Transcript: The 1906 Dredging Law That May Be Holding Back the U.S. Economy

(Bloomberg) -- The long grounding of the cargo ship the Ever Forward has shone a spotlight on the limited dredging equipment that exists in the U.S. The most powerful equipment here has significantly less capacity than what exists in Europe, or in the Suez Canal. What's more, the U.S. can't use foreign equipment due to a law known as the Foreign Dredging Act of 1906, which requires that any dredging done in the country be done with U.S. labor on U.S.-owned ships. And while this has come to the fore due to the Ever Forward, the significance could be far wider. On this episode of the podcast we speak with Howard Gutman and Andrew Durant, both of whom are working to overturn the law. They argue that the restrictions on dredging equipment have significant negative ramifications for the environment, port capacity, and therefore the economy overall. Transcripts have been lightly edited for clarity. (Editor’s note: Since recording this episode, the Ever Forward has been refloated after being stuck for more than a month. Tracy continues to wait for her furniture). 

Points of interest in the pod:
What is the 1906 Foreign Dredging Act? — 04:30
How big the U.S. dredging industry is now — 07:44
How constrained dredge capacity hurts the U.S. economy — 10:02
Difference between the Foreign Dredge Act and the Jones Act — 17:03
Environmental concerns around dredging — 19:36
What are the different types of dredgers and methodologies? — 22:56
Can we build out America’s domestic dredging capacity? — 27:38
Dredging and U.S. exports of LNG — 38:49

Tracy: (00:10)
Hello, and welcome to another episode of the Odd Lots podcast. I'm Tracy Alloway

Joe: (00:15)
And I'm Joe Weisenthal.

Tracy: (00:17)
Joe, do you remember when you said you were going to base your entire identity on repealing the Foreign Dredge Act of 1906?

Joe: (00:25)
Right. Yeah, I do. we did an episode very recently about your cargo that's still stuck on this ship outside Baltimore. And one of the things that came up was that there is this law from 1906 that prevents foreign dredging equipment from operating in the United States. The United States doesn't have a whole lot of high power dredging equipment. And I found that really wild. And so I jokingly said A) I was gonna make that my whole identity and only half jokingly said now we have to do an episode on the Foreign Dredging Act of 1906.

Tracy: (01:00)
I mean, I don't think any of those should be jokes anymore. I'm into it. Let's start.

Joe: (01:05)
And this is not a joke to you at all because you still don’t have your stuff.

Tracy: (01:08)
Absolutely. So I have a personal interest in the health of the U.S. dredging industry, let's put it that way because all of my belongings are currently stuck on the Ever Forward, this giant container ship that ran in to the mud bank in the Chesapeake bay. It's still stuck. There are dredgers at work. They're going to unload the containers and see if they can reload it. But again, one of the things that's emerged from this entire incident is, I guess, years, decades of under investment in the U.S. dredging industry, so that we actually don't have a lot of dredging capacity. 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 dredgers 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 dredgers, international dredgers, 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.

Joe: (02:26)
The other thing -- and that is just a wild divergence so that was the aspect that blew my mind and the fact that maybe a contributing factor to the lack of dredging capacity is a law that’s over a century year old, that blew my mind -- but, you know, as we've sort of looked into this and we have been talking about dredging within the context of freeing the ship and the one in the Suez last year, the other thing that is it may be that a lot of infrastructure issues in the United States, when we talk about constrained capacity at the ports, when we talk about the fact that U.S. ports don't necessarily have the capacity to handle easily the world's biggest ships, part of that may have to do with dredging.

Tracy: (03:06)
Absolutely. And you know, we've been building these ships bigger and bigger. And at the same time, the port infrastructure hasn't grown alongside it, the dredging infrastructure hasn't grown alongside it either. So it is not just a problem of particular interest to me, it's a problem that we should all be focused on. And so here is an episode dedicated to the Foreign Dredge Act of 1906. And I can't wait. Yeah, we really do have the perfect guest for this one. So we are going to be speaking with Howard Guttman. He is the managing director of Guttman Group, a consultancy, and also the former U.S. ambassador to Belgium. We're also going to be speaking with Andrew Durant. He is a managing director at Samuel's International Associates, another consultancy, but they're going to be able to give us, you know, the pro-repealing, the Foreign Dredge Act argument.

