Sea Control - Sea Control 415 - The Tanker Capability Gap with Steve Carmel

Episode Date: February 23, 2023

Links1. "Tankers For the Pacific Fight: A Crisis in Capability," by Stephen M. Carmel, CIMSEC, January 23, 2023.

Hey folks, it's Jared. Today I'm joined by Steve Carmel, and we're going to go deep on an article he wrote for SimSec about the U.S.'s dangerous lack of tanker capacity in the event of conflict. This episode was edited and produced by Jonathan Selling. I'd like to pause here to highlight our local chapters, whether you're in South Korea, Egypt, Singapore, France, New York, India, or the Caribbean. Chances are there's a SimSec local chapter near you. You can find a full listing of local chapters and contact information on our website at simsec.org. So if you're interested, please reach out and get involved. Finally, I want to take the opportunity to recommend our partners in the SimSec Podcast Network, The Bilge Pumps. You can find Alex, Jamie, Drack, and a pile of our brew bottles wherever you download your podcasts.

And with that, Kimber's Men. You're listening to Sea Control, hosted by the Center for International Maritime Security. Aloha, shipmates, and welcome back aboard Sea Control. My guest today is Stephen Carmel, and we're going to be discussing his article for CINSEC, Tankers for the Pacific Fight a Crisis in Capability. So, Steve, welcome. Could you start by telling the listeners a little bit more about yourself, please? Hey, good morning, Jared, and thank you very much for having me. Again, Steve Carmel. I'm Senior Vice President with Merceline Limited, and right out of the gate, I got to say anything I say today is my opinion, not that of my employers, especially since I don't have an employer editor here to tone down what I say.

So this is my opinion, not that of my employer. I actually started out as a master on tankers myself. So I went to sea for a long time on tankers. And I've been with Maersk since then in a variety of positions. And I also have worn a few Navy hats in my career. I was on the C&O executive panel for a long time and the Navy Studies Board and Marine Board and did a quick tour with NOAA. So kind of both sides of the fence, but I've been in this business studying this tanker issue for a long time. Well, thank you so much for coming aboard.

As a reminder to listeners, we'll throw on the institutional disclaimer there. All opinions are our own and not reflective of any institution or company with which we might be otherwise associated. Steve, what's the actual U.S. tanker capacity and the expected capacity required in a conflict? So we'll start with the actual capacity we have, and we'll go with the two versions. I'm going to quickly divert into the Jones Act because people tend to bring up the Jones Act tankers as available for the fight. They are not. The Jones Act fleet, there's 43 basically MR-sized tankers in the Jones Act fleet, but they're fully consumed and taken care of the domestic economy. The pipeline system in the U.S. is at capacity.

It's chock-a-block. We cannot afford to be pulling those tankers away without damaging the American economy. and fuel consumption and it's not just gas in people's cars you know that's power generation and all kinds of stuff so those ships those those ships are off limits i would note too because there's some interesting dynamics going on here there's another 11 tankers in the in the alaskan crude fleet and uh uh it's interesting to note i think that the alaskan tankers that that pull Alaskan crew down from, from, you know, from there to the, to the lower 48, uh, those guys are actually aging out of the 11,

nine are going to age out in the next two years or so. And when those charters expire, uh, there's nobody building replacement ships. Those are Jones Act ships. And when those ships, when those charters expire, uh, that's all going to be outflagged in one of the most catastrophic blunders in maritime policy in history, I think. We let the crude export ban go without putting cargo preference in place on the oil that's going to be exported. What all this boils down to is, as those charters expire, they're going to get replaced by foreign flagships, and Alaskan crude

