SEAPOWER

THE GLOBAL ECONOMY

and
MARITIME SECURITY
MODULE 2 – GLOBAL ECONOMY AND MARITIME
SECURITY

• Overview – In his magnum opus, “The Influence of Seapower Upon

History,” RADM Alfred Thayer Mahan wrote prolifically on the importance
of safeguarding the movement of international commercial trade over the
sea lanes. Mahan both recognized the importance of merchant shipping and
necessary commitment of trading nations to protect it. A nation’s ability to
conduct foreign trade across the sea lanes, is essential to the national
economy and national power.
• Objectives -- 1) Students must understand how global power is supported
by sea power, and global power and national economic power are linked;
and, 2) Students must understand how maritime security facilitates a nation’s
ability to access and participate in global trade.
• Relevance - Ships operate in naturally hostile environments, made more so
by the advent of increasing levels of piracy and terrorism. Maritime security
endeavors to mitigate or eliminate threats and vulnerabilities to cargo and
passengers transported on the sea lanes.
• Conclusion – Maritime security contributes directly to the conduct of global
trade.
Rear Admiral Alfred Thayer Mahan

During the period 1884 until his death in 1914, Admiral Mahan studied and
wrote on Naval historical and biographical subjects. His works have had
tremendous influence all over the world, especially those directly concerning
seapower
 Sea Power, Global Power
RADM Alfred Thayer Mahan: “The necessity of a navy, in
the restricted sense of the word, springs from peaceful
shipping, and disappears with it, except in the case of a
nation which has aggressive tendencies, and keeps up a navy
merely as a branch of the military establishment.” The
Influence of Seapower Upon History. Mahan.

Use China as an example: Over history, when China

maintained effective navies, it was during periods when
thriving trade gave the Chinese government a reason to do
so.

China is currently building a blue-water (global reach) navy.

 Sea Power, Global Power
• Three philosophies of ancient China:
Confucianism, Taoism, Moism, all of which
condemn the pursuit of wealth except as
an instrument of state power.
• China’s history reveals periods of foreign
trade followed by periods of trade
isolation.
• During both periods, China’s trading policy
focused on power for the state – just
different philosophies on how to get there.
 Globalization
• World’s business is interconnected and
interdependent
• Globalization began in the 1800’s
• Greatest movement toward globalization
began after the end of the Cold War
• Cataclysmically changed the “status quo”
• Created winners and Losers
 U.S. Economy’s Dependence
on Sea Trade

• Most of the goods we import and export come

from or go to markets by water.
– 86 percent of US internationally traded cargo by
volume
– 60 percent by value
– 80+ percent of seaborne trade is shipped in
containers
– 11.6 million containers land in U.S. ports annually
(percentages are approximate)
• If the sea lanes are denied, we lose a significant
portion of our trade.
 U.S. Economy’s Dependence
on Sea Trade (cont’d)
• Military engagement between US and China
would cut off our trade with China -- possibly
with the entire Far East Region which China’s
Navy increasingly dominates. US and China are
nervous.
• A military engagement may have a much more
significant effect now – while we are very
dependent on Chinese manufacturing -- than it
would when 3-D printing becomes a preeminent
method of manufacturing. Why?
 Oil
• Oil makes the world’s engines run – without it,
the world comes to a halt
• Oil-producing nations have leveraged their power
for decades
• Demand for oil is always strong, esp. now with
demand by China
• While oil production is maxed out, oil supply is
manipulated to keep prices at desired levels –
production
• Instability in oil-producing regions drives prices
upward – cause “market jitters” and add “risk
premium” to the normal price of oil
 China’s Global Power
• Chinese rulers who embraced foreign trade inevitably
extended China’s power.
• US trade deficit with China: In 2014, it was $343 billion,
representing 80% of the total U. S. trade deficit. This was
up significantly (8%) from the year before, when the
trade deficit was $318 billion. Both were higher than any
prior year.
• China’s merchant navy is formidable
– China builds and crews its own ships
– Chinese shipping carries virtually all of China’s foreign trade
• Under current circumstances, with so many nations
dependent on Chinese manufacturing, China’s merchant
ships need safe, unimpeded access to foreign ports. Who
provides the necessary protection?
 China’s Global Power
and the Global Economy