Joe: (03:58)
We're gonna have to do afterwards, probably like a keep the Foreign Dredge Act [episode] just out of fairness, but yes, I'm very excited about it.

Tracy: (04:04)
Okay, let's do it. Howard and Andrew, welcome to the show.

Howard: (04:09)
Pleasure be here. So thanks.

Tracy: (04:11)
Why don't we begin with the very basic stuff. What is the Foreign Dredge Act of 1906 and what happened in 1906 or earlier to make the U.S. think that it only wants to have dredgers that are built and crewed by Americans?

Howard: (04:29)
Andy?

Andy: (04:30)
So what happened in 1906 actually starts with what happened in 1900. And that is that there was a huge storm that hit Galveston, Texas directly. Galveston at that time was, if I'm not mistaken, the largest city in Texas, it was a thriving port town and the flood that ensued essentially wiped the town out. It killed maybe eight to 16,000 people and was an absolute catastrophe. So the town fathers decided that what they needed to do was rebuild, but they weren't gonna rebuild at the current elevation because they knew it would just be a matter of time before another storm would hit Galveston and do the same thing all over again. So they decided they were gonna raise the town by 10 feet. And so in order to do that, they needed a massive dredging capacity that did not exist in the United States.

Andy: (05:33)
They put this job up for bid. There were two bidders, the winning bidder designed and built hopper dredges, which we can talk about in a little bit about the distinction between the different kinds of dredges, but they designed and began to build hopper dredges that would be able to carry this job out. And so as that project got started in, you know, 1903/1904, eventually there was a concern, not from the ship builders themselves, but from the commissioner of customs that ‘Hey, maybe this is somehow gonna create a problem for us. We need to put in place restrictions that say that these dredges can only be built in U.S. shipyards. And so by 1906, the protectionist argument that these ships have to be built in the United States had won the day and that legislation was signed into law by Theodore Roosevelt.

Joe: (06:34)
Could you just explain that a little bit further? What specifically was the concern, was that there is this investment in domestic dredging and the concern was that the foreign competition to domestic dredging would undercut the market? I'm trying to wrap my head around the perceived threat that this law addresses.

Andy: (06:56)
So the concern was that somehow in dredging up the sand, that they were gonna put it on barges and they might take those barges somewhere else and use the sand in another port or another location in the U.S.

Tracy: (07:10)
So they were stealing U.S. sand?

Andy: (07:14)
Yeah, stealing U.S. sand became kind of the concern. But as it evolved, what really carried the day was that we should be building these new dredges in the United States?

Tracy: (07:26)
What is the state of the U.S. dredging industry now? And how does it compare with the rest of the world? So we had decades of protectionism and this law in place mandating that dredgers be built in the U.S. and crewed by Americans. What has been the result?

Howard: (07:44)
So today the 31 largest dredgers in the world are owned by two Belgian and two Dutch companies. The subsidiaries of which, the U.S. subsidiaries of which, already are major American companies. They build all the offshore windmills. So those same companies are allowed to work in these waters, in the U.S. waters, building the offshore windmills, but they also own the 31 largest dredgers in the world, many over 40,000 cubic meters. So four times as large as any vessel that exists in the U.S., the U.S. is trying to meet the dredge demand to dredge its ports and to do coastal protection when it has -- of the top 50 dredgers in the world -- it has three of them. It has number 32 and then two others in the top 50, the rest are by these large companies that are already American companies. They're allowed to build the offshore windmills. They create a lot of jobs in America. 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.

Joe: (09:20)
So why don't you actually walk us through the math here a little bit more specifically, because we've talked on this show a number of times about the ports and port bottlenecks and port capacity and the issue. And we talked about this in the intro, the issue of these very large ships that are getting bigger and bigger, and the difficulty that they have entering U.S. ports. And we see that at the port of Los Angeles, but obviously otherwise, when you throw out these numbers at us, explain why constrained U.S. dredge capacity adds so much more to cost of port expansions, and thus makes it such that our ports aren't as big and high-capacity as they could be.

