Repeal the Foreign Dredge Act of 1906

There are a lot of ludicrously terrible government laws, regulations and policies across all the domains of life. My Covid posts have covered quite a lot of them.

Yet if I had to pick one policy that was the Platonic ideal of stupid, the thing that has almost zero upside and also has the best ratio of ‘amount of damage this is doing to America’ versus ‘reasons why we can’t stop being idiots about this’ there is (so far) a clear winner.

We must repeal the Foreign Dredge Act of 1906. It says, to paraphrase, no underwater digging – to repair ports, or build bigger ones, or fix waterways – unless the boat doing the digging was built in the US, and is owned and operated by Americans. (This isn’t about shipping – that’s the Jones Act, which has similar ownership rules for shipping within the US, and which we’ll get to later.)

I claim that, EA style, this is highly (1) important, (2) tractable and (3) neglected.

There’s a bunch of talk recently about the Dredge Act which is how I noticed it, but that’s different from the actions that actually lead to repeal – it’s still neglected. An illustration of this is that my exploration of this led to it having a Wikipedia page. Until May 2nd, it didn’t.

The actions that could repeal the act mostly involve a relatively small amount of standard-issue lobbying effort – so it’s tractable.

Given how much it could do for our ports and thus our economy, as well as the reclamation projects we could do, repeal seems pretty damn important.

The goal of this post is to explain what the hell is going on here and defend those three claims.

Odd Lots

This topic was entirely off my radar screen until I listened to a recent episode of one of my favorite podcasts (transcript here): Odd Lots. Odd Lots is hosted by Joe Weisenthal and Tracy Alloway. If you are at all into economics or economic-style thinking, this podcast is for you. Often they tackle questions of trading and market structure and interest rates, or the world of crypto, but they are at their best when they are asking about real world logistics and how that fits into the economic picture. Odd Lots is great most of all because it is centered in a profound curiosity about the gears of the system of the world.

Anyway, it all started when Tracy Alloway’s shipping woes (she’d been trying as an experiment to get a spot on a container ship crossing the pacific for months without success, which was very enlightening on what’s going wrong with shipping) took a turn for the personal, and her belongings got stuck on the ship Ever Forward in Chesapeake Bay. Which we struggled to get free because America lacks proper dredges, which led to a whole episode about dredging.

I’ll quote from it a bit, but I recommend listening to the episode directly.

What Is Dredging and What is it For?

From the official source:

Dredging is the removal of sediments and debris from the bottom of lakes, rivers, harbors, and other water bodies. It is a routine necessity in waterways around the world because sedimentation—the natural process of sand and silt washing downstream—gradually fills channels and harbors.

Dredging often is focused on maintaining or increasing the depth of navigation channels, anchorages, or berthing areas to ensure the safe passage of boats and ships. Vessels require a certain amount of water in order to float and not touch bottom. This water depth continues to increase over time as larger and larger ships are deployed. Since massive ships carry the bulk of the goods imported into the country, dredging plays a vital role in the nation’s economy.

Indeed.

There is also environmental dredging to eliminate contaminants. It can be used for land reclamation projects (like potentially expanding Manhattan) or building sea barriers. Dredging is used to free boats that get stuck (like the Ever Given or Ever Forward) or free up navigation on waterways in emergencies (like the Mississippi after Katrina).

Dredging is a bottleneck to the expansion and maintenance of ports, and in the resolution of emergencies. We can’t ship things if the boats can’t get in. The tasks cost relatively little money to do when done with the right tools, but solving these bottlenecks provides tons of marginal value compared to not solving the bottlenecks.

The entire supply chain depends on having working ports. Dredging companies and workers only capture a small fraction of the resulting consumer surplus.

What’s Wrong With American Dredges?

Their capacity levels suck. Here’s Tracy Alloway on Odd Lots:

And our previous guest who was talking about this, Sal Mercogliano, again, he has a great YouTube channel if you’re interested in what’s going on with the Ever Forward, but he was saying that the dredges that are on the scene of the Ever Forward right now can move about 60 cubic yards of mud in each, you know, every time they sort of dredge the bottom, whereas other types of dredges, international dredges, the kind that they had on scene with the Ever Given when it was stuck in the Suez Canal, those can move 70,000 cubic yards of material in one hour. So that gives you an insight into the different levels of dredging capacity we’re talking about.