is going to get exported, every drop of it. And that for as long as Alaska remains viable, which who knows how long, it's not going to be long before the pipeline doesn't have the throughput to keep it open. But at any rate, so the Alaskan crew is going to get exported and no ships are going to go away. And where that matters, obviously, cruise ships are not good for military. They're too big and they carry crew. And so that's a problem. Where it matters is jobs. That's a lot of tanker qualified people that are going to lose their jobs. And we are already at crisis level there as well. So that is not a good situation at all. And no one, especially married seems to be paying attention to it which is you know bad uh the other thing on the 43 jones

act tankers on the domestic on the lower 48 side those are largely crew uh carrying product but they're getting old too and they're going to start aging out in the next five to ten years and when they do uh they're going to be gone too and there's no domestic building program going if we start today if i started today i think i couldn't get a tanker in the water for eight years and so that's a crisis that's coming that needs to be paid attention to and again it comes down to jobs so on the on the international side where we could actually get capacity we need there's about six uh that's how many msc has control of right now some of them in the spot market and some of them on long-term charter so figure six how many do we need uh in my article

I cited a study by Tim Walton at Hudson that pegged the number at 86. There's actually a hard number available. It's classified, but Transcom and MSC have actual numbers, and the number is well north of 86, over 100, because there's a variety of types that are required, and Tim didn't touch on them all. So you figure the gap, for argument's sake or discussion's sake, the number is 100, and we have six. So it's a pretty substantial gap. And, you know, every war game I've ever done, you quickly end up burning ferry dust because you just run out of fuel. And even a nuclear aircraft carrier, I can't tell you how many times I've heard, well, nuclear aircraft carriers don't need fuel. Well, you know, I disagree with that, but the airplanes do.

And without airplanes and aircraft carriers, nothing more than a giant target. What access problems, oil, would the U.S. face in the event of a potential conflict with China? Access to oil? As we've seen, the thing in Ukraine has roiled international tanker markets and oil markets. And the same thing would happen with a conflict in China magnified 100 times. So, you know, the Chinese are major consumers of oil. And so they have access to or are hands deeply into the international oil infrastructure around the world, including, you know, we talk about the Singapore, the refineries in Singapore. There's three, two of them are Chinese owned.

In addition, you know, the Australia has basically done away with its refining capacity altogether. I think there may be 200,000 barrels a day or something, a refining capacity left. anyway that's gone and the chinese um rely on on asian refineries for their fuel supplies i think i read a study that said the country of australia would be out of fuel in about a month uh if if a war with china cut those off so all all look all everyone's looking to the middle east for for molecules oil that's the same oil that the europeans are looking for to replace russian oil and gas and so everyone's starting to compete for the same for the same molecules of oil and dpa doesn't defense production act doesn't apply overseas you know refiners are going to sell the

oil to who they want to or dependent on their ownership structure who they're allowed to there's a pretty cozy relationship between china and a lot of middle eastern countries and we you know the chinese do not hesitate to use the influence and relationships they have built up over the years to get what they want. They expect something in the long haul for the money that they have invested in places, and that's going to be one of them. And it's hard to predict ultimately where it's going to go. But let's also not forget in the broader scheme of things, a war between the United States and China is going to be catastrophic for the global economy. Supply chains are going to be scrambled everywhere. And one of the big ones, as we know right at the moment, is

microprocessors and chips, and you're not going to find too many refineries that run without microprocessors and chips, and that supply chain is going to get shut down. So, it's really hard to say. We may have just a global capacity crunch because refineries start shutting down because they can't get the stuff they need to run due to the supply chain problems. So, you touched on a little bit of this answer earlier, but maybe you can expand it further. What types of tankers does the U.S. have and then what does it need to acquire? So there's three big things that they tanker types that the military would require in such a conflict. The one that everyone focuses on right out of the gate are the long haul tankers that get stuff from where it is to where it needs

to be. Again, assuming that you're going to lose access to all the refineries in Asia, the safe bet is that the United States will have to start stringing together supply chains of oil that come from the states or at least this side of the world. So that's a really long haul for tankers. And the right size for those is what's called MRs. You know, the 330,000 barrel, 46,000 to 50,000 ton ships, clean product. And so that's number one. And there's a lot of those required because of the long haul and they they don't uh carry fuel just for the navy there's also the army and the air force and it's different you know the air force and the army use different types of jet fuel and the navy does uh so you know you also navy just uses dfm but you also have for

