U.S. merchant marine academy teaching a graduate level course and maritime industry policy. In 2021, I launched the youtube channel "what's going on with shipping?
▶ 0:44:48Dr. Mercogliano: " ships act is the most significant maritime reform efforts since 1970. Along with measures such as the trade representative section 301 port fees and president trump's executive order and shipbuilding , this legislation represents a critical step toward transferring the U.S. into a true maritime power with the revitalized commercial sector. Twice in the 20th century, america launched major shipbuilding efforts.
▶ 0:45:18Dr. Mercogliano: The first led by edward hurley during and after world war I produced a large fleet and inspire the merchant marine act of 1920, better known as the jones act which laid the foundation for the first national maritime strategy the second ever came with the merchant marine act of 1936 which introduced operating and construction differential subsidies for vessels in the international trade and funded the building of 500 ships over 10 years.
▶ 0:45:44Dr. Mercogliano: This effort created the industrial base necessary for the navy act and enabled the united states to transfer the arsenal of democracy from the home front to the battlefront. It ships act and measures represent a long overdue merchant marine act of 2025, while ambitious, especially the goal of building 200 50 ships in 10 years, it is essential if we help to rebuild our maritime capacity. Achieving these goals requires rebuilding the supporting infrastructure.
▶ 0:46:13Dr. Mercogliano: A key step is the reef lighting up vessels as seen with the lng tanker american progress and promoting the american registry. This should include a careful re-examination of the jones act, not to repeal it but to modernize its application. Reef lighting ships will require several complement to reactions. It should be expanded to offset higher operating costs.
▶ 0:46:43Dr. Mercogliano: Consistent cargo flows must be secured through cargo preference laws, government contracts or incentives for private shippers. Offering tax rebates to companies that ship goods on U.S. flag vessels or reducing tariffs on goods transported to lord american ships would help level the playing field. These policies would benefit island and noncontiguous states and territories that rely heavily on jones act shipping. The benefits of U.S.
▶ 0:47:10Dr. Mercogliano: Registry such as panel, a library out in the marshall islands should be more pronounced with protection afforded by the U.S. navy against threats and providing of war risk insurance to mitigate the cost to operate in contested regions. While large you order vessels take years to construct, a near-term opportunity lies in modernizing the domestic fleet of tugboats and fairies.
▶ 0:47:36Dr. Mercogliano: Much of this fleet is outdated posing risks to the nation. Insufficient tub capacity attributed to the dolly incident in baltimore. A national program to modernize and replace these vessels could provide an immediate boost in domestic shipyards and workforce development while enhancing for safety and resilience. Equally important is investment in advanced maritime technologies that could once again placed the U.S. at the forefront of innovation.
▶ 0:48:05Dr. Mercogliano: The shipping act of 1916 spurred adoption of boilers, freeing U.S. ships from dependence on coaling stations and challenging british dominance. During world war ii, prefabrication techniques revolutionized shipbuilding and made mass production possible today the U.S. has an opportunity to lead again, this time through technology, perhaps such as small modular nuclear reactors for maritime propulsion .
▶ 0:48:31Dr. Mercogliano: I finally urge passage of the ships act to establish a maritime advisor to lead this effort and a maritime trust fund for financing, expanding the tax credit, title 11 loan guarantees and shipbuilding finance and incentives would redirect american capital from foreign shipbuilding toward domestic production for deeper well centers for maritime innovation could support research, workforce training and policy enhancement.
▶ 0:48:59Dr. Mercogliano: Reviving the maritime industry is not really an economic or industrial challenge, it is a matter of national purity and global competitiveness. The ships act provides the vision and framework to rebuild the shipbuilding base, reestablish a robust merchant marine and ensure the U.S. remains a maritime nation capable of sustaining its global role. Thank you for the opportunity to discuss this issue. I look forward to your questions.
▶ 0:49:21Chair Sullivan: Final witness, Ms. snow.
▶ 0:49:24Ms. Snow: Thank you. My family owns and operates one of the last independent boatbuilding companies in seattle, washington. In a city that is to be the home of dozens of shipbuilders, this is quite a feat. We build workloads, pilot, fishing vessels and tugboats and a contract to build 53 workloads with U.S. navy last year we built the first hybrid vessel in the U.S.
▶ 0:49:48Ms. Snow: Department of energy fleet and are currently building a first of the kind electric tug for a company in long beach, california. Much shipyards like ours are essential to supporting a maritime economy. Five years ago, we had 50 employees initially have over 100. Shipyards across the U.S. are struggling to attract and maintain talent for a few reasons, most of which including vast labor markets.
▶ 0:50:14Ms. Snow: A lot of growth has been due to a deeply innovative change that I have made in focusing on hiring from nontraditional avenues. We hire veterans, immigrants, refugees, individuals coming out of prison or starting work release and see people from communities that have been overlooked or excluded from the maritime industry. I often say that I play for the maritime long-haul, not just for a, investing time in energy into a better industry and not a better business.
▶ 0:50:43Ms. Snow: Across the globe we have seen a more diverse ecosystem is often a more fruitful one. More sustainable, creative and more effective. The great barrier to entering the maritime community is exposure. People are unaware of what is out there and many believed you have to go to sea in order to get a maritime job because they don't know any other aspects could you don't realize you could be a project manager or naval architect, electrical engineer or a nurse. This isn't a career path that was introduced to them in kindergarten, middle school or high school.
▶ 0:51:12Ms. Snow: People don't see the same factories as other industries. I-8 enter communities, neighborhoods and towns in washington to shed the great opportunities in this industry and hopefully encourage more people to join it. There has been a huge boon in young people returning to trade school and traditional apprenticeships in the last 2-5 years. There is less public shame for technical colleges being viewed less valuable than for your diversities -- four-year universities.
▶ 0:51:44Ms. Snow: An apprenticeship program, young people are paid while building skills for this is a change we greatly need but has made a gap in skills visible. We have hundreds of maritime experts ready to retire in a new workforce excited to learn that this makes art expertise in our grass -- hourglass shape.
▶ 0:52:07Ms. Snow: Investment in our youth is absolutely vital in this hourglass shows that so is investment in adults and opportunities to learn new traits and skills and be mentored and trained and opportunities that should be granted to those we traditionally ignore. There is a common misconception that you must speak english to have an impact on job in the united states which I have repeatedly proved to be inaccurate. Two years ago I had a ukrainian refugee reach out to me stating he could not speak english but he could weld and want to apply at our company.
▶ 0:52:37Ms. Snow: I invited him in for a company and weld test which the hiring manager was sure would not work out due to his lack of english. 30 minutes later after his weld test was complete, the hiring manager came back to me and said, if I do one thing right this year, it is hiring this man because he is incredible.