America has none of the top 30 dredges in the world. Of the top 50 dredges in the world, America has three. The American dredges simply don’t have the same kind of level of capacity.

The result is that everything is slower and more expensive, when it can be done at all, and also the dredges that do exist are often taken away to work on something deemed higher priority so long-term projects get delayed indefinitely.

The dredges we would use are owned by Belgian and Dutch firms, that already have American subsidiaries that do work here and have contracts with our unions, but they can’t dredge.

They just can’t alongside dig in the sand because of this 1906 law. And it costs America millions or tens of million of dollars of jobs and billions of dollars. If you are in Savannah, you spent over a billion dollars for a port deepening project that would’ve cost under $500 million. And if you are in Virginia right now, you are spending, it was supposed to be $350 million. It’s now $450 million for a project that should cost hundreds of millions less.

Why Can’t We Build Good Dredges?

I mean, we could, in theory and if we were willing to pay enough and wait for many years, but we don’t. The explanation given on Odd Lots is that the American market isn’t big enough, and we’re the only country other than China with restrictions on who can dredge.

So the U.S. dredging market right now, maybe it’s a billion dollars, maybe with coastal protection becoming more urgent and, you know, even beach replenishment becoming a much more kind of an every year thing if you’re gonna save your tourist season in North Carolina, the market’s maybe more than a billion, but it’s not a huge market. And in fact, the global dredging market is probably about $20 billion.

The story here is that American construction costs are expensive because there are large fixed costs involved. The existing companies have a comfortable oligopoly in this small market, and not enough incentive to go big and build huge top-of-the-line dredges, so the fixed costs don’t get paid. It’s not obvious whether or not we even have the logistical capacity to build on par with the best such ships out there, but it is clear that there is no (non-regulatory) reason for us to have that capacity, and that any such building effort would in the best case take many years even if everything went perfectly.

The future largest American dredging ship is currently under construction.

At 15,000 cubic yards, the dredge—designed in collaboration with Hockema Whalen Myers Associates Inc. (also of Seattle)—has a length of 420 feet, a breadth of 81 feet and a draft of 28.5 feet.

While the dredge won’t be completed until 2023, it was able to achieve funding by a U.S. bank-led syndication. Schorr says the total cost of the vessel will be over $100 million once completed.

That’s far from nothing, but it is not going to rival the top European ships in terms of size or capabilities.

Could this problem be solved by simply commissioning world class dredges here in America, even if that cost more money than building them elsewhere?

This podcast from 2018 is about shipbuilding in general but points to a lot of the excuses that people make for why American shipyards aren’t competitive.

This paper compares American construction costs to foreign construction costs for different kinds of ships, although it doesn’t consider dredges.

If we presume that American contracts currently pay roughly double the price for the same dredging work, and that the dredging market overseas is competitive (which by all reports it is), and that costs would be relatively additionally high here, then this implies the venture of ‘build a world class dredge here in America’ would be unlikely to be profitable.

That goes double given the uncertainty. If at any time the Dredge Act gets repealed, you could suddenly have a $200 million ship that you paid $600 million to construct.

I don’t blame the American dredging companies for not being eager to invest in lots of extra capacity with that hanging over their heads. To be a worthwhile business under those conditions means making unusually high profit margins while controlling your risk. Also it’s an oligopoly. Which all in turn, for the country, means very expensive dredging and not that much of it.

Jones Act Problems

Remember the Jones Act? The Jones Act says that if you engage in shipping between two American ports, you can only do so in an American built ship, with an American crew, flying the American flag.

When I said ‘of course we should repeal the Jones Act’ several people said no, the Jones Act has a good reason behind it. And that purpose is to ensure an American merchant marine that could be commandeered in time of war.

It is expensive to fly under the American flag, it is expensive to use an American crew, and American shipyards are completely uncompetitive, so the result of this act is that we mostly stopped shipping things between American ports.