the army and the air force motor fuel and and different types of diesel so there's a variety of products that are going to be required and and that's the long haul guys got to get it from where it is in the States to the theater. Then the Navy also is going to require console tankers. And those are tankers that are fitted to be able to transfer fuel at sea to unwrap oilers. And the idea here is that you don't want the oilers leaving the battle group. You want to be able to refuel them fairly close to being where they're being used. And so you have these tankers commercial tankers doing the long leg and getting

into theater and through console operations refueling the UNREP oilers. You figure that an average MR-sized tanker could probably refuel an oiler two and a half to three times before the console tankers

got a lead. Then the last type is the intra-theater lift. Those are the small guys that move stuff around in distributed maritime operations. You know, these small expeditionary bases require fuel, and you're not going to bring a 50,000-ton tanker into some undeveloped port. That requires a smaller, shallow draft, more self-sustaining type of ship,

and so you need a whole pile of those that can do intra-theater distribution. Right at the moment, MSC has two of those on charter, and, again, not getting into specific numbers, but it's a lot more than two that they require. So what they need and what they have access to are vastly different. And, you know, hats off to MSC. I think they fully grasp the nature of the problem

and are moving out aggressively to at least study it and understand it. They've run two war games so far, I have another one coming up in March to deal with this, to understand the problem and start getting a grip on what we really need. But, you know, I think we've lost a bubble a little bit on time frame. We all know the Air Mobility Command commanders note that he thinks we're going to be in a war in 2025. Certainly made news all over the world. I think Admiral Davidson said 2027.

The point is, we don't have forever to get this solved. We have inside this decade, which is rapidly drawn to a close, and so this is not a problem set that can go decades for a solution. We need a solution in place in years, and so that brings the next issue up. It's not just ships. It's crew. We are already desperately short of mariners, and that problem is made way worse because a tanker mariner, particularly deck officers, is not the same as a dry cargo guy. Tanker guys require extra certificates and experience, deck officers in particular, and so if you're qualified to sail on a container ship, you are not necessarily qualified to sail on a tanker. The other way is true. If you're a tanker guy, you can sail anything. And so we are desperately short of people. So just throwing ships at it isn't just the answer either. You need to grow the guys that can actually sail them, and that takes time. And so, we needed to be started on this yesterday to get the ships and the people growing together. It's a system, and we haven't done that. And just to give you an idea of how complicated this can be in the international, I did a study a little while back on the nature of the foreign flag ships sitting in the Gulf waiting to load. And one ship in particular caught my attention. It had a British flag on it, registered in IOMM, so it's a British flag.

The only Brit on there was the captain. Everyone else was Russian. And so the international tanker market is way more complicated than most appreciate. So, anyway. Well, I got a couple of follow-ups on that, then, if you haven't meant to go off script here a little. First, the console oilers. As you're describing the console oilers, the first thing that came to mind is kind of the ships taken up from trade during the Falklands War. Is there any sort of American planning going on like that to identify civilian ships that could conceivably be used for that? What we would need to do to convert those? And it's probably not even American hulls that we're talking about at this point.