▶ 0:52:56Ms. Snow: After passing his verify, we started him immediately and he now leads welders and is one of the highest pay production employees, proving to us that you don't need to speak english to work hard with exceptional results. In a time when we have immediate access to technology that can translate quickly and effectively, taking a chance and skill non-speakers seems like an obvious opportunity to me.
▶ 0:53:23Ms. Snow: Building a good team is one thing and keeping it is another peer to keep our employees happy and healthy, and attracting new talent, we have hundred percent insurance and most businesses can't or just won't do this. We see it as a necessity to build a strong team. We feel the cost is made up for and reflected in the high quality products we produce. Shipping and shipbuilding are absolutely essential to the livelihood and strength of our country and economy.
▶ 0:53:52Ms. Snow: My request today from all of you is for an investment in the maritime industry and in the industrial lands to protect businesses like ours, allocation of funds to small ship our grants, investment in youth and education to grow the sector for decades to come, investment in health and welfare of our employees and investment in adults looking to learn new skills that will inflate our diminishing workforce and investment in marginalized communities that will breathe new life, creativity and innovation into this industry. Thank you. I look forward to your questions.
▶ 0:54:22Chair Sullivan: Let me begin with a very obvious question. What went wrong? There are so many areas where in my view we kind of critical minerals is the latest and greatest in my state has incredible critical minerals but our own federal government, no defense to those on the other side of the aisle, they shut down the ability to produce any critical minerals and we outsource all of it to china. We have a big problem.
▶ 0:54:54Chair Sullivan: China is dominating the sector like they do critical minerals, we fell asleep at the switch and produce less than 1% of commercial shipping. What went wrong and how can we fix it? Very tight and I know this is a dissertation professor, but if you can keep this very tight. Some people blamed the jones act . What went wrong? We have a giant problem. Our main adversary is kicking our tail on this issue. What went wrong and how do we fix it? Mr. paxton question I assistant.
▶ 0:55:23Mr. Paxton: We moved away from industrial policies that we had in the 1970's. We moved away from that and move towards government shipbuilding, which was the right thing to do at the time during the cold war, 600 fleet maybe, with the peace dividend in the 1990's. We decided that global free trade was a given and that we didn't have to worry about freedom of the seas which we know is not the case anymore.
▶ 0:55:50Mr. Paxton: So we went to fights of convenience and we get a cheap product out of china and we took it.
▶ 0:55:54Chair Sullivan: Mr. vogel?
▶ 0:55:57Mr. Vogel: I would absolutely echo what Mr. paxton said. We made the decision to move away from investing in creating the demand signal for this industry. It is impossible for a shipyard to compete on a one or two vessel basis.
▶ 0:56:14Chair Sullivan: Was that because the chinese subsidize everything? Use of a president of finland and the president came up with the agreement. Is it just the subsidies of foreign nations or something we are doing wrong?
▶ 0:56:31Mr. Vogel: I think it is a two parts. It is both the subsidies. We are operating at a level similar to or above where finland is in terms of overall output but certainly there are challenges. The regulatory requirements we placed on government shipbuilding had taken commercial shipyards out of the market.
▶ 0:56:52Chair Sullivan: So our own federal government's red tape which crushes everything in this country is a big part of problem?
▶ 0:56:59Mr. Vogel: Yes, chairman. Using the manager model has helped us to remove a lot of the red tape and allow commercial shipyards to get back in. We saw the success at philly taken that from 83 to now over 2000 production employees by removing a lot of the bureaucratic oversight and allowing that.
▶ 0:57:18Chair Sullivan: That his major investments from before and should right now, correct?
▶ 0:57:23Mr. Vogel: That has resulted in those investments.
▶ 0:57:26Chair Sullivan: Are you ok from that? We can learn from the japanese and korean in my view.
▶ 0:57:32Mr. Vogel: We can and the korean space a lot of the same challenges in terms of costs of labor, but we are better natural resources as you said so we should be taking those lessons and encouraging -- importing them.
▶ 0:57:47Chair Sullivan: Professor, what went wrong? You are a jones act supporter. I read all of your materials. What went wrong? Why are we in this giant disadvantage, hugely dangerous disadvantage relative to our main adversary, who cheats and subsidizes. We all know that, but what went wrong?
▶ 0:58:10Dr. Mercogliano: Within a 10 year span we were able to build a thousand ships in 1943. At the end of world war ii, we controlled 63% of the world merchant fleet and made a conscious decision then to begin the process of rebuilding not just our allies merchant fleets but there shipyards and even our enemies, japan and germany at the time and we decided to focus on the naval and military application. It was our decision that led to the growth of global trade.
▶ 0:58:38Chair Sullivan: 1.I want to make, when they say america, we can't build ships. Really, look at a nuclear submarine. Pretty darn impressive. No one can build it like we can. On the commercial side, we are not are getting out of competing, correct?
▶ 0:58:57Dr. Mercogliano: We made the decision in the 1980's to from the 600 ship navy to 300 ship navy. We had already sent that capability overseas to korea, japan, europe. Now what we seek is china taking the lead for that 5% of shipbuilding was in china in 1999 and today it is over 60%.
▶ 0:59:20Dr. Mercogliano: This is an issue that we realize after the fact that it is not just building navy and military ships but we need the commercial ships in the shipyard to provide the residual base for shipyard workers for capacity. You can't do what freedoms forge talks about without that inherent capability.
▶ 0:59:40Chair Sullivan: Want to get one more question for Mr. vogel. I am a big supporter of the energy sector. It is a great strategic advantage for america and certainly helps my state and the whole country when we are the dominant energy producer on the planet. We export lng all over the world and will continue to do that.
▶ 1:00:06Chair Sullivan: Should there be some kind of time, within 10 years, to say to some lng producers that it should be on american build ships? It can't happen overnight. The oil and gas industry doesn't like that idea because they don't think we can build them weekly, efficiently and costly. What do you think? You have done some of that already.
▶ 1:00:32Mr. Vogel: I support that concept. And what we have seen is it is a critical part of balancing with the carriage and the stick. We have the capability and ingenuity to build the world's best lng fleet here in the united states. I fully support creating that cargo lease and with that demand signal we will be able to build those in the united states.
▶ 1:00:56Sen. Blunt Rochester: In delaware I was fortunate to serve as secretary of labor here for me, the whole issue of jobs and people being able to live their purpose and get a great skill is vital. I was pleased to hear that we are shifting and people's perceptions of what great jobs are is really focus right now.
▶ 1:01:23Sen. Blunt Rochester: I love the focus on the trades, manufacturing. As former secretary of labor, I want to emphasize how critical to shipbuilding workforce is for our industrial base. Without the skilled men and women in these trades, we can't build the ships, maintain the fleets or sustain our competitiveness on the global stage.
▶ 1:01:46Sen. Blunt Rochester: It is interesting, as I was sitting here, my sister who is like the family historian sent me a document from our great-grandfather who actually worked at the philly navy yard and the document, matthew miller, or while one registration. He was a merchant and at pier 24 on delaware avenue.