Which of course means you also don’t get the intended merchant marine fleet. A lesser requirement that made the ships useful in war, without imposing additional requirements like making the ship in America, would at least do something useful.

Thus the Jones Act is rather terrible, but it is perhaps not as impactful as it sounds. Our geography is such that we mostly lose little by imposing a soft ban on shipping between American ports. It certainly doesn’t help, but I’ve been persuaded pending further investigation that it’s not the biggest deal.

This is relevant to the Dredge Act because a dredge has been ruled to be a Jones Act vessel. Thus, if the Dredge Act was out of the way, the Jones Act would still impose the same effective requirements.

Lobbyists defending the Dredge Act are using this to claim that repealing the Dredge Act means also repealing the Jones Act, which they say would be terrible. Thing is, they are simply lying about this, as none of the bills introduced to repeal the Dredge Act touch the Jones Act. The actual solution in all such bills is to define dredging as not being shipping, leaving the Jones Act for another day.

Union Problems

It seems the other way the dredging companies are defending the Dredge Act is by convincing the unions to be afraid.

It’s opposition, a hundred percent because they make two arguments, okay, that this is gonna repeal the Jones Act. We’ve already addressed that, it has nothing to do with the transportation sector. It’s the construction sector, and they threaten the unions that these companies will come in. They’ll do the port of Houston and Corpus, then they’ll leave and then you’ll be without us, the American dredging companies. But in fact, we now know that there will be offshore windmill projects at least through 2040, 2050. So these companies have become big U.S. subsidiaries with U.S. offices, U.S. labor agreements. Of the 5,000 people you said are in the industry, almost all continue to work on the same exact projects. If the end of the Virginia project were open bid and that last $70 million were bid for$ 30 million, not $70 million, for example. And we saved $40 million in Virginia, the same people would do the job. It’s the same labor agreement, the same unions. It would just be on a vessel that was much more efficient for it.

There might not be American dredging companies anymore because those companies don’t offer a competitive product, but their replacements would be employing the same people. Yes, they’d work faster, a classic threat to jobs everywhere, but they’d also have more capacity and make it worthwhile to do more work, which should more than make up for that problem.

On top of that, other unions greatly benefit from having expanded and better working ports. If we also start doing reclamation projects, the possibilities scale rapidly.

Can you imagine if Manhattan had 15% more real estate to have commerce on, what that would be? Just the World Trade Center rebuilding was a massive boom for the construction unions and for New York. Think about that at 15% of new Manhattan, what that would be valued? That project is imminently doable.

And it’s not like Belgium and the Netherlands are hotbeds of anti-union activity.

So unions, collectively, should be actively in favor.

Hell, if it makes everyone involved feel better we can require by law that only unionized employees be allowed to dredge, it’s a fully unionized industry anyway so the law would be dumb but have almost zero practical effect.

Which leaves only the actual special interest, the American dredging companies sitting around collecting oligopoly protectionist rents by imposing orders of magnitude higher costs on the rest of us – and, of course, limiting international shipping by constraining capacity.

How Big is the Special Interest?

There are about 1,650 American dredge operators. As we noted above, those union jobs aren’t going anywhere, they’d simply get more done by having better tools.

In theory there are those who work in the shipyards that manufacture the dredges themselves, but there would be so much additional shipyard work from all the additional shipping, and the need to service the new dredges, that such workers need not be concerned. Busier ports are a win for everyone involved.

The primary players who lose are only the few existing American dredging companies. I didn’t put that much effort towards trying to find the combined market cap, but we can guess given they have 1,650 combined workers operating the machines. As an opponent, they seem eminently beatable, and as a loss they seem trivial. If their owners have diversified portfolios they shouldn’t even care at all.

But What About the Environment?

One possible counterargument is that we shouldn’t make it possible for us to dredge because dredging is bad, actually, as it ‘damages the environment.’ So by that logic we should be happy that we have made such activities much more difficult.