It's probably like allies and partners because the American merchant marine is kind of laughably small at this point. It's true. And so the first thing I want to point out is allies and partners, countries don't own and run tankers. Companies do. And they're international companies and their commercial relationships. If you're an international company headquartered in Europe, your commercial relationships are oriented east. And you're going to want to preserve those. You've got to take a bet on who's going to win, win meaning ultimately the political victory in our commercial relationships and where the avenues for horizontal escalation here are extreme. And I don't think anyone in military planning does enough justice to what that means for commercial confidence. So we need to bear that's a big factor, no one factors on it. The conversion itself is relatively minor in that the low technology, a tripod is a tripod. We've done it several times. Probably the bigger issue is the loose gear that goes with them.

swivels pelican hooks riding lines all that stuff it's a very long uh lead time to buy that stuff in some cases some of that stuff takes a year to get so and is there studies being done you know do i think those studies to the extent they're being done and it's not really big are worthless 10 seconds after they're done because asset trading is kind of normal in the international space so guys are buying and selling tankers all the time and the other thing you have to understand uh once again is owner flag and crew all that stuff is disjointed completely and so if i say that that uh scorpio tankers which is new york listed company owns a ship that doesn't mean they own the ship uh because they could own it quote unquote be the despondent owner and the true owner

is a chinese financial house on a sale leaseback arrangement right and so that is prevalent and after the financial collapse in in 2007 2008 western banks largely abandoned marine financing in china which views the marine ecosystem the way it should be done which is a giant system there's all different parts of it and they all have to be treated together and china does that They moved into marine finance in a big way. And so it's very difficult to find a tanker sometimes that does not ultimately have Chinese control in it somewhere. So that's it. Go ahead. Yeah, I'm sorry. I just had a follow up question there because you I think you're assuming that I know more about this than you do. And like if if I'm not following it, there's a good chance listeners are either. You talk about what did you mean by despondent owner? I've never heard that phrase before.

So a despondent owner is somebody that shows up on the on the certificates of ownership because they are a bare boat charterer. And that's a specific type of charter where the true asset owner is a financial house or something like that. They're not an operator. They're just an asset owner. And in fact, the airline industry is a little bit like this, too. Asset owners, you know, who owns a Boeing plane that's got a KLM on the tail? You know, who knows? It may not be KLM, probably a bank. So the owner is a financial house. Often it's Chinese these days. And they call and we do what's called a bare boat charter, where whoever then takes control of the ship has the rights of ownership to some extent. And so they're called a despondent owner because they're fully responsible for the ship. They maintain it and all that.

They're responsible for crewing it, everything, full rights of ownership, except the true owner, the financial house owner that actually owns it, maintains some rights of control over the ship. So that's the difference between a true owner and a despondent owner is where the money comes from. So then what's the difference between assured and assumed access, and how is the military planning for one or the other of those? Well, assumed access, like it says, government assumes there are a pile of assumptions behind the actual availability of a ship. That means that the government doesn't control it. And they are assuming that whoever owns it would be willing to cooperate with the government in a time of war and make it available. And, you know, I've seen things where studies have gone out and they send a poll to various foreign owners and said, in the event of a war, would you be willing to make your ship available to the United States? and of course they're going to say yes you know all in a nut job would say no to something like that because you don't want to lock off any of your potential avenues for business down the road so they're going to say yes to that and you don't know if they'll actually do it until the time

comes you say i want to ship and they're going to say yes or no and you won't know until assumptions are by default true until they're not and when they're not it's because you've actually asked for the to operationalize the assumptions and they turn out to be not so true so and there's a lot of things that have to go into the availability of a tanker beyond that for instance unlike dry cargo ships there's a very complicated and rigid uh cargo compatibility matrix that dla energy has that says if i've carried some type of cargo i cannot carry military cargo behind it. So just because there's a tanker of the right size and you have an owner that's the right pedigree and you trust them to actually show up when you ask them to, if they've been

carrying a particular type of cargo, biodiesel, it's called a fame cargo, but biodiesel has fame in it, which is really bad for jet fuel. And it leaches into coatings and it'll leach back out you put jet fuel in it so if that ship has carried that cargo they can't carry jet fuel and so it's that sort of availability uh also has to be factored into things a short access means that the government knows that if they call a ship it'll show up and it's because they have a hook there's a hook into the owner of the ship that can't be gotten away from and u.s flag does that First, in order to be a U.S. flag, unlike many other flags around the world, in order to be a U.S. flag, you've got to be a U.S. citizen, a true U.S. company. The officer's got to be U.S. citizens, which means if you shirk on your duties, you go to jail, that sort of thing.