• Trade imbalance with China dates back to

1985
• What is the effect of the trade imbalance?
– Wealth-producing primary sector jobs in the U.S.
such as those in manufacturing and computer
software have often been replaced by much lower
paying wealth-consuming jobs such those in retail
and government in the service sector when the
economy recovered from recessions.
– Some economists contend that the U.S. is
borrowing to fund consumption of imports while
accumulating unsustainable amounts of debt
 China’s Global Power

• On the 12th of February 2012, the Economic

Policy Institute reported U.S. trade deficit in
goods and services increased from $476
billion in 2013 to $505 billion in 2014, an
increase of 6 percent
– Translates to U.S. consumers’ increasing dependency on
foreign goods
– More dollars flowing outside the U. S. than are coming in.
Each dollar is an “I.O.U.” for something tangible having
intrinsic value such as precious minerals and metals, real
estate, U. S. corporations, etc.
 U.S. Economy’s Dependence on Sea Trade
• Most of the goods we import and export come from
or go to markets by water.
– 86 percent of US internationally traded cargo by volume
– 60 percent by value
– 80+ percent of seaborne trade is shipped in containers
– 11.6 million containers land in U.S. ports annually
• If the sea lanes are denied, we lose a significant
portion of our trade.
• Military engagement between US and China would
cut off our trade with China -- possibly with entire Far
East Region which China’s Navy increasingly
dominates. US and China are nervous.
• Who carries U.S. seaborne trade?
 U.S. Economy’s Dependence on Sea Trade
• World War One (WW1)
– American President Wilson: isolationist
– American people: isolationist
– Why did U.S. enter WW1 and why on the side
of England? Was it because a German
submarine sank the liner Lusitania?
• Seaborne Trade in Early 20th Century
– US exporting nation – mostly agricultural
products
– Very little organic US sealift – dependence on
foreign flag ships, even then
 U.S. Economy’s Dependence on Sea Trade

• US agricultural exports decayed on docks –

no foreign or US ships to carry them to
European markets
• Impact on US economy is swift and
significant
• US needed access to foreign ships
• Lusitania did sway public opinion
regarding US alliance
• Alliance was with Britain and US declared
war on Germany
 U.S. Economy’s Dependence on Sea Trade
• Please read:
http://www.firstworldwar.com/source/usawar
declaration.htm
• US finally realized need for organic sealift
• “Hog Islander” building program
– Emergency Fleet Corporation cargo and transport
ships built at Hog Island Shipyard (Phila. Int’l
Arpt)
– Two standard designs, pre-fab parts, mass
production
– 122 (of 150 contracted) Hog Islanders built
between 1918 and 1921 – too late for WW1
– Half sunk in WW2
 U.S. Economy’s Dependence on Sea Trade

• In 1920, US shipping’s registered tonnage

reached an all-time high (to date) with
9,924,000 gross tons – 10 times US registered
tonnage in 1914.
• For the first time since 1863, more than 50%
of ships entering US ports were US flagged
• Supply of ships exceeded demand for them.
Hundreds of ships were sold off for pennies
on the dollar, many for scrap value. Others
were laid up at anchor until WW2
 World War Two –
The US Merchant Marine’s Golden
Age
 US SHIPBUILDING IN WW2
• Henry Kaiser - Kaiser Shipyard in Richmond, California
– Adopted production-line techniques that built cargo ships (called
Liberty ships) in 45 days, on average.
• Kaiser’s shipbuilders turned out several ships in only 4
days. The keel of SS Robert E. Peary was laid November
8, 1942, and the ship was launched on Thursday,
November 12, four days 15½ hours later.

SS Robert E. Peary
down the ways
 Ships and Expenses
• Ships, crews, bunkers (fuel), insurance, wharf
fees, tugs, pilots, taxes, corporate staffs, and
other dimensions of ocean shipping all add to
the expense of operating a steamship line.
• Airplanes made passenger liners obsolete.
• Low freight rates, economic downturns, lack
of customers, national laws, taxes, etc., drove
uncompetitive cargo lines out of business.
 Sealift and Security
• Organic sealift has a direct and significant
impact on national security
• Since WW2, the US flag fleet has steadily
diminished. Now only about 90 actual
sea-going ships in the fleet. (MARAD
reports nearly 500)
• US is virtually dependent on foreign flag
 Security and Sealift

"Victory is the beautiful, bright colored flower.

