Policy Loophole? Getting Paid to Build Ships in the U.S.
One of the pillars of the SHIPS for America Act is the creation of a 250-vessel Strategic Commercial Fleet (SCF) of U.S.-built and U.S.-flagged ships.
The SHIPS for America Act proposes both capital expenditure (capex) subsidies, to cover the increased cost of building ships in the U.S., and operating expense (opex) subsidies, to cover the increased cost of crewing ships with American seafarers. The U.S. government would pay participating shipping companies the combined capex and opex subsidies in the form of an operating agreement.
Interestingly, the U.S. government already offers a financing program to incentivize companies to build ships in the U.S.: the United States Maritime Administration’s Federal Ship Financing Program (Title XI).
Savvy shipowners could participate in both the SHIPS for America Act and Title XI to bring the effective cost of building ships in the U.S. down considerably.
So low, in fact, that they could actually get paid to build ships in the U.S.
Shipowners apply for Title XI financing, covering up to 87.5% of the construction cost of the vessel, or alternatively receive loans against their mortgage from banks or other lenders. For a U.S.-built MR product tanker costing $250 million, Title XI financing would cover $219 million.
Shipowners apply for the SHIPS for America Act, receiving an annual capital support payment to cover the cost difference between building in the U.S. and in a foreign shipyard. Keeping with the example of a U.S.-built MR product tanker, shipowners would receive approximately $200 million, paid out over 21 years.
Shipowners could sell or borrow against their payments from the SHIPS for America Act, and because they’re backed by the U.S. government, could do so at a low interest rate that’s comparable to a 20-year treasury bill. With today’s ~5% rate on 20-year treasuries, that means that an investor would be willing to pay $122 million using a present value calculation.
Between Title XI and the SHIPS for America Act, savvy shipowners would have received a total of $341 million. These shipowners could take $250 million from their financing and pay the shipyard for their vessel, walking away with a new U.S.-built ship plus $91 million in their pockets.
The United States Maritime Administration, which plays a key role in administering Title XI and the passage of the SHIPS for America Act, would likely realize these shipowners’ attempts to “double dip” on financial support and deny one or both program applications. However, there doesn’t yet appear to be language explicitly saying shipowners can’t enroll in both programs simultaneously, so it’s possible someone will put the thesis to the test.