Howard: (10:02)
So let's take Houston for example. Houston should be the most important port for America because producing oil and gas in Houston is cheaper than producing it in the country of Georgia, for example, but Boston right now is getting [more of] its gas from the country of Georgia than it is from Houston, because the greatest country in the world cannot get its gas delivered to Boston cheaper than it can get it delivered from the country of Georgia. Because the port in Houston is broken. What happened was they had two lanes at one time, container ships would pass, tankers going in, containers going out. Andy and I went to the port and said you've got less than a year left before it's gonna get so narrow and so shallow that ships will no longer be able to pass. Over two ago, that came true. One of the ships containers coming in, refused to pass a tanker coming out.

The port of Houston was reduced to one lane. And we said this could be dredged in a year to the capacities to allow the deepest tankers, the post Panamax tankers and containers to go freely into Houston. That would reduce export costs more than 15%. It would make our manufacturing goods and agricultural goods going out of Houston competitive, more competitive by 15%. And it would make our oil and gas exports, let's say to Europe, when you need it for the Ukraine and Russia, way cheaper. It would make us a major energy exporter. All you have to do is dredge Houston. There's enough money right now because if you use one of the state of the art dredgers that dredge the rest of the world, the cost is less than half. And the time to do it is less than a third. So this can be done right right now.

And in the port director favored us doing that. The fight came in to protect the Dredge Act of 1906. So instead of doing that, the Texas legislature met and passed the law restricting container large containerships from entering the Port of Houston to one a week. So they don't block the oil ships coming out. 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 eight 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. And by the way, since we know Houston is gonna flood anyway, we've seen what happens in Houston. These dredgers, the state of the art dredgers, when they do a dredge project, they would do the coastal protection project that would also protect Houston. It's called the Ike Dike project, but there's no way that could ever be done with U.S. dredgers, not in the next 20 or 30 years

Tracy: (13:05)
Is the issue this law and the restrictions around who can dredge or is the issue under investment in that particular industry? So, you know, we do have an American dredging industry, but it seems like it hasn't actually grown that much, even though it is mandated to do all this work and doesn't necessarily have competition to do it?

Howard: (13:28)
It's who can dredge, it's not underinvestment. These ships that we're talking about, they're not built in China. They're built in the Netherlands where the cost of labor and the cost of energy is higher. These aren't cheap ships or the like. We don't have a shipyard in the U.S. that could build one of these dredgers. We don't have the technology or the knowhow and we don't have the investment because there's only three companies that own basically three vessels that even can do a port dredging. So those three get all the business. They're happy. If we have to wait 25 years for a port to be done, it's still their work. So the three company protectionism is what's limiting it. If in fact, you open the dredge law and allow these big ships to come in and join all the marine work they're doing for offshore wind.

These companies work all-union. They've signed project labor agreements, the foreign companies, it would be all-union American employment with the same exact workers, but we would have coastal protection projects and port deepening projects being done for half the cost. So we could actually have dredges available to do Houston and Corpus and Brownsville, eliminate the supply chain problem that we have, that we can't get ships into our ports, lower the cost of energy and our exports. And we would still have ships to do coastal protection. There is a plan right now, as I mentioned, according to Senator Schumer, 90,000 New Yorkers have to be relocated from south of Wall Street by 2050. That's 28 years. In the next 28 years, Wall Street will be flooded. There are two proposals to address that -- a $10 billion project wall and building 1,700 acres onto lower Manhattan.  Manhattan becomes 15% larger.

Both projects are routine for the rest of the world. There have been projects adding 8,700 acres. So projects that are four times larger in the rest of the world done by these dredgers. Can you imagine the value of adding 15% to lower Manhattan? The value of that project? The money would pay for itself. Senator Schumer was told when he went to the U.S. Army Corps engineers, we will not have the dredging capacity nor the money to build the wall, let alone the additional acreage onto lower Manhattan. We don't have a coastal protection policy.

