Maintaining and expanding these vital pieces of infrastructure require dredging, the removal of soil, sand, and other materials from the underwater channels through which vessels navigate. Hampering these efforts, unfortunately, are two protectionist maritime laws: the Jones Act and the Foreign Dredge Act.
The 1920 Jones Act requires that merchandise transported by water between U.S. ports be on vessels that are U.S.-flagged, U.S.-built, and at least 75% U.S.-owned and crewed. The sludge removed by dredging is considered “merchandise” under this law and must be moved by these types of vessels. The 1906 Foreign Dredge Act applies the same requirements to dredging vessels specifically. As a result of these laws, American ports are forced to rely on dredges that typically are smaller, older, and less efficient than their foreign counterparts.
Old and small fleet / The privately owned U.S. fleet of hopper dredges, considered by the U.S. Army Corps of Engineers to be the most appropriate vessel for operating in coastal ports, consists of 16 vessels with a collective capacity of approximately 74,000 cubic meters. In comparison, four European dredging companies — Boskalis, DEME, Jan de Nul, and Van Oord — own 87 hopper dredges with a collective capacity of 986,000 m3. The largest U.S. hopper dredge by capacity, the Ellis Island, would rank as only the 31st-largest in the European fleet.
U.S. vessels aren’t just smaller and less numerous, they are also older, with an average build year of 1987. One U.S. hopper dredge, the Columbia, began its life in 1944 as a World War II landing ship before being converted to a hopper dredge in 1973. These old vessels require more maintenance than newer dredges, and they lack technologically advanced features that would lower their cost of operation. The European dredge fleet, meanwhile, has an average build year of 2004.
This U.S. inferiority is almost preordained. Requiring vessels to be U.S.-built means that they must be acquired from uncompetitive U.S. shipyards at considerably higher prices than those constructed abroad. In 2020, Great Lakes Dock and Dredge — the largest U.S. dredging firm, with a 39% market share — ordered a 5,000 m3 capacity hopper dredge from Louisiana-based Conrad Shipyard for $100 million. In contrast, in 2018 the Dutch dredging firm Van Oord ordered two 10,500 m3 hopper dredges from Singapore shipyard Keppel Singmarine for a total of about $158 million. While not perfect comparisons, Van Oord spent roughly $20 million less per dredge for vessels with twice the capacity.
Beyond inflated vessel costs, U.S. dredging firms must also contend with other government-imposed burdens such as a 50% duty on repairs or maintenance performed in foreign shipyards.
Lack of competition / Such measures have greatly contributed to the creation of a U.S. fleet that is internationally uncompetitive. While European dredging firms operate around the world in locales as varied as India, Brazil, South Africa, Italy, and Australia, U.S. dredging firms are largely restricted to their captive domestic market, with only limited international forays. Great Lakes Dock and Dredge, for example, reports that foreign dredging operations accounted for an average of just 6% of its dredging revenues over the past three years.
Dredging costs resulting from the U.S. fleet’s inferior and expensive vessels are further compounded by a lack of competition. Although the 16 hopper dredges compliant with U.S. dredging restrictions are divided among five companies, only three companies own more than two of the vessels. Limited competition also appears to be the order of the day among the broader U.S. dredging market. According to a 2019 Congressional Research Service (CRS) report, 42% of dredging contracts awarded by the Army Corps of Engineers from 2014 to 2018 were sole-bid contracts and another 25% attracted just two bidders. (The domestic industry group Dredging Contractors of America disputes the sole-bid figure, placing the number at 11%.) A 2018 Center for Strategic and International Studies analysis noted that during the period 1997–2015, 38% of contracts in the Corps’ Galveston and Mobile works districts had only one bidder, and another 21.5% had just two. The 1988 indictments of 13 dredging firms (including Great Lakes Dock and Dredge, which pled guilty) as part of a federal investigation into bid-rigging is also suggestive of persistent limited competition.
The predictable result of a costly fleet and limited competition is inflated dredging prices. According to the Government Accountability Office, the Corps of Engineers spent nearly $170 million for hopper dredges owned both privately and by the Corps (which operates four dredges) to remove around 66 million cubic yards of material in fiscal year 2003. By fiscal year 2012, those dredges were removing only slightly more material (almost 72 million cubic yards) while spending on their operation had grown to about $370 million. The aforementioned CRS report, meanwhile, notes that inflation-adjusted costs for harbor maintenance dredging increased from $1.74 per cubic yard in 1970 to $5.77 in 2018. Although the report points out numerous factors behind this cost increase, one reason cited is the relative dearth of competition.