The first thing to note is that requiring us to use American dredges is very very bad in terms of the environmental impact of any given project, on two fronts. From the Odd Lots podcast: 

If you look at, actually at the modern dredges that are being built in European shipyards that are being used around the world, unfortunately just not in the United States, you see a couple of differences that actually make them more environmentally friendly. The first is that the newest and most modern dredges are using LNG as opposed to marine diesels. So they’re emitting a lot less emissions as they’re working. The second issue — and this was a real tragedy in Miami — is because the dredges that we use are so-called cutter dredges, that they weren’t powerful enough to chew basically through some of the rock that they needed to remove in order to create a deeper channel for cruise ships. They had to use blasting.

Blasting in turn causes a whole lot of unnecessary additional damage, for details see the transcript. If we are going to dredge, which to a large extent we are going to do no matter what, we should do it in a way that causes less damage – the same way that we should do it faster and cheaper and better. 

That doesn’t rule out a position of roughly ‘yes this is a no-good-very-bad way of limiting how much we dredge but it does limit it and that is what matters.’

I don’t know how to engage with that perspective as anything but opposition to civilization. If you don’t think we should maintain or create ports, make it possible to navigate rivers or free ships that get stuck – which are the primary reasons people dredge – then that’s not compatible with having a technological civilization. Perhaps there are other ways to work around that and still have a technological civilization, but they are orders of magnitude worse in terms of their consequences for the Earth.  

So yes, if you are opposed to civilization and progress and humanity’s prosperity and survival, then I suppose you should be in favor of keeping the Dredge Act of 1906. Fair enough.

How Bad Is The Dredge Act of 1906? Is it Impactful?

Seems pretty bad.

From the new Wikipedia article (and thanks for that, AllAmericanBreakfast):

Two countries, the United States and China, prohibit foreign dredging, and 15% of countries surveyed by the Transportation Institute have restrictions on dredging.[7] The U.S. Army Corps of Engineers and Government Accountability Office state that lack of dredging capacity and high costs are the cause of a 15-year delay in dredging the 10 most important US ports to accommodate post-Panamax depths. 90% of global dredging contracts are currently won by one of four Belgian and Dutch dredging companies Jan De Nul, Van Oord, Boskalis, and DEME.[8]

That confirms that we’re falling behind, but doesn’t give a sense of the magnitude of the damage.

This is Houston, from the Odd Lots transcript:

So now the greatest country in the world has a law preventing container ships from entering one of its greatest ports because they cannot get them in. So if we just dredged Houston at half the cost in a third of the time that would create and support over 1.6 million new American jobs, by lowering the cost of exports by over 15%, it would change our energy security picture.

Many tasks could be done much faster and cheaper with foreign dredges. There are many tasks our available dredges cannot do at all, including keeping major ports like Houston fully operational, or expanding our ports so they can accommodate larger and more economical modern ships.

It’s traditional to claim numbers like ‘1.6 million jobs,’ which I’ve seen attached to both Houston on Odd Lots or to collectively expanding all the ports, but the effect of expanding ports and other such infrastructure is cumulative over time in a way that makes any given number wrong. If you have to give a guess of this kind, it seems… kind of reasonable, actually. Being able to take your spices from one port and efficiently ship them to another port is both the best thing and also key to economic success.

Our lack of port capacity is a key bottleneck in our supply chain. I don’t know how much it has been contributing to inflation numbers, but I expect it to be substantial, as many of our goods get shipped here and the cost of that shipping has skyrocketed in both money and time. My mean guess is an effect here of several percent. Left alone this is likely only going to get worse.

More than that, I’m guessing this is a substantial permanent hit to trendline real economic growth while it persists. That is, it reduces growth in ways that compound over time. That’s the biggest game of all.

We can also add the problem where we cannot deal well with emergency situations and that this is also very expensive.

Here’s a concrete example from this post of how we can’t get our act together on this even for a true emergency, costing us at least billions.

At this time I was sent to the U.S. as a consultant for Hochtief Dredges from Germany. We had two large cutter suction dredges just finishing off a dredge in the mouth of the Orinoco River in Venezuela.

I went to the Army Corps of Engineers and told them I could have two, world-class capital dredges in New Orleans in less than three days. We reckoned we could cut a channel in the Mississippi in less than ten days. They were very excited. We met with several representatives from the ports and they were enthusiastic as well. The U.S. was losing hundreds of millions of dollars a day in the blockage.