Joe: (16:01)
So, you know, I've read about and heard about some of these ideas to add land to Manhattan. And I was like, oh, that's fanciful. That's never gonna happen. It's just like something that people like to think about but A) it is interesting that I guess it could actually happen, but B) it comes back to this Act of 1906, the lack of dredging capacity. Now, before we move on, I wanna ask one more question. You mentioned the fact that cheap oil and gas from Houston isn't making its way up to Boston, where they're instead importing gas from the country of Georgia. I was under the impression that that had something to do with the Jones Act. And it seems like the two laws often are associated with each other, but A) could you sort of talk about how the two laws relate? And you also say that one is more well known. It also seems to be a little bit more controversial. You say that we could get value from repealing the Dredge Act without necessarily repealing the Jones Act?

Howard: (17:03)
In fact, repealing the Dredge Act protects the Jones Act. The companies we’re talking about are construction companies. They don't own transportation ships. So the Jones Act protects transportation of goods and people in U.S. waters. That's a transportation issue. And that's very important in this country. And nobody is arguing to touch that in the least. We can build the ships to transport people and goods if they can get in and out of our ports, we're not talking about touching the transportation industry and the law currently proposed to repeal the Dredge Act, would not touch the Jones Act, if that law passed. What we're talking about is the construction industry. We're talking about port contractors. The issue is getting ships that are the right size into our ports. Obviously we can't get them in, at being three times larger than the standard ship, if they're gonna get stuck in Baltimore on the bottom of the port.

So what we need to [do] is get it deeper. Once they're there, that will make up most of the cost, the Dredge Act can be amended and the proposal to do so that's currently in front of the Senate would do so without touching the Jones Act. But what happens here is the three or four companies that are the small, you know, companies, the 5,000 people who work in dredging in the U.S., almost all of whom would continue to work in dredging, just on a lot larger projects with the same project labor agreements, the owners of those companies say, oh, they're really seeking to attack the Jones Act. And they bring in all the shipping interests to protect the Dredge Act when they have nothing to do with one another.

Tracy: (18:50)
What are the other impediments to amending or repealing the Dredge Act? I mean, I imagine environmental concerns must figure in there, one way or another. And for instance, the situation with the Ever Forward, I know people are starting to worry about the impact on crabbing season, which just coming up in Maryland and look, I've already declared my interest in higher dredging capacity because I love my couch, but I also love Maryland crab cakes and, you know, ideally I would have both, ideally I would sit on my couch while eating crab cakes, but you know, what are the environmental concerns around dredging and how would repealing that act affect the health of U.S coasts?

Howard: (19:34)
Andy, why don't you tell them about Miami?

Andy: (19:36)
Sure. Well, so a few, a few things, Tracy. The first is that yeah, 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.

And so in blasting, that creates a lot of turbidity. That's, you know, a lot of sand, a lot of debris kind of gets moved around. That wound up on coral. And it actually wound up bleaching and killing a lot of the coral and creating a huge environmental disaster. If you have, again, the new state of the art hopper dredges, you can control much more for turbidity. You can therefore do it without disturbing the vegetation and the coral that's around it. And so that's why you can see, for example, that companies that we'd like to be able to bring into the U.S., do very sensitive environmental projects say along ports in Australia that are adjacent to the great barrier reef, with very intensive environmental monitoring done by the Australian government, by NGOs and by the companies that are doing the work themselves.

So, the other point that I'd make as long as we're on the environment, is that in a lot of cases these same dredges are actually very important if you’re going to create coastal features, or if you're going to try to restore wetlands. That will do a couple of things. One it'll serve as a barrier when you have major storms that are heading for population centers. But the second and more pervasive is that they'll create barriers from salt water incursion, like the kind of incursion that we're seeing in Louisiana, which, you know, once you get salt water into an environment, it's gonna devastate the natural environment that was there.

Joe: (22:34)
Can you talk a little bit more about the two types of dredgers and the different technologies? Because I think that's interesting, you know, our listeners definitely are interested in the law and investment and stuff, but actually hearing the two different approaches to dredging would be really helpful. And then these new dredges or the state of the art dredges, what do they have? What makes them unique?

Andy: (22:56)
So I would say the easiest way to think about it is, is you've got hopper dredges, which is essentially state of the art, which is used again in the rest of the world. That’s what most people will have in their main fleet. Think of them as very large vacuum cleaners. So they're gonna vacuum material up that needs to be moved. They're gonna store that material in the hull of the ship, and then they're gonna sail off with that material. And they're either gonna go to a deposit site that's offshore, and the bottom of the hull’s gonna open up and that material is gonna fall down into the place that the coast guard has said it should be put, or they're going to use that material, and they're gonna use it to create, they're gonna replenish a beach, or they're gonna build a barrier island or they'll do something else that's called beneficial use.

