Speaker 2
And the last question before we actually get to the report, this is kind of a two-parter, but they are related and therefore, it's memorable. So you've made reference multiple times to a 1990s reset of US maritime policy that you were involved with before obviously though the 1990s, as with most of the categories we discussed in the podcast, you had the actual Cold War. So what was the pre-1990s Cold War era maritime policy, broadly speaking, and then what did we reset into during the 1990s and obviously set the stage for our conversation today?
Speaker 1
So I think the answer in terms of pre-end of the Cold War, during the Cold War, the maritime policy was kind of on a steady decline, or allowed a steady decline to take place. We made decisions after World War II to surplus all of the liberty ships and all of those ships to foreign owners. And so the US international fleet declined precipitously in the post-Cold War years, and not much was done to hold on to it. Now the numbers are still significant. By the end of the 1980s, we were ranked very low, but we still had 800 or 1,000 US flag ships. I don't know the exact number there, but as opposed to less than 200 today. And it's a similar story in the shipbuilding side of things where the government tried subsidy programs to support them. They were not well designed. They were not well executed all the time. And the result was we didn't succeed very well. And by the time Reagan took office in 1982, 81, the decision was made to just cancel the shipbuilding subsidy program as opposed to reform it. And I think it should have been reformed, but not canceled, but that's a long time ago. And then the program for operation of ships was retained. It was slimmed down, and then that was what was really reformed when the 1990s came along. And then what was the actual reset that occurred then? So in the 1990s, obviously the Cold War was over. America was the sole hegemon. We were always going to be that. The need for a maritime industry was seriously questioned. An American maritime industry was seriously questioned in a lot of quarters. So it was really a matter of survival for American shipping and shipbuilding. Again, understanding the paradigm that we're up against in international markets. And a general move to open markets. And so the container shipping industry was deregulated. I had a role in that, writing that legislation. We retained a fleet of what is now 85 US flagships in international trade, the Maritime Security Act of 1996. And I had a role in writing that also. And but efforts to reform and reinstate shipbuilding subsidies were abandoned. There was some loosening of finance restrictions for ships in domestic markets. But the thrust of the time was, we'll get this as slim as we possibly can. And so we have something to scale up if we need to.
Speaker 2
So that is the perfect pivot to where your friend has announced today and your report.
Speaker 1
Sure. So I, as I mentioned, I felt very strongly that the assumptions that were made in the 1990s when we reset maritime policies no longer applied with the emergence of China as a challenger, as a global superpower. And with the decision that Xi Jinping made to make China a powerhouse, shipping a maritime powerhouse. And how that, so I want to look into that in great detail. And I mentioned a couple of the things that I discovered. One is that we don't have the American flag capacity. We have one third of the capacity we need to resupply troops in a Western Pacific conflict. The size of our fleet is again, is based, still based on, for the most part, on that 1990s paradigm. And that's just where we're at today. We need 250 ships, 250 US flag ships, screwed by American citizens. And that's the data is out there. It's not my invention. It's well established. And that's just to meet core sealant requirements.
Speaker 2
And quick pause here, because I want to make sure this is entirely understandable. We've made reference to we supply, do you mean like the US merchant marine, do you mean private companies or things are things nationalized? How does the actual ownership structure here work?
Speaker 1
I'm referring to we as the American maritime industry, I think most of the time, but it's a mix of publicly traded private and private companies, entrepreneurs that get into the business are otherwise involved in the business. And they look for markets that they conserve. And sometimes they succeed and sometimes it doesn't work out so well. But it's a very, very entrepreneurial, in my experience, a very entrepreneurial group of business people.
Speaker 2
And the reason why I'm just curious is let's say that you do have a Western Pacific conflict that necessitates the sea lift capacity. Is there a switch that's turned and then the industry has to kind of pivot? Because once again, I think the structural factors here are pretty interesting.
Speaker 1
There is something called the voluntary intermodal sea lift agreement, which is the contract that companies enter into when they participate in the programs and that is the switch that is turned in the event of a conflict. And it's a sophisticated agreement that has been very effective in terms of resupplying troops involved in the Persian Gulf Wars. And I think that basic program structure works. The problem we have with it now is that it's just too small. And growing it to the extent we need to grow it, it changes the economics, it changes aspects of the program that just need attention. I mean, the economics of the program don't work when the amount of cargo that is sort of the one of the linchpins of the current program, when it's spread over 85 ships, which is where we were at the beginning of this year, it's enough to make the program work from an economics perspective. When you spread that same cargo or even a little bit more cargo, over 250 ships, it doesn't work. So we need to find additional ways to make the program economically viable. And that's part of what we're doing. The other thing that I have worked on and that is in this report and that I think is a really significant change is to phase in a requirement that ships in the 250 ship fleet be built in the United States eventually on a phased-in basis. It doesn't take long to reflag a ship from the librarian registry to an American registry and put an American crew on that. That's doable in a matter of weeks or months or less in an emergency. But to build a ship and to sort of reconstitute our commercial ship building in this or grow it from the base it has today, that's going to take more time. And you want to do that on a phased basis so that it's sustainable. What I like about this is that it's a demand signal for the delivery from US shipyards of high technology ships that have, take care of the crew, give extraordinary safety to the crew. They'd be autonomous ready in case there is a conflict and we can pull the crew off and have the ship sail on its own. Other technologies around that. Then from a propulsion standpoint it could be, I'll turn to fuels, hydrogen, ammonia, methanol, it could be nuclear-powered. It could be, there's just lots of options out there. So the idea is that with this demand signal, this consistent demand signal that we haven't had in this country in decades and decades, US shipbuilders haven't had. We again, we have the chance, a real opportunity to start a little bit from scratch. I mean, take in the sense that we don't have legacy systems and legacy work processes that are going to slow us down. We can start a little bit on a greenfield basis and with the emphasis on technology, reclaim a share and get competitive for certain ship types in international trades. Get ready to scale up significantly if that is ever what's needed.