Shipping Giant Maersk Backs Out Of Military Contract With US But Strengthens Relations With China, Creating Severe Logistics Issue For Pentagon

Receiving virtually no press space and air time, the Dutch-based shipping giant Maersk has backed out of military contracts with the United States Armed Forces, and instead is offsetting their normal trade with a smaller company, while Maersk bolters their ties with China instead. The move is critical as now it forces the Pentagon into a logistical bind and headache, making it all the more difficult to transport their military weapons and vehicles to their bases, especially during a time of conflict.

Jerry Hendrix, a retired Navy Captain and Naval scholar, warned as to how detrimental this move is.

The implications of this are huge. As I mentioned in my April essay in The Atlantic, the US is nearly totally dependent upon foreign shipbuilders and foreign hulls to carry cargo to and from our shores, now those companies are pulling back from supporting our military.

He wrote on X

The implications of this are huge. As I mentioned in my April essay in @TheAtlantic the US is nearly totally dependent upon foreign shipbuilders and foreign hulls to carry cargo to and from our shores, now those companies are pulling back from supporting our military. https://t.co/W05v3CLM92

— Jerry Hendrix (@JerryHendrixII) September 25, 2023

Captain John Konrad, writing for gCaptain, an authority on all things maritime news, detailed the move in a post; writing that as global tensions rise “the strategic chessboard is experiencing moves that are unparalleled,” as evidence by this move by Maersk.

Konrad wrote: ‘Maersk, the Danish maritime behemoth and a principal commercial transportation partner for the U.S. military, has chosen to divest its U.S. flagged tanker fleet along with select U.S. military contracts to Maritime Partners, a relatively minor entity operating under the Jones Act. Concurrently, the company is escalating its investments globally including in China, prompting speculations into whether these developments are interconnected. The answer is not so simple.’

Moreover, Konrad explains that this moves come at a time when the Pentagon is looking to increase in maritime shipping as international relations grow weary and the threat of war continues to loom, as ‘the US Maritime Administration (MARAD) is emerging from decades of neglect with few additional resources to manage relationships,’ he writes. He adds,

This is evident in the stark contrast between MARAD, which has only 800 staff members, and its sister agency, the Federal Aviation Administration, which employs 45,000 people. As a result, the US Government – including MARAD, the Biden administration and Congress – is now facing a complex set of challenges that are hindering companies like Maersk from strengthening America’s maritime industry.

An industry is increasingly important for a military facing severe logistical challenges in the Black and South China Seas.

Ed Hanley, Vice President Maersk Line Limited, when questioned about the added investments into China, he claims the company has been ‘expanding strategically to better serve the North American market,’ he explained in an interview with gCaptain.

Furthermore, Hanley explained that Maersk still intends to maintain its support and investment in container services and the US Maritime Security Program.

Despite this remark, Maersk has ‘already divested its critical tanker fleet and contracts to manage military grey hull ships, Konrad points out, adding, ‘Maersk also was clear the recent divestiture of sale of assets received the approval of key military stakeholders including the US Maritime Administration (MARAD), Military Sealift Command (MSC) and the US Transportation Command (TRANSCOM).’

‘How critical are those assets to the US Military? Very,’ Konrad warns.

Former Maersk executive Steve Carmel in a gCaptain editorial stated:

The Department of Defense is projected to need on the order of one hundred tankers of various sizes in the event of a serious conflict in the Pacific.

Not only does the U.S. lack the tonnage required to support a major conflict in the Pacific, it has no identifiable roadmap to obtain it.

Maritime Partners, the latest partners to pick up the slack, is fairly young and small, and whose ‘global reach, influence or deep pockets of Maersk but that makes them free of many entanglements imposed by Jones Act regulations and geopolitics.’

This development is good for us. Maersk had reservations about further investments in both military and tanker endeavors, yet recognized the significance of the mission.

Consequently, they found a new owner capable of investing in our mission, enabling us to expand our tanker operations to meet the demands of the U.S. Military.

Captain Steve Carmel, a former executive at Maersk, who is now spearheading this newly formed entity, said

Konrad explains that while it is easy to criticize Maersk’s move he notes that the U.S. government has not been their jobs any less tedious, explains the reasons as to why, and what this could spell moving forward:

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While it may be easy to blame Maersk for favoring China over American maritime investments, the US government has put commercial allies in a difficult position. On the shipbuilding side, China has poured billions of dollars into shipyards as subsidies, prioritized commercial contracts, and lowered administrative hurdles. In contrast, the United States has not even completed the basic shipyard survey needed for bankers to approve loans since 2004. Shipyards have received very few subsidies, and loan programs like Title XI Federal Ship Financing Program are bureaucratically cumbersome and underfunded. Additionally, the US Navy has occupied most of the shipyard capacity pushing out commercial companies. As a result, it has become exceedingly expensive and difficult for all but a few domestic companies to build new ships in America.