Transport is the stem without which it could
never have blossomed." Winston Churchill
• As repeatedly proven, sealift is an essential
element of national security.
• Throughout US history, every military
operation has depended in some measure –
usually in large measure – on sealift.
• Without organic sealift, US depends on
foreign flag which may nor may not answer
the call.
 Security and Sealift
Examples:
• China / US conflict.
– How many COSCO and China Overseas
Shipping ships would call in US ports?
– Shipping lines that do business with China and
US: Maintain neutrality?
– Shipping lines that won’t lease / charter ships
for fear of sinking
– Insurance availability
 Security and Sealift
• Chokepoints
– Significantly shorten otherwise long transits
– Without chokepoints, addition days or weeks
of transit delay deliveries, add to cost of
conveying cargo, hazard cargo by threats from
weather, pirates, etc.
– Suez Canal in 1956
– Strait of Malacca
– Strait of Gibraltar
 Security and Sealift
• China has taken great interest in the
world’s chokepoints
– Deployed “military training missions” to many
countries adjacent to chokepoints.
• China’s demand for oil
– Necessary to keep the oil flowing.
– Interruption of the oil flow to China at any of
the world’s chokepoints would undoubtedly
precipitate swift action by China.
 Security and Sealift
• Chokepoints are a key to movement of global
cargo
– Key to global economy
• Panama Canal
– Once a US strategic asset
– Canal reverted to Republic of Panama but RP did not
administer or operate the Canal.
– Hutchinson-Whampoa, a “private company” owned
by PRC operates Canal
– In spite of agreements when Jimmy Carter turned over
Canal, US warships often do not have priority for
passage through the Canal.
 Security and Sealift
• In war, demand for war material is extraordinary
• During WW2, manufacturing of many consumer
goods ceased. Transitioned to war material.
• Much of former US manufacturing capacity is gone –
replaced by imports. Less capacity to transition to
demand for war material.
• Allied/partner nations may provide manufacturing
capacity for extraordinary demand but many don’t
have organic sealift capacity
• Nations with which we are at war won’t bring
goods to our ports
 Sealift and Security
Hutchinson-Whampoa (PRC) in the Americas
Bahamas
• Freeport Container Port (FCP) is located 65 miles from Florida, and is
strategically located to serve as a major world container transshipment hub
• Freeport Harbour Company (FHC)
• Grand Bahama Airport (GBA)

Panama
• Panama Ports Company (PPC) - Port of Balboa
• Panama Ports Company (PPC) - Port of Cristobal

Mexico
• Ensenada International Terminal (EIT) situated 90 miles south of the US-Mexico
border along the Pacific Ocean.
• Ensenada Cruiseport Village (ECV)
• Terminal Internacional de Manzanillo (TIMSA)
• Internacional de Contenedores Asociados de Veracruz (ICAVE)
• Lazaro Cardenas Terminal Portuaria de Contenedores (LCT)
 Security and Sealift
• Just-in-time inventory
– Days instead of months of on-hand inventory, and
possibly less (based on higher demand associated
with anxious consumers’ perceptions causing
“runs” on stores).
• Efficient – boosts profits
• Depends on consistently on-time inventory of
products
• Interruptions are very costly
– Lack of parts caused GM, Boeing, Honda to close
production lines
 Ports and Security
• If US loses a single port for any reason, input of
goods that fuel US economy from that port are lost.
• If ports on US west coast close – strike, natural
disaster, other, we lose our best access to a major
trading region: the Far East and Pacific Rim
• Example: Port of Virginia alone exceeds 2.3 million
containers annually – 191,700 containers monthly -
the loss of which would have significant negative
impacts on the local, state, and national economy
 Ports and Security
• Port infrastructure is vulnerable, expensive,
and not readily replaceable
• No manufacturer of large container cranes
has “spares” in the inventory.
• Some ships have the ability to act as cargo
transfer platforms to restore a port’s cargo
handling equipment if it is inoperable.
 Maritime Security
• Based on the foregoing, we can conclude that the
loss of access to vessels or ports threatens national
security because seaborne cargo is the lifeblood of
our economy
• US and the world have been in an economic
downturn for several years with no end in sight.
Government spending is a target.
• Back to our original example:
– China, with a robust Merchant Marine is building its
Navy
– US, with a shrinking Merchant Marine is downsizing its
Navy
• Based on what we’ve learned, which strategy will
bring more national and economic security?
 Maritime Security
• 1986 UN Study: Security is a state in which
countries think that there is no danger of
military attack, political pressure, or
economic coercion, so that they can
develop and progress freely.
• International security consists of the
measures taken by nations and
international organizations.
K. BARBER
2016