So those are hopper dredges. Again, if you look around at the rest of the world and see what they're using for their jobs, most of that work is gonna be done using hopper dredges, the other type, and the type that the U.S. industry is very reliant upon, are called cutter suction dredges. Think of them as kind of big grinders that are just sort of chewing through the soil and chewing through the rock. They're sucking it up, but they're sucking it up and putting it onto barges. So then you've gotta move just like we're talking about with the Ever Forward right now, that material's going up onto barges, then those barges have to be towed away. And you have to, it's just a longer, more laborious and more expensive process.

Howard: (24:37)
But Joe, don't get confused that this is a difference in approach and what, regardless of whether it's cutters or hoppers. If you only have three dredgers in your country that the world would even consider to use for a project like this, and you are using things that are meant for small rivers, the issue is what difference would it mean for America? If you let these 31 dredgers that are bigger than anything we have, that are more environmentally friendly than anything we have, crewed by American labor, the same Americans who crewed the construction vessels for these same companies when they build offshore wind, the project labor agreements with American labor, what difference would it be? Whether it's cutter or hopper to what we could achieve in America.

We could fix the supply chain by opening up these ports that are long awaiting. Each of the projects, if I were in Virginia and I am wasting $200 million in my taxpayer money because the same union people could be doing the same exact job for $200 million less in the same waters by the company that's already building my offshore wind project anyway. So it's the same labor and the same orders. It's just a difference in who owns the company. And that's costing me $200 million more, I'd be upset, or the estimate is $200 million more, I'd be upset. And so the question is whether it's cutter or it's hopper, we need more capacity. We have endless projects, and we have projects that will keep all of the U.S. dredgers in existence now busy. It's just, we can get to these other projects. We can do coastal protection. In Virginia, when they are done with that project of dredging the port, they will still have to relocate the Naval base in Norfolk because they did not have the capacity nor the money to come up with a project that would deepen the port in Virginia and save the Naval base from flooding. Right now, the policy is ‘wear boots.’ The Naval base in Norfolk floods. So they are going to still have to move it. That project could be done in a way, presumably, it'd have to be designed, in a way that the Naval base wouldn't have to be relocated because we would be able to do coastal protection when we did our port dredging.

Tracy: (27:01)
I still don't quite understand, you know, so I take the point that by far the most advanced dredgers that we have available are made and owned by companies in Belgium or in the Netherlands. But I don't understand why the U.S. can't compete on this? And I guess, you know, clearly the Netherlands has a long history of building canals and dredging and a lot of expertise in this kind of thing -- and so does Belgium. But why can't the us catch up with its domestic industry? What's the sort of the issue there or the roadblock?

Andy: (27:38)
That's a great question. And I think the answer really kind of comes back to what do you see your market as? 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. So if you are only looking at the U.S. market and you're saying it's a billion dollars a year, then you make investment decisions based on a billion dollar market. If on the other hand, you're saying, we, the European dredging companies, look at it and say, this is a global market.

We can work in any country in the world except for the United States right now, while plenty of countries have various restrictions on maritime shipping that are akin to, you know, the Jones Act, no country in the world, except for China, which has its own massive dredging fleet, has any restrictions at all on allowing foreign dredgers to come in and clean up their harbors, deepen them, modernize them, allow that economy to be more competitive. The U.S. is the only one that has that kind of restriction. So for the European companies, they look at a world market and say, okay, it's about a $20 billion a year market. It's gonna be growing. We're gonna invest to compete and win projects all around the world. And in fact, that's what they're doing. And that's why between these four European dredging companies that want to be allowed to work in the U.S.