▶ 1:02:16Sen. Blunt Rochester: So again, I really appreciate the focus on the future of this country and our security. And I want to ask you, Ms. snow, not that most of us here are older but you seem to come from a younger generation. If you could talk about younger generation industry leaders who are looking at recruitment and engagement in a different way then in 1902 when my grandfather got the opportunity.
▶ 1:02:49Sen. Blunt Rochester: Our apprenticeship programs keeping pace with with the workforce needs are? Ms. snow, I think there could be more investment in trains and apprenticeships. A lot of businesses can't afford to hire people just to teach and not be on the workforce as well.
▶ 1:03:08Sen. Blunt Rochester: Investment in the ability for a company to have their own internal apprenticeship program would really expedite the process of getting trade skills into our work.
▶ 1:03:21Sen. Blunt Rochester: Any of the other witnesses can speak.
▶ 1:03:34Mr. Paxton: It is a badge of honor that they implement that with no guarantee they will employ that person. Highly competitive for shipyard employees and that apprenticeship program could see them going elsewhere. Highly higher herbal.
▶ 1:03:52Mr. Paxton: We do this on a regional basis and work with community colleges and trade schools and I think it was said earlier, there is a focus now that it is unnecessary to get four year degree but go to trade schools.
▶ 1:04:09Sen. Blunt Rochester: Dr., you have wrote how we supply on fornes -- foreign exchanges here what vulnerabilities stand out most in our shipbuilding supply chain and what steps could the federal government take to build a more secure domestic source base? I'm fortunate to work with senator cantwell and blackburn on strengthening supply chain so I would love to hear from you on that.
▶ 1:04:39Dr. Mercogliano: I can say that my conversation with shipbuilders and looking at the supply chain, with seen continual disruptions across the supply chain recently, and particularly obviously steel and more importantly specific manufactured parts and specialized parts and shipping is the key that we see vulnerabilities happening.
▶ 1:05:04Dr. Mercogliano: Right now if you look for example anything from pumps to machinery, the supply chain in the united states is very vulnerable. Down to sometimes one small manufacturer that is building parts for both commercial and naval vessels.
▶ 1:05:18Dr. Mercogliano: We have seen that down to the third level below the shipyards and their suppliers and so that creates a lot of vulnerability which means if we can't produce it in-house in the united states, we have to source it from overseas and the descriptions we are seeing in the global supply chain and competition for those resources by other shipbuilders out there, japan, korea and particularly china, makes it very vulnerable for us in one of the reasons why you will hear my associates talk about creating those infrastructures here in the
▶ 1:05:49Dr. Mercogliano: United states and not be depending on the foreign sources.
▶ 1:05:50Sen. Blunt Rochester: I know I have eight seconds left, but again, I think you so much for taking the time and I will follow up with many of you questions for the record.
▶ 1:06:01Chair Sullivan: We now have our chairman and I would like to let him say a few words and ask some questions. It is very good to have the chairman, senator cruz here.
▶ 1:06:17Chair Cruz: Dr. mercogliano, let me start with you. The ships act aims to guarantee annual commercial ship production of 15-25 ships per year through subsidies dispersed by a maritime security trust fund which would in turn be capitalized by various revenue streams, including new tonnage taxes on international shippers, bringing goods into the united states and fines on importers for failing to meet certain ship
▶ 1:06:49Chair Cruz: Prefacing requirements. China, south korea, japan each annually deliver hundreds of ships per year. In the face of the advantage of economies of scale they had an the resulting lower costs they produce, prospects for U.S.
▶ 1:07:06Chair Cruz: Shipyards which face a strained labor pool, high input costs and serious technological challenges compared to east asia competitors, the possibility of becoming internationally competitive is at a minimum, challenging. Should we assume that large and recurring subsidies and by extension annually increasing tonnage taxes on fines on importers who fund them will need to be an enduring feature of U.S.
▶ 1:07:34Chair Cruz: Policy to produce the kind of ship production envisioned by the ships act?
▶ 1:07:39Sen. Blunt Rochester: --Dr.
▶ 1:07:41Mercogliano: Historically that is the way it has been done. To a large appropriation into a body of money to draw form or through a subsidy process. I will note that the U.S. is the fourth largest investor in commercial shipping worldwide, even though we had the 23rd largest merchant marine in the world. The question is, how do we get U.S. money to invest in american shipping by investing in foreign shipping.
▶ 1:08:09Mercogliano: If we can tackle that hurdle, then we will not be as dependent on government funding for shipbuilding because we can get that investment into U.S. ships.
▶ 1:08:20Chair Cruz: How do we get U.S. money to invest in shipbuilding at home?
▶ 1:08:24Dr. Mercogliano: We need to look at how korea, japan and other companies give tax deferments or opportunities for long-term leases -- or loans so that you can invest. Were not going to see a ship for four to five years for what can we do to offset that and especially for a shipping company to minimize the downside, loss capability should cargo not appear?
▶ 1:08:49Dr. Mercogliano: We do processes whereby ships could return back into the government if there is no government -- business for them and put them into reserve providing minimal loss coverage so there is one more willingness to invest in that. The key thing is getting incentives from wall street and venture capitalists so we are not relying wholly on the U.S. government.
▶ 1:09:11Chair Cruz: Why did we lose shipbuilding, what are the impediments we faced?
▶ 1:09:18Dr. Mercogliano: We didn't lose shipbuilding, we shifted it and decided to focus on naval and military and allowed commercial to go overseas because we view the naval capability was more larger capability to have and we assumed there would be residual left over from that.
▶ 1:09:37Dr. Mercogliano: But what we sought happens in the 1980's to the 1990's, it would from 600 to 300 and our capacity decreased and we did not see a coordinated effort by the chinese to take over and control shipping in a way to really have never seen before and maybe some people make a poor vertical integration of all aspects of shipping in a way unlike any other country has done.
▶ 1:10:04Chair Cruz: Let me open this up to the rest of the panel. What steps do you think are most important to reinvigorate the commercial shipbuilding industry here in the united states? Mr. paxton, we will start with you.
▶ 1:10:19Mr. Paxton: I think it comes down to that sustained long-term demand signal, that we are serious about owning our own global logistics. Being dependent on three shipping companies around the world for our trade is a vulnerability. We are at a national security -- and we saw this during covid.
▶ 1:10:45Mr. Paxton: We had to work on the act because china wasn't taking exports. We should own our global logistics to a certain extent and this concept of a strategic commercial fleet under the ships act makes sense. I would say there is a lot of capital sitting on the sidelines. If there was a demand signal, is the private investment coming in. You see it in some space. These things are happening in your state as well.
▶ 1:11:13Chair Cruz: They are indeed.