Shipbuilding and ownership structures have a crucial role in the preferential treatment given to Jones Act carriers in various US Military contracts and government programs. This is exemplified in the recent allocations of the Tanker Security Program contracts. While US-based Jones-Act companies Overseas Shipping Group, Crowley, and Seabulk each secured three contracts to supply tankers to the US fleet, Maersk surprisingly received only one.

One executive at a Maersk competitor stated, “MARAD is increasingly favoring relatively small businesses and Jones Act carriers.” However, he also noted that Crowley and Seabulk are collaborating with each other and foreign shipping entities, such as Stena and Torm, to form partnerships for military contracts.

The Tanker Security Program serves as an example of how government initiatives can create challenges for major allied shipping corporations like Maersk, hindering their ability to compete effectively. Another recent example involves Rear Admiral Ann Phillips praising the construction of the first new National Security Multi-Mission Vessel. This ship, built at Philly Shipyard, was the result of a commercial outsourcing contract that involved importing equipment and receiving substantial assistance from South Korean firms. According to Phillips the collaboration saved hundreds of millions of dollars and avoided numerous delays. However, in stark contrast to this achievement, U.S. Senator Tammy Baldwin was simultaneously advocating for new legislation that would counter these cost savings. Her proposed bill aims to prohibit U.S. shipyards from adopting collaborative models that include foreign parts, potentially hindering the replication of Philly’s success in the future.

Shipbuilding matters because without new American-made ships, it’s difficult for companies like Maersk to qualify as Jones Act carriers. Without US and European support for shipyards in other countries like South Korea and Japan, it’s financially unfeasible for any large shipping company – even those who don’t do business with the US Military – to build outside the low government-subsidized yards in China. And even if Maersk built ships in the United States, it’s Maersk can never qualify as a Jones Act carrier due to its foreign ownership structure.

Two questions remain. First, if war breaks out and these tankers are asked to respind, will Maritime Partners be able to provide the full support of a giant global company like Maersk?

The second question is will the administration meet with allied shipbuilders and large shipping companies like Maersk to find mutually beneficial arrangements? Or will they leave contracting to the understaffed US Maritime Administration while issuing statements like the one Biden made about the shipping companies in June of last year: “Every once in a while, something you learn makes you viscerally angry. Like, if you had the person in front of you, you’d want to pop them.”

Can all sides find mutually beneficial ways for allies, the US Merchant Marine, and us shipping interests to benefit or will Jones Act arguments and government contracting restrictions continue to intensify as more large commercial partners find it increasingly difficult to support US military efforts?

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AUTHOR COMMENTARY

Follow the money and you’ll have your answer.

A feast is made for laughter, and wine maketh merry: but money answereth all things.

Ecclesiastes 10:19

When you get right down to it Maersk is letting these smaller companies hold the bag as they go where they see it is more profitable for the time. All signs point towards World War III, and the U.S. will be on the losing side of things, so if it means aiding China and other BRICS countries then they clearly will.

Maersk’s move is very apparent and is a clear canary in the coalmine in my view, for both the U.S. military and as a country on a whole. The country is broken in every facet, and economically it is about to utterly collapse; as the military is short of men, and those being added are soft, effeminate, overweight, and inadequate; as it cannot even repair its own vehicles and weaponry without first being backlogged by the defense contractors. Then now you factor in this move by Maersk and quickly realize how much harder it will be to transport the necessary equipment speedily and quantitatively.

How say ye, We are mighty and strong men for the war?

Jeremiah 48:14

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[7] Who goeth a warfare any time at his own charges? who planteth a vineyard, and eateth not of the fruit thereof? or who feedeth a flock, and eateth not of the milk of the flock? [8] Say I these things as a man? or saith not the law the same also? [9] For it is written in the law of Moses, Thou shalt not muzzle the mouth of the ox that treadeth out the corn. Doth God take care for oxen? [10] Or saith he it altogether for our sakes? For our sakes, no doubt, this is written: that he that ploweth should plow in hope; and that he that thresheth in hope should be partaker of his hope. (1 Corinthians 9:7-10).

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