They called a meeting along with Congress members from the area. I was then told that we couldn’t bring in our dredges to open the river because they were foreign dredges, run by a foreign company. The Corps of Engineers and some Louisiana politicians said they would try to get an exemption based on a national emergency. Unfortunately, the politicians concluded that they couldn’t make an exception for something as sensitive as the Jones Act. They eventually found a company called Great Lakes Dredges that had a vessel with proper, foreign, equipment on it installed on a U.S. bottom. But it took months to clear the Mississippi. We could have done it for twenty percent of the price they paid, and in ten days.

Speaking of the Mississippi River, it looks like dredging the lower Mississippi would be quite profitable as well, although this is one we are capable of doing now:

At ports along the mouth of the Mississippi, most ships loading soybeans can carry a maximum of 2.4 million bushels, and any additional weight in the hold puts the vessels in danger of scraping the riverbed. However, a mere extra 5′ in depth allows a ship to squeeze in 2.9 million bushels, at a small increase in transport costs. 

Translation: Digging the depth of the lower Mississippi from 45′ to 50′ could generate $461 million annually for the U.S. soybean industry — independent of supply and demand.

That’s the payoff confined to going from 45’ to 50’ and also confined to only soybeans.

Started in 2020, and scheduled for completion by 2022, the Mississippi River Ship Channel Dredging Project will cost roughly $270 million, and is expected to return $7.20 for every $1 spent, according to Corps of Engineers estimates. 

This seems like it has >100% ROI per year on soybeans alone, so that 720% return feels rather very low. So then consider what it would get us if we had unlimited capacity and cut our costs in half, and then dredged the entire Mississippi properly. Then apply that to all the other rivers and also the ports.

This image (from 2018) makes clear the extent to which our ports simply can’t handle modern ships due to failure to dredge.

Image US Containership capacity

A counterargument could be that even if we could do such projects in theory, perhaps we still wouldn’t in practice for other reasons like requiring approval from the Army Corps of Engineers and the associated environmental reviews?

At Congressional hearings the question was asked, “How long does it take to get full approval for a dredging project?” The answer was astonishing. The lead time for originating a dredging project, and the day when dredging started was sixteen years.

The post quoted in this section agrees that the Dredge Act is a bigger offender than the Jones Act, but still thinks the Jones Act matters as well. Whereas I got a decent amount of pushback from smart people on the Jones Act in terms of the size of its impact in practice – yes it kind of shuts down shipping between two American ports but it’s not clear how much that matters.

First Best Solution

Senator Mike Lee proposes the DEEP Act and as backups also offers three other bills. The DEEP Act seems like an excellent solution.

Here’s from the one pager (the full text is here):

Bill Specifics: The Dredging to Ensure the Empowerment of Ports (DEEP) Act would support more economic opportunities at our ports.

It would:

Repeal the Foreign Dredge Act of 1906

Require the Army Corps to create a new Nationwide Permit (NWP) for dredging projects at a port or the navigation channel of a port with clear regional conditions.

Require the NWP be issued for 10 years

Require the NEPA process for the NWP be completed within 2 years with only technologically and economically feasible alternatives considered

Require the Army Corps to eliminate the duplication between the Section 404 and Section 408 processes of the Clean Water Act

Remove EPA’s enforcement and oversight over the Section 404 permitting process under the NWP

Provide clear response times from the Army Corps for individuals seeking pre-construction approval for a dredging project so that project managers have certainty about the decision-making process.

Require any dredging project mitigation required by the Army Corps be technologically and economically feasible and within its jurisdiction.

This all seems excellent. The purpose of the last rule is non-obvious, but I believe it is to ensure that the EPA and/or state governments can’t claim jurisdiction and use that to delay projects. 

Not only does this repeal the Dredge Act, it also gets rid of a lot of other barriers to getting our dredge on within reasonable time. I’m especially excited by the NEPA provision.

I read the bill, and it reads like it was written by someone trying to get a port dredged. Who has experience with projects that couldn’t get the required approvals and paperwork and lawsuits handled, and Has Thoughts about how to fix that. I approve.