▶ 1:11:17Mr. Vogel: I would say creating that for private investment and removing the regulatory constraints and work together to rebalance the international shipbuilding.
▶ 1:11:28Chair Cruz: What regulatory constraints are impediments that if removed would unleash shipbuilding?
▶ 1:11:35Mr. Vogel: Mr. chairman, they are twofold. We moved into government shipbuilding but there are a huge number of government ships that can be built on a commercial basis using things like vessel construction manager , getting us out of the legacy shipbuilding, using the constraints of federal acquisition instead relying on practices and commercial suppliers in order to build up capacity.
▶ 1:12:02Mr. Vogel: We need to focus on the full supply chain, engine manufacturers that we have including in your state, support them so they can reduce costs and ultimately reduce the cost of ships. Companies like tote and our parent company are ready to put private capital to use as well. There are platforms out there like the vessels that need to be recapitalized in our reserve force.
▶ 1:12:29Mr. Vogel: And they could be paid for with private capital if we had the right charter agreements in place and the assurance of the long-term investment from the government to operate those vessels.
▶ 1:12:41Ms. Snow: Allocations of funds and training and apprenticeship programs across the U.S..
▶ 1:12:48Chair Cruz: Thank you.
▶ 1:12:56Sen. Cantwell: , following up on that, you listed a whole line of things that you guys have done, how does the shipyard grant boost your capacity?
▶ 1:13:08Ms. Snow: We have a small shipyard grant, we got a laser cutter and some that we would've had to out size. That made 15 to 20 more jobs in our business. We have expanded the number of things we can do and build so we can be open for 16-20 hours a day instead of eight hours a day because we have an entirely new element to our business.
▶ 1:13:39Sen. Cantwell: So boosting the shipyard grant is a huge capacity building. How many jobs would you say that help?
▶ 1:13:47Ms. Snow: Just this one specifically we hired 15-20 more people and then it has changed the track of other people's career paths with a get to learn more. It would also allow us to create our own in-house apprenticeship program will we could allocate those funds specifically just for a teacher and educator.
▶ 1:14:12Sen. Cantwell: Mr. paxton, do we have the capacity to build icebreakers?
▶ 1:14:15Mr. Paxton: I do think we have that capacity. You don't have to take my opinion on that. In your had asked, would you bid on the icebreaker contract and seven shipyards came back and said they did. Two entities, unsolicited that could deliver an icebreaker within the four year period of the administration.
▶ 1:14:44Sen. Cantwell: So we do not have to outsource to another country. Everybody has mentioned the finance program. Should we make the finance title 11 or something like that apply to fishing vessels since they are not eligible under title 11?
▶ 1:15:03Mr. Paxton: Absolutely. The fishing industry is a critical customer for our commercial shipyards. Title 11 can help invigorate and accelerate the investments made by commercial fishing companies and building new capacity. A lot of our fleet is quite aged needs to be recapitalized. Things that provide guarantees can help accelerate that recapitalization.
▶ 1:15:33Sen. Cantwell: So you would put fishing in there.
▶ 1:15:38Mr. Vogel: How to expand the authorization to include fishing.
▶ 1:15:44Sen. Cantwell: Back to this price signal thing, you talked what incentives on various tax incentives. Does somebody have a viewpoint they are what needs to happen?
▶ 1:15:55Mr. Vogel: I think there are two great aspects of the ships for america act and it has a separate focus on tax incentives , one the 25% tax credit for investment in shipyards can accelerate much of the reinvestment we need in commercial shipyards and the fuel parity aspects to ensure that companies that are making investments in the newest technology are not unfairly just managed in competing in our domestic trades.
▶ 1:16:25Sen. Cantwell: That has been our traditional tool at the federal level, so I am glad to see the demand signal that was our goal with chips and science as well to say there is a demand signal to innovate in united states of america because of those incentives. Here we have a larger challenge to get that and move forward. Dr. mercogliano, you mentioned shipping is national defense.
▶ 1:16:57Sen. Cantwell: Do you think we need to do more to integrate? I'm not sure I heard anything say -- anyone say anything about integration or block chain technology. To move faster on new innovation technology to help with shipping logistics?
▶ 1:17:16Dr. Mercogliano: Technology is the one advantage the united states has consistently brought to bear. If we can incorporate that, I argue the greatest innovation and shipping came from outside the shipping industry, they containerization. Anything we can do to assist that is key for us in maximizing the question. How do we integrate into the shipping aspect now?
▶ 1:17:41Dr. Mercogliano: A lot of ai and developers do not know anything about it and we are not doing a great job in bringing that technology into it.
▶ 1:17:48Sen. Cantwell: That is what I see. I have seen the block chain people come to the sector with ideas but then you have to get somebody in the sector so I think maybe a program that helps propel that along would be something people would take advantage of as opposed to just standing still when they hear about it. We need to get these things to be together.
▶ 1:18:11Chair Sullivan: Senator young.
▶ 1:18:14Sen. Young: Thank you for prioritizing this important topic. I ask free nine was consent to enter into the record 51 statements from 64 organizations spanning industry, labor, and the broader maritime community expressing support for the ships for america act. These statements reflect the broad bipartisan and nationwide support for rebuilding U.S.
▶ 1:18:38Sen. Young: Ship holding capacity, expanding commercial fleet, and ensuring the american workers remain at the heart of our maritime strength.
▶ 1:18:50Chair Sullivan: Without objection.
▶ 1:18:52Sen. Young: Dr. mercogliano, thanks for being here. It has been said by a number of our witnesses today that american shipbuilding has ebbed and flowed and you have each spun related and come mentoring narratives -- complementary narratives about why we have a ship building firm at the country. I agree with Mr.
▶ 1:19:17Sen. Young: Paxton's assessment that it was market forces that led us to chase value. The same quality or better quality at lower cost.
▶ 1:19:31Sen. Young: We delivered that taxpayers blocked side of the fact that it is important for us policymakers to be baking into the price of certain critical goods, strategic goods, a national security or economic security premium so it is time we updated our economics if we have learned anything over the course of a global pandemic with semi conductors and other valuable products. It is that we need to do our work here on the hill, so this hearing is important.
▶ 1:20:01Sen. Young: Our industrial capacity is -- you have intimated it has cratered since the 1970's. With respect to key strategic products, we are in a bind. We are a maritime nation. You're familiar with not just naval power but more broadly about seapower.
▶ 1:20:23Sen. Young: Could you unpack that a little bit and explain what that means, to be a nation of seapower, and how the ships act and the president's maritime action plan can get us back on the right course?
▶ 1:20:36Dr. Mercogliano: I'll be happy to appear and I want to thank you and senator kelly for your leadership. It has been essential for us. A friend of mine wrote a book which talks about looking at this as economics and that is what he understood. He understood seapower to be not just application of military force but economic force. It is trading and commerce. The reason to have a navy is to ensure economics and trade are moving and flowing for a nation.