If you look at global open bid dredging projects, they're gonna be winning, you know, 90-95% of all the projects year after year, they compete a lot with each other. It's a very competitive global market. That's what they're looking at. They're looking at it as a world market. And so they're rightsizing their investment, they’re rightsizing their fleet, whereas here in the U.S., and you'd really have to ask, you know, you'd have to go back 30 years to basically try to figure out why did the U.S. industry stop investing in its dredging industry? And why do we have not only have ships that are really very small, , but also ships that are really very old as well. So why have we underinvested? I think the answer is because they're looking at a protected market, they're saying it's $1 billion, they're saying 40% of the U.S. Army Corps dredging bids are single bid contracts, another 20% or so, therefore 60% of all the jobs it's either nobody else bids, or one other company bids.

So it's a very small market. There are only really three companies that compete for projects here in the U.S. And so, you know, for them maybe it's not, this isn't such a big deal. They can continue to kind of plug along with what they have, build a new dredge every four or five years or so. Eventually you have to retire the old dredges so that the capacity doesn't really change. But that's why, in my opinion, they haven't kept up. And now that they're 30 or 40 years behind and they don't have any experience in bidding for international projects anywhere outside the United States. You know, it's very tough for them to suddenly say that they're gonna catch up.

Howard: (31:30)
And Joe and Tracy, to think now, well, why doesn't BlackRock or Blackstone or Apollo just start investing in 40,000 cubic meter ships? We build a dredge every three or four years. To qualify under the Dredge Act, it has to be built in the U.S.. There is not a shipyard that could repair right now a 46,000 cubic meter ship. If and when the Dredge Act is finally amended to let these ships in, these Belgian companies who have invested a ton in U.S. subsidiaries will start thing in these shipyards. So they can do the construction work needed to allow these shipyards to repair these ships, which would be part of what we would, which would happen if the legislation opened. So the boom to the U.S. shipyards would be massive from opening the dredging market. The repair and maintenance work would produce far more work than the new dredges and the ancillary vessel work.

The tugs, the barges that you need to surround you would be a boon for U.S. shipyards, that's what's happened with the U.S. windmill industry. The one ship that actually puts the monopile, the foundation and the monopile on the foundation to build the windmill, that we don't have the capacity to do. It's being done by the Europeans, but now the ship orders have increased to do all the ancillary services. One of the American dredge companies is building a new ship to drop rocks at the windmill sites, where the windmills themselves are built by these European companies. Dominion is building a $500 million ship that will install the turbines on monopiles, the last step in it, because we now have a windmill industry. The windmill itself will be built by one of these four Belgian companies, but the last step, the turbine installation. So just in the last two years, the U.S. ship building industry has had a boom from the ancillary vessels needed to support the offshore wind industry, which is anchored by the same four companies. The same exact thing would happen if you repealed the Foreign Dredge Act and had them do the main work with the ancillary American vessels.

Joe: (33:44)
But I'm curious from the perspective of either repealing or amending the 1906 Act in your experience, how much is the difficulty domestic opposition from the existing U.S. dredging industry, which I think you mentioned is about 5,000 employees. So it's not huge. How much is opposition versus how much is indifference? Because it doesn't look like much gets done these days in DC regardless. And so how much of the challenge is just most people in DC probably do not have that much appetite, given everything else that's going on to address some 1906 law?

Howard: (34:24)
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.

And we could take that and use the savings to design how to save the port of Norfolk. So it's purely, it appears to be truly the domestic, because if there was a difference -- a project that will save 90,000 New Yorkers from having to relocate by building 15% more to Manhattan that is of interest to the unions, it is of interest to every real estate developer. 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. There are eight projects in the world bigger than that project that have already been done in less than three years. So that project is doable, but there's not a chance it could be done in the next 40 years with the dredging capacity, the dredging technology that currently exists, and therefore without changing the Foreign Dredge Act.

Tracy: (36:39)
Can I just ask on the Jones Act, my understanding and you know, I fully admit my understanding is only just developing right now, so it's probably not worth much, but my understanding is that hopper dredges do have to be Jones Act compliant since they end up transporting, you know, sand and mud from their dredging activities, which then falls under the Jones Act. Is that right?

Howard: (37:04)
Well, yes and no. So the proposals to amend the Dredge Act simply say for purposes of this act, the movement of sand in a construction project is not transportation. Sure, if you wanted to ship new bags of sand from New York to Savannah and put it on a barge and ship them, that's transportation. This is construction. It's like saying when a kid plays in a sandbox, he's engaging in transportation. Digging is not transportation. So it's this easy to fix. You just have to, on the legislation that amends the Dredge Act, you just have to say for the purpose of any other legislation, namely the Jones Act, if sand happens to move because you dig it's in construction, that's not considered transportation. So when we're talking about sand moving, because you're digging it in construction, if you just say that's not transportation that's construction that leaves the Jones Act perfectly in place while amending the act.