As a backup plan, the Port Modernization and Supply Chain Protection Act would repeal the Dredge Act but not do the other neat stuff.

As a further backup plan, the Allied Partnership and Port Modernization Act would allow NATO vessels to be used.

As a further backup plan, he also introduced the Incentivizing the Expansion of U.S. Ports Act, which modifies the Dredge Act to allow foreign-built vessels so long as America buys, flags and crews them. American union crews are going to be working the jobs anyway, so this would mean creating some sort of company to take possession (temporary or otherwise) of the dredge and flag it as American. That’s not great, but I’m guessing we could make it work in a pinch.

Lee has also introduced legislation to repeal the Jones Act, of course.

Second Best Solution

This post is amusingly titled “To New Critics of the Foreign Dredge Act: Welcome Aboard”, and includes several additional links to learn more. It suggests we might pass the Ship It Act (full text) rather than do an outright repeal, same as Senator Lee’s third proposal. I checked, and it turns out Lee introduced the bill in the senate in addition to the other four.

I read the bill in question, and I am certainly in favor of passing the Ship It Act. The non-dredging provisions are all about providing waivers of various requirements under the right circumstances. The dredging section doesn’t outright repeal the Dredge Act, but it does expand the list of allowed dredges to include anyone in NATO, which includes Belgium and The Netherlands, which have everything we need.

The whole bill reads as a compromise between the obviously correct action (repeal regulations that are getting in the way and that serve no useful purpose beyond a little narrow rent seeking at most) and an attempt to overcome motivated or dumb political objections by requiring waivers, keeping versions of many of the restrictions in place (e.g. NATO ships instead of USA ships) and phrasing the situation as temporary.

Is that a smart method of compromise? That’s an interesting question.

By structuring things around waivers, we’re digging the paperwork and complexity holes deeper rather than trying to climb our way out of the hole. In the long term, the cumulative weight of such things adds up. One can hope that once the waivers don’t cause any problems, they would turn into a formality and maybe eventually a full cancellation of the requirements, but I am skeptical. In the short term, it’s a lot of much-needed relief, and gets you most of the way there.

For dredging it gets you all of the way there, since the dredges we want to hire would be allowed, and as long as some worthy dredges are allowed it doesn’t matter that much if some others are excluded. It’s annoying but tasks can be shuffled around to make it work.

This also lacks some other very good provisions in the DEEP Act, which effectively likely would mean that dredging projects would remain very slow to happen. Unlike DEEP, this reads like it was written by someone who did not draw upon frustrating experiences trying to get projects to happen, and instead wants to create a path whereby projects might in theory happen at all.

Third Best Solution

This post echoes the claim on Odd Lots that our inability to fix our ports is costing us 1.6 million jobs, and also that we need a project to protect Manhattan from flooding (ideally by building more land) which can’t be done with the domestic dredging fleet but could easily be done with foreign dredges, and points out the plan is backed by the majority leader Chuck Schumer. It estimates our direct cost savings at $2 billion, although it’s not clear what time frame that covers.

The bill proposed there is even more of a kludge than the Ship It Act, where first you let American companies bid and then once they fail you can then let Europeans bid and if they win by enough you can give them the contract – again, jumping through hoops permanently in order to ‘prove’ what everyone already knows, that America can’t do this, as opposed to wanting to actually get the job done and fix America’s ports.

Other Simple Supporting Arguments

Wall Street Journal: Protecting US Dredges Kills Jobs.

A simple version of the argument.

What Now?

The first step was noticing the problem, and realizing this was indeed very low-hanging fruit. The second step is making others aware of the problem. The third step is actually working to get the law repealed.

In addition to writing this up, I have talked directly to a few different sources that have the potential to assist with the effort to repeal the Foreign Dredge Act. Some good questions have been asked. So far everyone seems to broadly agree on the opportunity – the whole point of picking this target is that it is not only a big win but the lack of an appreciable downside.

My model of why this hasn’t gotten done is that the benefits are sufficiently diffuse and/or their scope was sufficiently non-obvious or would take too long to be realized, or similar considerations, such that no one put in sufficient amounts of political capital and money to make it happen. It wasn’t enough of a priority.