And so the government has the hook they need to compel Defense Production Act being one of them. Defense Production Act doesn't apply anywhere else. People may want to say it does, but it doesn't. So that's the real difference. You know that when you are called and you can, in some cases, put the types of restrictions on where the ship is or what it does, that means that it's going to be ready to go when it shows up. You can require that the right kinds of gear be on board, that sort of thing. And the U.S. is fooling around with it, but has not gotten remotely close to being able to do it. The tanker security program, the TSP, in theory, is supposed to address that. In practice, the tanker security program is one of the most badly crafted programs I've ever seen in my life. It cannot do what it's designed to do.

In fact, it says people say it's going to produce 10 new tankers. And even if it actually worked the way it was designed to, it can't do that. It simply can't. I don't know why people say that. People that should know better, the best it could do, if it actually worked right, was produce five ships. But it's not going to work right. And so it's actually going to fail. So we haven't figured out yet how to get there. And so in my article, I say there's no identifiable path. And that's why TSP is the only thing at hand right at the moment. And it's not going to work. There are other things that could be done. And let me say this right out of to start to any program like this that I'm talking about is really it's a it's a stopgap.

It should be viewed as a stopgap bandaid because we don't have a coherent, actionable national maritime strategy that addresses the importance of the maritime industry the way it should be. And it's and that's a it's a real tragedy. We have other national, we've decided that the chip industry is a true national security issue and have thrown money and programs and everything else at making sure we develop a semiconductor industry in this country. Now, I've talked about that in other forums. There's a long way to go in getting that where it needs to be. But the fact is, we've addressed it. We've said the semiconductor industry is important. It's a national security issue, and we're going to do what it takes to support that industry.

There's nothing like that in the United States. So nothing that treats the maritime industry as a system that we need to nurture because it's a national security imperative. So everything we're talking about here are stopgaps. And unfortunately for the maritime industry, we have come to take the stopgap band-aids as a final solution. We put something in that, you know, may or may not work. Basically, in the history of this industry, they haven't worked. And we walk away. And the industry just keeps, you know, getting worse and worse and worse. I would recommend the book Abandoned Oceans if no one's read it. It's an outstanding book on 200 years of failed maritime policy in this country.

So we are not remotely close to doing things. But I mentioned right at the start, we let the crude oil export ban go and didn't put cargo preference in behind it. If we had put cargo preference in, if we had said we're going to repeal the crude oil export ban, but, oh, by the way, that's all got to be exported on U.S. flagships, you'd have a fleet of 20, 25 tankers right now. And, again, crude oil ships are not right for military service, but the people that are sailing them are. And we would not be staring at the crisis in people that we're staring at right now. So that's all part of treating this like a system that we're not doing. There are certainly other things we could do, and DLA Energy could do one of them right now. If we just said we're going to source, we're going to treat the supply chain for oil for the Westpac fight the way it really will be in the fight, which means we're not going to source the oil from refineries in Korea or Japan or Singapore.

we're going to start sourcing that oil from where the chinese can't get missiles to it which is largely the united states that alone would again you know solve a major chunk of the problem and get the supply chain right in the meantime and you got to do this in a way that doesn't royal markets the markets all have to have time to adjust the u.s domestic production and we export so much oil last number i saw we were exporting 1.4 million barrels a day a day of uh refined product just out of the gulf all right so it's not like this country isn't producing enough oil to be able to say we're going to reserve some of that for the u.s military if you said uh all refined product exports out of the united states and stage it because again we have to grow the

ships and the people um but but back into it if we said it's all going to go on u.s flag ships you know you basically solve the problem with the right kinds of ships and um and the u.s military is not paying for it till they actually need the ships uh consumers of the foreign oil are paying for it so there's a lot of things we could be doing again stop gap measures until a true maritime policy comes into effect uh but no one's thinking that way instead you know the the TSP, which is, like I said, it's a failure, is the only thing that seems to be being considered right now. So I'll ask a final question again, Offscript. I think you kind of answered what we had planned for there.