Joe: (38:22)
How much, you know, another thing you talked about wind, but another big energy story in the United States is LNG. And in particular LNG exports, in particular there LNG exports to Europe, to theoretically allow Germany and other countries to wean themselves off of Russian natural gas, to what degree is lack of dredging capacity a contributor to lack of export capacity for LNG?

Andy: (38:49)
Joe, as you know, there are a couple of things. And I think for LNG, one of the bigger concerns right now is just how many LNG carriers exist that are not under long term contract that could be mobilized to carry that supply chain, that huge difference in supply chain. And you also get into export terminals. If we go back to Houston, for example, again, you know, what's happened in Baltimore right now is obviously we should see not just as a tragedy for Tracy and her belongings, but we should also see that as a real cautionary tale. Because if that happens in Houston, where again, as we mentioned, can you imagine, we're the greatest country in the world? Texas takes pride. Everything's bigger in Texas and what are they doing in Texas two years ago? They're essentially saying here's how we're gonna divide up a shrinking pie in the port of Houston, because we can’t deepen and expans the shipping channel to allow modern container ships and right and modern tankers, right? LNG tankers, oil tankers to pass each other safely in the shipping channel.

So the fact that we have to do that, right, that we have to pass a law that regulates how much of this resource can be used when the rest of the world, by the way, while we're trying to get to 50 feet as we've discussed, containerships, tanker ships, everything's getting bigger because the economics support being bigger, as opposed to being smaller. Other ports are getting down to 65 feet. They're getting down to 70 feet. I mean, we're trying to get to 50 feet and it's a Herculean task and Houston's probably gonna be, you know, Houston's gonna be years before they can get there. Meanwhile, the rest of the world is moving forward. So I think it does have an impact in how we're gonna supply Europe going forward to help it meet its energy needs. But I don't think it is, that's not the leading issue…

Howard: (41:10)
Andy, what about the Corpus, the project in Corpus that's even deeper than the 50?

Andy: (41:15)
Well in Corpus, what they wanted to do is to build a loading facility for the largest crude carriers, the largest crude carriers in the world require a hundred feet of draft. The only way you're ever gonna get down to a hundred feet in the U.S. is if you allow these European dredging companies to come in and work on projects, there's absolutely no way that we can use all of the resources that we have to deal with, to get that one large crude carrier built. Because keep in mind, because as the U.S. industry is so small, anytime there's a major storm and a port gets blocked in by silt, right? That's washed down, say from the Mississippi, this happens in the port of New Orleans all the time. They will have to, the army Corps has the right call the U.S. dredgers away from so-called capital dredging, where you're actually trying to deepen a port to get it down to 50. They will say we have an emergency. We have what they call shoaling. So we have shoaling that's taken place, that's reducing the clearance in New Orleans.

So we're calling you off the project in Savannah. You've now got to sail over to New Orleans. You've gotta deal with this urgent problem. And then if there's time before we get into turtle season, then you can go back to Savannah and you can get back to that project. But if the timing doesn't work out, then that's another year that's lost. So that's the situation that we're dealing with, that we have such limited resources that we can't do maintenance dredging. We can't respond to natural huge disasters like Hurricane Harvey, which was a huge disaster, certainly for the people of Houston and of Texas also brought a lot of debris and a lot of material into the port of Houston. We just don't have the capacity to deal with natural disasters at the same time we try to do capital dredging to improve and modernize our ports.

Howard: (43:28)
When Savannah was bid, it was supposed to be a $700 million project, was the lowest bid. The Europeans had said they would do it for a guaranteed $400 million because of the difference in their capacity, but it was supposed to be $700 million and the project came in at over a billion. Some of the dredges had been called off to go do shoaling elsewhere. And by the time they come back costs up. So we end up spending I believe it was a billion and one for a project that should have been $400 million and took three times as long. Savannah got done, but taking all that time and money that prevents us using those resources elsewhere, there is plenty to keep the major American dredging companies busy and to greatly increase the labor that's working for them and continues under the same exact project labor agreements, the same unions under the same project labor agreements, doing the rest of the dredging on ships that are built, you know, meant to do these kind of projects while our shipyards boom from the ancillary vessels.