My hope is that this can also constitute a sort of dry run on several fronts. Experience can be gained, relationships can be built, and it is an existence proof of the bills on the sidewalk that one can pick up and that are sufficiently high denomination to justify the effort. It’s also a proof-of-concept for various groups to actually fix things that we identify as broken.

Going into more detail would be beyond scope for now, but I think a lot of things get steadily easier as times get better, and all fronts help all fronts including everything from finding ways to build more houses in places people want to live to esoteric problems like pandemic preparedness. Bad times create zero-sum thinking.

Is This All Worth It?

For those who are inclined to consider all such things as potential ‘cause areas’ and are generally dismissive of progress studies, does this pass muster? As far as I can tell that should come down, from their perspective, to the numbers. How do you calculate how much something like this is worth, and how much does the effort cost per extra repeal of the act you achieve?

The cost per additional success is hard to know, but seems like it is in the mid-7s to low-8s in terms of digit range.

The direct benefits then need to be estimated.

The direct cost savings (as in, if we did the current set of jobs cheaper and faster) depends on the current size of the market. If we take the 5% at face value and the 11 billion worldwide size estimate here, and assume roughly 50% cost savings, we get $250 million/year. At a 5% discount rate we can value that at about $5 billion, plus the benefits of getting projects done faster, and doing more projects. Already this seems to be approaching the 1000:1 ratio where economic interventions make sense, but the real benefits are in what you do with the jobs you wouldn’t have otherwise done.

If the estimate of 1.6 million jobs checks out, we are already talking about single digit costs per job created, which should already compare favorably with third-world interventions even without any of the additional indirect benefits, of which there are many. The impact on inflation could be substantial even within a few years. 

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18 Responses to Repeal the Foreign Dredge Act of 1906

  1. AnonCo says:

    If you are seriously working on making this happen – which is sounds like you are – two thoughts:

    1. For the love of god don’t call it anything like the US Dredges Act, or even the Foreign Dredge Act if you can help it. Even when referring to the old one. Rebrand it any way you possibly can or Ted Cruz will be standing on the Senate floor with Manchin bemoaning the loss of all of our heroic third generation dredge operators who can’t just “learn to code” – Think of the poors in BFE outside of Chesapeake who will have their livelihood destroyed by these evil foreign corporations!

    Make it the most boring bureaucratic sounding bill imaginable. “America” and “Foreign” are words you cannot afford.

    2. The environmental angle is the same as #1 but for the left, the usual suspects, etc. It writes itself.

    When you are going to start an organization for things like this? devoted to picking up money on the sidewalk that the “traditional” EA community won’t because *gestures vaguely at EA*

    • TheZvi says:

      I’m definitely not at the ‘start an organization’ stage of things here, and a lot of that depends on my effectiveness in persuading existing organizations to help pick it up (there are a number of plausible candidates there) but it seems highly plausible. And I will say that I am actively working on *something* in the background.

      For #1: I continue to find hilarious the names of US bills vs. every other country’s bills – e.g. the repeal efforts are the DEEP Act and the SHIP IT Act. As for the substance, Cruz will of course be completely wrong, those operators would… instead use their same union contracts to operate different better ships. It’s just the companies themselves, which are tiny, so it’s about the messaging (same with the enviro angle on the left, unless you’re ‘anti-growth’ in which case there’s nothing to say). But also I’d kind of expect Cruz not to do this because he represents Texas and in particular Houston? The point of course stands.

  2. neon dynast says:

    It must be really bad if a *Magic player* is calling for unbanning dredge.