▶ 1:21:08Dr. Mercogliano: We shifted our focus. We have gone back and forth between being a continental and maritime nation and now we are a maritime nation based on our imports and exports. We have seen since 2021 with ever given getting stuck in the suez, with incidents along the coast of the united states, how vulnerable our supply chain can be to disruptions naturally and by other forces. For example, in the red sea.
▶ 1:21:39Dr. Mercogliano: I think the importance here is we have gotten away from that lesson. Since 2021, it has been brought home numerous times through the supply chain crisis.
▶ 1:21:48Sen. Young: Thank you. To put a fine point on it, I am quoting Mr. paxton a lot today but he did say earlier maritime dependency makes us a client state. If -- what would happen if tomorrow china said we are no longer going to allow our vessels to stop in U.S. ports?
▶ 1:22:17Sen. Young: How might the ships for america act offer a solution to that challenge?
▶ 1:22:20Dr. Mercogliano: Less than 2% of our imports and exports are on U.S. ships. A nation like china which has chinese overseas shipping companies can cause disruptions to us just by ordering their ships to slow down and come in two days late will cause disruptions to us.
▶ 1:22:40Dr. Mercogliano: By having ships, we provide us with that reservoir and backlog so that we are not dependent on the thing that created the jones act in 1920 when we found out 11% of international trade was on american ships. It is lower today.
▶ 1:23:00Sen. Young: Perhaps it can be improved in various ways. But it was designed to change the cost structure. Families -- very similar motivation that we are seeing today with the ships for america act. There are some who doubt that america's shipbuilding industry is capable of responding to the normative of this threat of supply chain interruption and the rest.
▶ 1:23:31Sen. Young: What do you say to that?
▶ 1:23:36Mr. Paxton: Categorically disagree. We have shipyards building large oceangoing vessels now. We have the capability and capacity. But we do not have is demand signal that your legislation would produce. That would open more capacity and existing infrastructure and probably more shipyards.
▶ 1:24:01Sen. Schatz: Thank you to all the members for your commitment to this issue. Mr. vogel, in interacting with senator kelly, my understanding is that this act is at least partly designed to look at some of the success stories of individual shipyards.
▶ 1:24:28Sen. Schatz: Can you tell us want is going right in the shipyard and how we can replicate that cross-country?
▶ 1:24:38Mr. Vogel: So much has gone well with the program. By removing those regulatory constraints that are typical in government ship building, we awarded the contract in april 2020 at the start of the covid-19 impact. They had about 80 employees in the shipyard. We have been able to successfully deliver three of the five vessels on time, on budget.
▶ 1:25:08Mr. Vogel: We have seen growth at 0.38% of the original budget compared to often 40, multiple -- multitude more. Having the vessel construction manager integrated, we have been able to identify issues before they have arisen. We have removed that gotcha mentality of traditional government shipbuilding where you have instructors trying to bring back a demonstration of their value.
▶ 1:25:40Mr. Vogel: Instead we are identify issues and things like supply chain. How can we identify the right american supply chain?
▶ 1:25:47Sen. Schatz: Are there specific federal regulatory barriers or is it mostly a sort of staffing structure where you come in and post audit or proof to the shipyard they were doing something wrong? Is that we were talking about or is there separately a set of regulations that need to be gotten rid of?
▶ 1:26:10Mr. Vogel: Both. The federal acquisition regulation places numerous burdens. We have been able to reduce that by using a commercial model. One of the key is for us was to be able to break that privity between the government and shipyard some of the design was done we were able to move out. Historically, government ship building has been flagged by change owners, constant changes to the design.
▶ 1:26:39Mr. Vogel: By eliminating that, we have been able to move out on a design agreed on in 2019 and 2020 and execute upon that.
▶ 1:26:47Sen. Schatz: Like value engineering?
▶ 1:26:50Mr. Vogel: Absolutely.
▶ 1:26:52Sen. Schatz: Mr. paxton, talk to me about the workforce. If we send the demand signal, that is great. We have seen markets are not perfect and there are pipeline issues. How do we address that concurrently with the other stuff we are working to do?
▶ 1:27:13Mr. Paxton: I think our workforce is sometimes a reflection of the boom and bust cycles we go through in shipbuilding. Our workforce knows they have a career in that shipyard, not a job.
▶ 1:27:37Mr. Paxton: Having the work, being able to plan and hire your workforce, that happens because you have that long run of work. I know it sounds simple, but the shipyards are privately held and publicly traded. They are making investment based on best information they have. They cannot keep it workforce employed if they see a strategic cause or reduction in work.
▶ 1:28:03Sen. Schatz: So you need to send a big demand signal to establish that foundation. What else?
▶ 1:28:12Mr. Paxton: I think we have been doing a good job trying to go down to middle schools and elementary schools to explain this is a career you can pursue and it is changing. We are talking about ai. We are talking about robotics and new technologies coming to our shipyards. So the education of making sure this is an understood profession as opposed to you have to get that standard four year degree.
▶ 1:28:39Sen. Schatz: Thank you.
▶ 1:28:42Chair Sullivan: Thank you. Real quick point on that, a lot of the budget reconciliation and the big, beautiful build is a lot for this to jumpstart navy, commercial, but on the workforce side one of the really understated provisions here that has not gotten a lot of attention, the pell grant's funding, a lot of money, is able to go on certificate programs for print and ship's to -- for
▶ 1:29:15Chair Sullivan: Training. I want people to know that it is a good part of the program.
▶ 1:29:21Sen. Curtis: I would like to begin by giving a shout out to my colleagues for their work on this and I look to them as important leaders on this. Thanks for their work. Dr. mercogliano, if there was a theme for this hearing it would be where did we go wrong? That seems to summarize my colleagues' questions.
▶ 1:29:51Sen. Curtis: I would like to specifically look at china over the last 20 years. We know of subsidies and the way the chinese government works, so there are other things we should be learning from the chinese innovations. What else should we learn from this? A follow-up to that question is what could go wrong with china dominating? You talk a little about that mama but I would like you to bore down more on the problem of trying to being so dominant.
▶ 1:30:21Sen. Curtis: >> china's dominance has been fascinating to watch. What has been interesting is how china has gone from small shipyards to consolidating shipyards into larger entities. They took disparaged -- disparate shipyard capability and built it into huge conglomerates. Consolidation is the issue. It is that vertical integration I think is the most disturbing that you see.
▶ 1:30:51Sen. Curtis: China has the ability to -- low labor a lot of money that is freely available to them. Not a lot of overhead. We talk about the subsidies, direct and indirect from 2010 to 2018. They received about hundred $32 billion in subsidies. Our grants during that period was $77 million. It is proportionally different. They control other aspects.