But does the industrial capacity exist to build the ships that you're talking about here? Are we just talking about purchasing these from overseas for the most part, if we're going to do it quickly? And then same question on the training side, because I'm aware of all the different maritime academies that we have, but I don't know that the throughput is sufficient to produce the number of people that we need to crew these ships. I think there is a lot of partner capacity there. When I've been out at sea doing my queries and whatever, I know there are a lot of Russians that go to sea, but man, there are a lot of Filipinos who do too, who are with an allied nation. So, yeah, your thoughts on that. So, no, the industrial capacity doesn't exist to do it quickly or for that matter, in a way that's cost effective. We're talking about buying the ships, foreign farm built and bringing them in. Does the U.S. shipbuilding industry need to factor into a broader maritime policy? You bet. And again, we need to treat this as a system. But just saying the ships have to be U.S. built isn't going to do it.

it's going to take too long and it's going to be too expensive until we figure out how to build ships how to build ships correctly uh in this country so um it's another prong of a maritime strategy that needs to be be addressed so we're talking about buying uh ships built overseas and again we only have a couple years to do this i said if we start if i wanted today uh to build a tanker in the united states it wouldn't be in the water for eight years and by that time the war is going to be over in terms of building people that also is something that needs to get done quickly i you know you mentioned allied and merit and partners that kind of stuff again you know people are not the same as governments and we got to get out of that mindset that just

because the filipino government uh supports what we do that doesn't mean the filipino people do or they're going to be willing to get on u.s flagships and get shot at over uh something And then they, you know, if you went to to the, you know, to to your average crewing center in the Philippines and asked how many Filipino seamen are going to say, are you willing to die to keep Taiwan from becoming part of mainland China? What do you think the response is going to be? I don't think it's going to be. Yeah. Sign me up for that job. so you're right it does we need to we need to we need to grow the people and there are a number of ways it could that could be done um uh leveraging allied partners and people one is for instance maybe a stipend that offset the cost of of u.s seamen so that they could sail on partner farm flagships to get the right ticket you know that sort of thing uh uh could

get could get done um throughput out of the academies it's it's throughput out of the academies is an issue but it's that's not the only that's not the only thing unless they have ships to sail on uh you know they're not going to have the right tickets and they're not going to have the right jobs and and frankly we need you know one of the problems i have with uh king's point in particular my alma mater is what is it 30 40 percent of the graduates go active duty It doesn't say the United States Academy for any service going on the gate. But I'm sorry, that's all we have time for today. I'd like to thank my guest, Steve Carmel.

Steve, where can we find you online and what are you working on next? You know, I don't actually maintain a social media presence. I've always found social media be a little bit dangerous, but people are free to email me with questions anytime. I happily respond to anything. Aside from the tanker issue, I spend a lot of time, my real passion is the Arctic and lately expanding that a little bit to polar studies. I think we have done a disservice by not paying enough attention to what's going on in Antarctica, and we're probably going to regret that down the road. But I study a lot about the Arctic, and I'll say right now the Northern Sea Route, contrary to what everyone thinks, is not going to be useful for international trade for a very long time. It's useful for what it does now, and that's it.

And, of course, energy issues in particular and alternative, where the future of energy is globally is another thing I work on a lot. Well, thank you again for joining us, Steve. To the listeners, thanks for tuning in. We'll see you next time. © transcript Emily Beynon Put it in the alley Water, wine, both white and red I'll put it on the shimbo now

So help me, Bob I'm putting it in the alley Why can't I put it in the alley? Help me, Bob I'm putting it in the alley Put it on the shimbo now