Tracy: (44:32)
Can I just ask a totally hypothetical question here? But if, if I were to call up a company like Van Oord and say, I wanna hire your, your very best dredger your hopper dredger or whatever, and I want it to dig out the Ever Forward. Let's pretend that they said yes -- I assume they would say no mostly because I wouldn't be able to pay them, but for other reasons too -- what would happen? Like what happens if you actually end up in contravention of the 1906 Dredging Act?

Joe: (45:03)
The dredge police.

Andy: (45:04)
They seize the dredge.

Tracy: (45:07)
They seize the dredge?

Andy: (45:08)
Yep. That’s the law. You’d forfeit the dredge. Unless they get a waiver, they're not gonna work here.

Howard: (45:15)
And Tracy, we're willing to put a good word for you with the Van Oords, but I don't think your household is worth the dredge.

Tracy: (45:23)
No, no. They probably wanna keep that. Well, Howard and Andrew, that was a great recap of the 1906 Dredge Act. And we really appreciate you coming on to explain that to us. Thank you!

Howard: (45:37)
Thanks so much. Stay safe.

Joe: (45:38)
That was great.

Tracy: (45:52)
All right. Well, Joe, are you prepared to make repealing the Dredge Act of 1906 the center of your new identity?

Joe: (45:58)
Yeah, you know, originally I just thought it was this sort of like amusing little law, kind of with quasi-relevancy, but I thought they made a pretty compelling case that it's actually pretty important. And I do think it's very interesting, even setting aside dredges, this tension of how do you nurture a domestic industry, right? This is like actually really important beyond dredges. And it comes up with the semiconductor conversation too. How do you nurture a domestic industry without making it so that it's uncompetitive and weak? And so you could imagine a sort of effort to say, yeah, again, semiconductors is something you boost domestic players, but if there's sort of a market that's uncompetitive, they could fall behind. It's a very separate question, but it does raise some really interesting things about this broader project of building up domestic industry.

Tracy: (46:48)
Well totally. And also the idea that -- Howard and Andrew they touched on this -- but this idea that U.S. dredgers view it as this sort of one note market. Right. It's just America that they can dredge in and that's a limited pool of money, whereas someone who's over in Belgium or the Netherlands is gonna see it as this global market. The other thing that's kind of crazy to me is just the idea in general that because a customs official was worried about foreign dredgers taking away Texan sand in the early 1900s that more than a hundred years later…

Joe: (47:23)
That’s like how the world works, right?

Tracy: (47:24)
Yeah. Yeah. But it's sort of, it's an interesting cause and effect.

Joe: (47:29)
You know, I went on YouTube before this and I watched some videos of like the two different types of dredgers, but it's interesting to think about like, even something that kind of doesn't seem that high tech, like a big vacuum cleaner, there is a level of know-how that exists at European companies, at least so they claim, but it may be true especially if they’re calling on them for technical support --  that doesn't exist [in the U.S.]. So again, you know, semiconductors are one thing, but even just something like digging up sand, there's technical knowledge and compartmentalized knowledge that is not globally diffused.

Tracy: (48:01)
Right. Also kind of amazing that the foreign dredgers can't actually dig anything up here, but they can be consulted for their knowledge and expertise.

Joe: (48:10)
I’d be resentful of them. I wouldn't take the call. Okay. But we do have to do another one. We have to get the domestic perspective.

Tracy: (48:17)
I mean, look, I've fully declared my interest on this topic, but yes we should continue…

Joe: (48:22)
And can I just say one more thing, Tracy? I am very sorry that you don't have your couch, but I am very happy that we're getting lots of content out of this, so I'm like secretly kind of happy about this.

Tracy: (48:33)
You know, it's all fun in games until they start unloading the containers and my one drops into the sea. Okay. All right. Fingers crossed everyone. Shall we leave it there

Joe: (48:50)
Let's leave it there

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