▶ 1:31:19Sen. Curtis: They are building almost every container in the world and leasing them out. They are building trailers they carry on. We see chinese mariners becoming more dominant. Chinese merchant ships are filled with military cabability. The more military capable he builds -- he builds a commercial ship, the less commercially viable attends to be.
▶ 1:31:43Sen. Curtis: The chinese do not worry about the net profit in the end, so the chinese company can carry military capability. In many ways, china has -- and really understand it in a way that other countries have not. They have embraced that. The other issues that china, japan, and korea are in a three-way war in shipbuilding.
▶ 1:32:07Sen. Curtis: If you look over the past three years, china's share of shipbuilding is increased by 16%, the amounts that japan and korea have lost. It is one of the reasons you are seeing japan and korea so interested in investing in the U.S.. One of my concerns is we do not have a ships for korea act. We need to focus in the united states. It is a coherent program put out by the chinese.
▶ 1:32:34Sen. Curtis: Very insightful and enlightening. I saw heads shaking up and down as you were speaking. Let me go to the u.k., a close ally on policies. While we have declined, they have not. What from the u.k.?
▶ 1:32:52Dr. Mercogliano: The u.k. Has gone through peaks and troughs. They have had issues with their shipbuilding. I would argue if you look at a lot of european shipyards one of the things we saw was specialization in shipyards. The dutch are building small craft, very specialized. Germany produces propellers and diesel engines, much more specialized.
▶ 1:33:22Dr. Mercogliano: Italians are building cruise ships, finland building icebreakers. The realization the specialization came in -- I do get concerned that if we try to get into shipbuilding competition against china they will outcompete us all the time. If you look at where china is building today, they are number one in al qaeda gores a ships except cruise ships and liquefied natural gas -- number one in all categories except cruise ships and the good financial gas.
▶ 1:33:52Sen. Curtis: Thanks to all the witnesses.
▶ 1:33:55Chair Sullivan: Thank you. I do not know if you mentioned we help finance that. Our wall street guys are always hoping china. Senator baldwin.
▶ 1:34:10Sen. Baldwin: Thank you to our witnesses today. Presenting a state in the great lakes, I want to focus a little to start with great lakes shipbuilding. For nearly two centuries, wisconsin workers have built world-class vessels and ships for moving goods to market and to power our navy.
▶ 1:34:35Sen. Baldwin: Wisconsin workers and are shipbuilding economies can compete with anyone in the world with a need a level playing field to do it. We talked about china. China has gotten away with cheating the system and undermining our workers. It is long overdue that we stand up to them. Prioritizing efforts to revitalize our domestic shipbuilding and repair sector is a matter of economic and national security.
▶ 1:35:02Sen. Baldwin: I was proud to stand with workers to push president trump and impressed being -- and president biden to do right by these workers. The ministration announced penalties on china. I support passage of the ships act, ships for america act.
▶ 1:35:27Sen. Baldwin: Our bipartisan and comprehensive legislation to revitalize the united states shipbuilding -- I urge all my colleagues to review and support this legislation. So far this year, china has made 717 large commercial vessels in the united states has just made one. Wisconsin stands ready to play key role in revitalizing the country's shipbuilding capacity.
▶ 1:35:56Sen. Baldwin: How does the shipbuilding industry see the need to better utilize the great lakes workforce to meet the needs of the commercial maritime shipbuilding demands?
▶ 1:36:07Mr. Paxton: I know we focus on large ocean going vessels and we should because they are important. I would point out last year we delivered not hundred 60 will for -- 964 ships of all -- shapes and sizes. This year, we delivered 750 of those. We should not just throw away that those are smaller ships and specialized vessels. They are being built all over the united states, inland waterways.
▶ 1:36:38Mr. Paxton: We have ship capability that is important. I do think bone forward we are doing something with a ships act you will see something they are calling now distributed shipbuilding where you see modules and structural assemblies being built in nontraditional areas, not in your normal coastline ship areas.
▶ 1:37:04Mr. Paxton: Trying to get the entire industrial base in on it where -- that is a good way to utilize our industrial base.
▶ 1:37:12Sen. Baldwin: I wanted to add to previous questions about the small shipyard grant program. It is something I have champion for years, funding for the shipyard grant program. Small shipyards are often the lifeblood of coastal communities and the grant program provides resources for smaller shipyards to upgrade equipment and support worker training programs.
▶ 1:37:41Sen. Baldwin: Companies in wisconsin have all benefited tremendously from his program. Can you speak to the importance of small shipyards in america's maritime industrial base and why continue to increase investment in the small shipyard grant program is critical?
▶ 1:38:04Mr. Paxton: It was a program authorized in this committee. Its history has always been oversubscribed. There were a billion in demand. What we know about this motion is that it is absolutely utilize the right way. Sk soup ports it -- supports it.
▶ 1:38:33Mr. Paxton: We likes -- we like the ship act.
▶ 1:38:43Sen. Baldwin: I appreciate you mentioning the value of apprenticeships and technical colleges. It is critical we spread the growth of the maritime workforce concurrent with efforts to support the shipbuilding and repair industry. If there are no workers available to build ships, these efforts are meaningless. There are successful programs underway in my home state of wisconsin.
▶ 1:39:11Sen. Baldwin: Northeast wisconsin technical college provides specialized training through a long-standing partnership with the marinette marines to provide career paths and good paying union jobs and halfway to the middle class. The college has expanded this partnership to the shipbuilding and their sturgeon bay campus. How can industry work better with technical colleges and entities like labor unions to grow maritime workforce?
▶ 1:39:42Ms. Snow: I think they are creating a pipeline from technical schools directly to businesses is a vital solution to a lot of these workforce problems. I would go as far to say introducing them earlier. I have created a pipeline without public school center, which is a haskell program where their final that they take in high school is our weld test you take to interview.
▶ 1:40:13Ms. Snow: If they have passed this class in high school, they are automatically set up for success at our business. I would encourage other companies to take the personal leap to make those pipelines.
▶ 1:40:27Sen. Moreno: I will start with you, Mr. paxton. You have been here doing and advocating for shipbuilding in america for 18 years. What it is different today that gives you hope versus the last 18 years where have continued to see an action by congress? And competing in ship building?
▶ 1:40:55Mr. Paxton: One of the things we have for was a simple thing, having a national maritime strategy. We have these things for defense and other transportation modes. We do not have it for the maritime industry. Over the last 18 years, that is when we saw china enter the wto and we thought capitalism would take down communism. That did not happen. China group.
▶ 1:41:21Sen. Moreno: So that was 25 years ago. That what was a catastrophic disaster.
▶ 1:41:31Mr. Paxton: They played the long game, which thing --
▶ 1:41:35Sen. Moreno: They played the dumb game.
▶ 1:41:38Mr. Paxton: I will not speak to that, but I will say that had a bad impact on all global shipbuilding. It is all decline since then.