Costs and savings / The potential cost savings from market opening to more efficient foreign dredgers appear significant. Van Oord estimates that it could perform U.S. dredging projects such as port deepenings for 60% of the cost and three times faster, even if it used mostly U.S. crews and support vessels.
Comparisons of coastal restoration projects performed in the United States and abroad, for which hopper dredges are sometimes used, lend credence to these claims. A coastal restoration project at Whiskey Island, La., for example, cost $118 million to move 15.8 million cu. yd. of sand, while another project at Caminada Headlands, La., cost $216 million to move 8.8 million cu. yd. In contrast, a project in the Netherlands moved 28.1 million cu. yd. of sand at a cost of $55.5 million.
In total, the savings to government-funded projects from allowing European dredging firms to enter the U.S. market could reach $1 billion per year, these firms contend.
The economic toll from dredging protectionism goes still higher when opportunity costs are considered. According to the National Oceanic and Atmospheric Administration, dredging ports just an additional inch can allow ships to carry enough additional weight to transport 50 tractors or 5,000 55-inch televisions. That’s a boon to efficiency. A study performed by the Soybean Transportation Coalition found that dredging the lower Mississippi River from its current 45 ft. to 50 ft. would produce additional income of $461 million to soybean producers from the ability to ship heavier loads.
Texas ports offer further examples of the potential gains that can be realized through additional dredging. Because of a lack of depth, supertankers known as Very Large Crude Carriers cannot directly access Texas ports and instead must sit offshore where the oil is transported to them by smaller tankers. Known as “reverse lightering,” the process is estimated to take two to three days longer than direct loading and, depending on freight rates, can tack on over $1 million in additional shipping costs. Such inefficiencies require a wider price spread between U.S. crude oil and international crude oil prices to compensate for the resulting added costs.
In the Houston Shipping Channel, meanwhile, the lack of dredging to widen the channel means that large ships must perform a maneuver known as “Texas Chicken” when they approach each other from different directions. The ships sail directly at each other, swerving at the last moment and using hydrodynamic forces to keep from touching as they pass. As the Port of Houston notes on its website, “There is no question that a wider channel is a safer channel.” Last year, a deal was reached to expand the shipping channel, but at a cost of $1.1 billion and with completion not until 2025.
Security concerns? / Some defenders of this highly restricted and costly dredging market claim it is necessary for national security — a claim often made for protectionism. A 2020 report by the Center for Strategic and Budgetary Assessments, for instance, floated the possibility of foreign dredging firms engaging in sabotage or installing surveillance equipment in U.S. ports — but it offered no evidence of this taking place in open dredging markets. Such a scenario becomes more dubious still when one considers that leading European dredgers are based in NATO-member countries and have stated their willingness to crew dredges with Americans for U.S. projects.
It seems difficult to make the case, meanwhile, that the lack of efficient dredging for the country’s ports is a national security asset.
Instead of national security, a more likely explanation for these laws is the lobbying power of domestic interest groups that reap the concentrated benefits of protectionist law as opposed to groups that bear the dispersed costs. The Dredging Contractors of America, headed by Richard Balzano, a former deputy administrator of the U.S. Maritime Administration, is the foremost advocate for maintaining dredging restrictions. Aiding its efforts are other organizations dedicated to preserving related protectionist maritime laws, such as the Jones Act, because they fear the fates of these laws are interlinked.
In contrast, there is no industry or lobbying group in Washington that places the demise of such laws as a top priority. Bills introduced in late 2021 and this year to reform or eliminate U.S. dredging protectionism reflect this dynamic, thus far failing to muster much support, even with the serious and well publicized supply problems related to the COVID pandemic. (See “Dispelling Supply Chain Myths,” p. 26.)
Absent such changes, the United States will remain beholden to an inefficient and uncompetitive dredging industry, with the country’s ports and waterways — as well as its broader prosperity — bearing the cost.
Readings
- Army Corps of Engineers: Actions Needed to Further Improve Management of Hopper Dredging.” U.S. Government Accountability Office, April 2014.
- “Expanding Competition, Expanding Ports: Competition in U.S. Hopper Dredging,” by Ariel Collis and Robert N. Fenili. Center for Strategic and International Studies, June 2018.
- “Harbor Dredging: Issues and Historical Funding, Updated,” by John Frittelli. Congressional Research Service, November 6, 2019.
- “Impacts on Crops and Product Export Flows of Dredging the Lower Mississippi River at 50 Feet,” prepared by Informa Economics IEG. Soy Transportation Coalition, May 2018.
- “Strengthening the U.S. Defense Maritime Industrial Base: A Plan to Improve Maritime Industry’s Contribution to National Security,” by Bryan Clark, Timothy A. Walton, and Adam Lemon. Center for Strategic and Budgetary Assessments, February 12, 2020.