  3. Mike Bloomberg Approves of this Message says:

    Regarding the impact of supply chain bottlenecks on shipping cost, here are some high level off-the-cuff numbers (for container shipping, I don’t know much about bulk freight):

    1. Average cost per FEU East Asia to US before COVID: $2,000
    2. After COVID, spot market FEU costs topped out around $20,000, so at most,10x more expensive. This was not all due to port capacity, since shipping capacity and chassis were limiting factor as well
    3. Average product selling price per FEU (I’m making this up but directionally correct for retailer and mfg companies I’ve worked for): $100K. This means for imported product, the impact to pricing can be large: ocean freight grows from 2% of price to 20% of price
    4. Imports as % of GDP: 15%ish
    5. So for overall worst case impact, 18 percentage point increase in freight for 15% of GDP = inflation of ~2.5-3% relative to overall economy worst case
    6. But many large shippers are paying under the $20K spot rate on their contacts, so an average FEU cost of $8-10K might be more accurate, cutting the above approximately in half (one major ocean carrier accidentally sent me their contractual capacity info for all of their costumers, so I can directly confirm a lot of total volume for big box retail is coming in on contract rates, not spot)

    Conclusion: ocean shipping rate increases should have a measurable impact on inflation; however, because ocean shipping started at an impressively low level, even a 5-10x increase in its cost (with much of that increase *not* due to port capacity) is not driving a meaningful amount of total inflation. Commodity prices and wages are likely much bigger culprits.

  4. myst_05 says:

    Would the absolute best case scenario also include a complete ban on all forms of unionization in anything remotely related to international shipping? This would prevent things like: https://archive.ph/YmYQd. Unions seem like a huge net drain on GDP at this point of time, without offering much obvious benefit to the working class as a whole.

    Obviously passing something like this would involve insane political resistance and potentially even rioting in certain locations, but in an ideal world that’s what we would have.

    • Eric Fletcher says:

      There is #noevidence that unionization the absence of hostile management increases the quality-adjusted unit selling price or availability of goods and services

  5. Jon S says:

    As a far-from-perfect solution, are the US dredging companies small enough that it could be effective to buy them and take their protectionism out of the equation?

  6. thechaostician says:

    “Here’s from the one pager (the full text is here):”

    The link for “here” is missing.

    I have not heard of Foreign Dredge Act of 1906 before, but your argument against it sounds convincing. This is probably necessary if someone wanted to build a new port in California.

  7. Lambert says:

    FDA FDAque delendae sunt?

    I think if you want to remove other impediments, federal issues like epa delays are more important than state restrictions. If SC wants to be obstructionist then the neo-panamaxen can go to Savannah instead.

    Moreover this is a good example of why you should subsidise the things you want instead of tax/banning the things that compete with the things you want.

  8. garymm says:

    Amazing post. Makes me proud to be a paid subscriber!
    Please post updates on this topic in the future.

  9. Bobby Shen says:

    Neat new topic: Alas, I cannot contribute insight as grand. Global shipping is mind-blowing. I aim to reduce my individual consumption of goods to reduce demand on all transport so that others can benefit from global shipping. I like when international shipping is cheap and takes a long time (without being stuck at customs) because it seems to be the least impactful means of transportation.

    Your link after ” What Is Dredging and What is it For? ” (after Odd Lots) was broken for me and instead I found this: https://oceanservice.noaa.gov/economy/inch-water/

    Magic is better for having dredge in its history because it is just a damn funny mechanic and MH3 will have a dredge cycler.

    • Bobby Shen says:

      The Bloomberg transcript link was also broken but I accept that because I am not a Bloomberg subscriber. Bloomberg is very respectable. (I abstain on any political view they have. good to keep an arms length from that.)

      • TheZvi says:

        Ah, I am a subscriber so I didn’t know if the link would break otherwise. And I find they do a pretty good job not letting their politics interfere with their reporting, Odd Lots especially is very agnostic.

  10. Steve Flanagan says:

    From a tactical perspective, would it make sense to get the Dutch and Belgian dredging companies to back this lobbying effort? Contacting them seems straightforward, here are their names:

    Jan De Nul, Van Oord, Boskalis, and DEME

    In fact, I’d be surprised if they weren’t already trying to lobby around this act

    • TheZvi says:

      My understanding is that foreign lobbyists are supposed to be excluded and that their efforts can backfire? But someone who knows politics better can speak on this. They might not want the blowback of messing with the thing given the USA isn’t that big a percent of their potential market. Also the story you DO NOT want is ‘foreign companies lobby to take away business from Americans.’

  11. Pingback: Formula for a Shortage | Don't Worry About the Vase

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