▶ 1:41:51Sen. Moreno: You would agree energy policy does also matter, right? To build ships at scale in america, you need affordable, abundant, reliable energy.
▶ 1:42:04Dr. Mercogliano: Not just energy but the entire strategy dealing with industry and all aspects of it to promote shipping.
▶ 1:42:12Sen. Moreno: So a ship building facility run by solar panels is decently unrealistic.
▶ 1:42:19Dr. Mercogliano: I do not think you will be able to generate enough power.
▶ 1:42:24Sen. Moreno: But 94% of energy generation under the biden administration was wind and solar. Regulation matters. That is a hindrance to our industry when you have regulatory policy. It strangles the private sector.
▶ 1:42:38Dr. Mercogliano: It is difficult in the maritime sector now. You see the issue with manning ships and with regards to licensing and the number of crew on board ships makes us uncompetitive in that way.
▶ 1:42:53Sen. Moreno: How about tax policy? Meaning when you have inconsistent tax policy when you have corporate tax rates that are very high, it is incentivizing of investment -- dis-incentivizing of investment.
▶ 1:43:08Dr. Mercogliano: I agree. Americans are the fourth-largest investors in shipping, just not american shipping. They are putting their money offshore.
▶ 1:43:17Sen. Moreno: And workforce policy all of you have talked about, the importance of trade schools. All that happened in the one big, beautiful bill. Everything I mentioned was fixed in the one big, beautiful bill. Was it helpful in getting more shipbuilding in america?
▶ 1:43:38Mr. Vogel: Generational, yes.
▶ 1:43:41Mr. Vogel: Absolutely. We look forward to the funding that has been provided to be placed on contract.
▶ 1:43:48Dr. Mercogliano: We have never seen this level of interest and effort being put in shipping in 50 years.
▶ 1:43:56Ms. Snow: I do not have an answer for this right now. I can submit a written answer. I'm here to talk about workforce of element.
▶ 1:44:05Sen. Moreno: We can thank the vice president of the united states for casting a tie-breaking vote on that bill. How about tariffs? How do tariffs play into the seek lesion -- equation? Should we allow china to go unchecked or do tariffs matter?
▶ 1:44:19Dr. Mercogliano: One of the efforts we can do to promote cargo on U.S. ships is to give benefits to hauling cargo on U.S. ships and may be waived tariffs on that. We need to do something to incentivize putting cargo on U.S. ships. Building ships do no good if we cannot generate funds for them, even in the maritime security program. That money does not provide enough for our ships to be competitive and operate out there. We think we need a tariff strategy to assist in that.
▶ 1:44:48Sen. Moreno: Last question for you. Senator baldwin mentioned the great lakes. I will point out the first entry from the ocean to the great lakes runs through ohio. How important is it to keep the seaway open 12 months a year?
▶ 1:45:09Mr. Paxton: Critical. I also echo we need to do more shipbuilding in more places. We can do that if we have that demand signal or you see it happening with the submarine industrial base where they are putting modules and structures in other places, nontraditional places.
▶ 1:45:35Sen. Moreno: Let me be clear. Unlike the east coast and west coast of ohio's open for business. If there's somebody watching in the shipbuilding industry, come to ohio. We will make it easy and we will not torture you.
▶ 1:45:50Chair Sullivan: Great questions. I think generational answer that Mr. paxton mentioned on the one big, beautiful bill is an important point. There shipbuilding now going on in alaska.
▶ 1:46:07Sen. Moreno: Do not forget your family is from ohio. >> chair sullivan: good shipbuilding in cleveland. It is happening all over the country. Let me go to this issue of financing.
▶ 1:46:26Sen. Moreno: One thing that drives me crazy is how much our american financers still are addicted to financing china's rise, including in their military. We have a provision that requires transparency. If you are an american investment banker or private equity company and investing in chinese ship building or weapons or manufacturing or software development, we need to know about that.
▶ 1:46:57Sen. Moreno: So you say we have the small fleet now, but we are big investors. His american capital the key to the chinese shipbuilding rise?
▶ 1:47:10Dr. Mercogliano: We assisted in that in the use of finances and even industrialization and we have seen that recently where an italian company helped construct their first passenger liner, which will be a competition for the europeans. I think there is always the urge that china seems like the emerging behemoth so people want to join in.
▶ 1:47:33Chair Sullivan: We have to get our wall street guys off the addiction of funding the rise of our adversary. They have been doing it for 40 years. It is un-american. We are starting to push back on that. I have a request for you.
▶ 1:47:50Chair Sullivan: You made a good point on this vessel construction manager model but also the approach of our own federal government with red tape and the mentality catching you as opposed to supporting you.
▶ 1:48:07Chair Sullivan: Can you give us for the record a very detailed list of unnecessary regulations from our own federal government that are inhibiting shipbuilding domestically on the dod side and the commercial side? You have made a good point on that and I think we need to make the case.
▶ 1:48:34Chair Sullivan: I had a great opportunity to sit down with a former secretary of the navy, the father of the 600 ship navy. I asked about the secret sauce. He was the 38-year-old secretary of the navy. The one key thing here was no change orders.
▶ 1:49:01Chair Sullivan: They put the pencils down and told industry we are going to do 40 of these destroyers and then if we find some thing better for block two we will do a change order but is that something we need also?
▶ 1:49:19Mr. Vogel: That has been the key to success, limit the change orders. Move out and build a noncommercial standard.
▶ 1:49:30Chair Sullivan: Senator cantwell mentioned the idea of ai and software development. There is so much good stuff in this, pell grants for apprenticeships. There is $450 million for software and ai deployment in U.S. shipyards.
▶ 1:49:52Chair Sullivan: What impact do you believe software and ai could have an increasing transparency of supercharging the existing constraint workforce? Do you have a view on that?
▶ 1:50:06Dr. Mercogliano: I would defer to Mr. paxton.
▶ 1:50:14Mr. Paxton: We are trying to look at all technology advancements. That is one of the things we have been doing with our allies, strategic collaboration on the best practices and advanced technology so I think ai will play an important part.
▶ 1:50:36Chair Sullivan: When you have this kind of momentum, bipartisan support, leading the one big, beautiful bill, $25 billion investment, $29 billion for ship building and other provisions, what are the near-term initiatives that congress should prioritize such as small shipyard grants,
▶ 1:51:07Chair Sullivan: Regulatory were firms -- reforms cut workforce training programs to start to try to get momentum? We have all asked the same question. How did this happen? There is bipartisan support. There is a lot of money being put into the sector and the dod military side, coast guard side. What do you think -- the crickets that we can do to show progress?
▶ 1:51:37Mr. Paxton: Acquisition reform. But also things with the speed act. Things that we can get at our acquisition.
▶ 1:51:52Chair Sullivan: How about a list of those as well for the record? You have probably -- you are going to say regulations.
▶ 1:52:06Mr. Vogel: Congress needs to focus on platforms that can be replaced immediately like over 60 years old, a critical part of the golden dome of this country. Critical to national defense. Can be built with simple commercial designs.
▶ 1:52:30Dr. Mercogliano: I would say leadership. Who is going to direct this? Who is the security advisor going to be? We are not cutting steel any time in the near future.
▶ 1:52:51Ms. Snow: Education, exposure, and industrial lands. >> there is excitement around the ships for america act and we have a flyover, it seems, going on now. This has been a great subcommittee hearing. Just a couple things I wanted to follow up on.
▶ 1:53:18Ms. Snow: A number of questions had been lobbed at you about the regulatory burden as relates to shipbuilding and your consist responses have been this vessel construction and how effective it has been. This is effectively a project manager that sits between the private sector shipbuilders and federal government and wants a government signs of on a contract there are not changes.
▶ 1:53:53Ms. Snow: You give private sector flexibility and best in class project management tools to that manager and they go to work and drive cost down. Is that accurate? Is that a fair description? >> a perfect summary.
▶ 1:54:07Sen. Young: This would overcome the regulatory burden associated with procurement and change orders. That is by far the biggest regulatory burden with shipbuilding. Is that accurate?
▶ 1:54:24Mr. Vogel: Correct. Those pieces have hampered our legacy shipbuilding.
▶ 1:54:32Sen. Young: If there is any witness who disagrees in regards another source to be greater, I think that is probably a shared belief. When we think of regulatory burden up here, many of us would say especially republicans tend to associate that with osha or the epa or the sorts of regulatory burdens but instead we are talking about a procurement process and multiple changes and I think it is important to bear that in mind.
▶ 1:55:02Sen. Young: I would say publicly if senator sullivan's subcommittee get to her list of regulatory burdens you should address and any of them are not addressed, it is my desire and I know senator kelly, the other lead on the legislation, to accommodate those concerns as it relates to regulatory burdens. No pride of authorship here.
▶ 1:55:28Sen. Young: The last point I would like to elicit from some of you is the amazing workforce opportunities. Also geographically. As someone who spent time studying this issue, there is a tight labor market near many of our existing shipyards.
▶ 1:55:53Sen. Young: In some circles, there are doubts and uncertainty about our ability to unlock further labor to come and work at those shipyards so not only do we want to see the modernization and expansion of those shipyards, we want to unlock fallow capacity or new capacity potentially in the coastal state of indiana.
▶ 1:56:24Sen. Young: The shores of the heartland. But could anyone speak to these opportunities? This is not unlike semi conductors. Out of spread that as we are facing novel challenges as a country. And this broader problem set of economic security is one policymakers are struggling to deal with.
▶ 1:56:51Sen. Young: If we play our cards right, we have an opportunity to become a better version of ourselves, a more resilient version of ourselves, to avoid conflict through deterrence and also to ask rank-and-file americans to play a meaningful role in that project. I will ask any of you to speak to this topic.
▶ 1:57:18Mr. Paxton: If we do this right, as I mentioned, distributed shipbuilding means you can build these things pieces and parts of them anywhere. We should be focusing on middle america we have not built ships. If we get it right, that is what is going to happen.
▶ 1:57:49Mr. Paxton: That shipyard used more steel than our large navy shipbuilders combined over the course of a year. When that yard closed, it hurt our steel industry and the overall industrial base. We have to stay focused on that they were an important contributor to the shipyard industrial base.
▶ 1:58:13Sen. Young: With the chairman's indulgence, I will give the other witnesses an opportunity to respond. A little flourish but my state. Write down the ohio river you have evansville, indiana. This was the leading inland shipbuilder in the country. They produced four lsts per day. Up north, we have major steel production. We have auto component manufacturers.
▶ 1:58:42Sen. Young: We have large marine engines already in reduction, so lots of opportunity.
▶ 1:58:56Mr. Vogel: When we think about the work being done at the shipyard, and assembly of components and no requirement for those components to come from the same location from the shipyard. We were recently visiting a shipyard in the gulf and looking at the development of cable spools, miles and miles of cable required for each of the ships and the spools were being developed on site.
▶ 1:59:22Mr. Vogel: I was thinking about states like indiana and that those cable spools could have been developed up there, creating great high-paying jobs in indiana and that allows the yard to use that space, that waterfront space that is so limited, to focus on generating new shipbuilding opportunities.
▶ 1:59:41Dr. Mercogliano: As a graduate of a state maritime academy, I basically went to a four year trade school. I learned how to go into the industry and one of the things we need to focus and task the maritime and ministration to do in their mission to promote the merchant marine is to educate our college instructors out there on the opportunities out there in shipyards. We just talked with the use of ai and new technologies we can be drawing more population into.
▶ 2:00:11Dr. Mercogliano: I think it is important what Mr. paxton said. We have to get down to the lower level to get the younger generation of all but also the potential for careers out there in this field is not being at all -- touching those graduates of universities.
▶ 2:00:27Sen. Young: As a fellow trade school graduate, thank you.
▶ 2:00:32Ms. Snow: I would double down on the same thing. I think investment in education, especially education of adults -- there are a lot of adults that want to change their track and maybe do not know the source to go to. I think investment in time and energy and to younger than colleges -- I think that maritime should be introduced as a valid career path.
▶ 2:01:01Chair Sullivan: Thank you for your passion here. I cannot agree more on this idea. I have been referring to our nation as a shipyard and we had the act my team wrote that was focused on that, primarily on navy shipbuilding but it is a great point. We got the shipbuilding company up in alaska doing this as well, but you are right.
▶ 2:01:26Chair Sullivan: All over the country and I think we got a good jumpstart, a generational advantage with the one big, beautiful bill. It does focus a lot on training so it is an exciting time. The key for my perspective of this hearing, the federal government has to help, not stop.
▶ 2:01:49Chair Sullivan: We have big challenges and the federal government for decades came up and said how can we crush you, how can we prevent you from doing anything that is going to help your constituents or america? We have to change that mentality. I'm looking forward to getting a list of things where the feds can help us, not continue to hurt us. But I want to thank everybody. A really good, informative hearing. Good start. An issue that is very bipartisan.
▶ 2:02:19Chair Sullivan: We need to address. Let's get on it. We have leadership from the president and his team. Senators like senator young and his legislation, which is very bipartisan. Money. We got some pretty good money right now in the one big, beautiful bill, so with that I want to thank the witnesses.
▶ 2:02:42Chair Sullivan: Senators may continue to summit questions for the record for the next week on this hearing and upon receipt the ask witnesses respectfully to cement their written answers to the committee by the close of business on november 18 to give you time to do your homework and I want to thank everybody for an excellent hearing today. This hearing is now adjourned.
▶ 2:03:13Chair Sullivan: [captioning performed by the national captioning institute, which is responsible for its caption content and accuracy. Visit ncicap.org]