Two Observations Related To Russia’s Invasion Of Ukraine

Russia’s invasion of Ukraine six months ago is an example of raw evil that many had thought or hoped no longer existed in our world. But in addition to that macro truth, there are two observations that should impact America’s future decision-making. The first one is reassuring, while the second is a call to action to prevent any mitigation of that key first observation.

We grew up during a time in which Russia was seen as our primary potential military adversary. That view colored all of our planning and resulted in the development of NATO. At all relevant times, it’s been fairly clear that the advantage in terms of military technology resided with the US and its NATO allies. Even with that, the overriding concern was that we would not be in a position to halt a conventional Russian invasion with just our conventional forces. A “red storm rising” with tens of thousands of tanks and armored vehicles and massive ground forces rolling westward was thought of as unstoppable. In that scenario, we would be confronted with the decision of whether to escalate to the use of nuclear weapons, which has a whole set of negative consequences. While the fall of the Soviet block resulted in a reduction in the perceived strength of Russia’s military, it still had the second largest nuclear arsenal and the second largest number of active military personnel.

The continuing view of the effectiveness of Russia’s conventional forces should they choose to unleash them was so pervasive that at the beginning of this year as a potential invasion of Ukraine was in the news, the universal view was that if Russia invaded, it would be a short conflict. Many experts circled on just three days as the amount of time for tanks to roll into Kyiv and that Ukraine would surrender in the face of Russia’s overpowering conventional forces.

We all know now what happened. The Russians not only didn’t roll through Ukraine, but many of the early modest gains they had have been pushed back by Ukraine. Six months after its initial invasion, Russia has little territory gains to show for its efforts and casualties on their side approach 100,000. By many assessments now, this war may now stretch into years. It is increasingly doubtful that Russia has any path to where they could claim anything approaching achieving the goals they had when they first invaded.

The Ukrainians have passionately and brilliantly defended their country. Without a doubt, weapons provided by the US and its allies have bolstered Ukraine’s success. But the larger story is that what was considered the very strongest segment of the Russian military, its conventional forces, proved to be much weaker than most could have imagined. No doubt our military experts at the Pentagon are following closely everything that is occurring in Ukraine and how Russia’s actual military capability compares to where they had benchmarked it before. These events will and should be analyzed by those experts for years. However, it's fair to say that there has already been a major reassessment downward on the capability of Russian conventional forces. Whether this is a change in capability that occurred more recently or just a recognition that Russia’s military strength had been overestimated previously is an interesting point to debate, but the reality is that Russia’s conventional forces are much less of a risk to the US and its allies today. Instead of a “red storm rising” with tens of thousands of tanks and armored vehicles and massive ground forces moving westward across all of Europe, they were not even able to do that against a single country whose military forces were smaller than almost every NATO member country.

Soldiers win battles, logistics wins wars. Some variant of that expression has been around for centuries. But it doesn’t just apply to previous conflicts. Look no further than the well-reported missteps by Russia in terms of its logistical supply lines for forces invading Ukraine. Tanks running out of gas, soldiers running out of ammunition and food. Russia’s military capability was clearly reduced by poorly planned and executed logistics, even though much time was spent preparing to invade. In addition, they were beset with these logistical problems even though they actually bordered Ukraine. It wasn’t like they had a more complex supply line that required vessels stretching across oceans and across the globe. With this war now expected to go on for some time, logistics and supply chains will only get more crucial each month.

The largest military conflict in decades is a tangible reminder that military logistics remains just as important today as it has been in the past. That is my second observation. Beyond stating its obvious importance, however, my observation is more narrowly focused on one particularly aspect of logistics: sealift. We can accurately say that the events of the past six months demonstrate that our relative military strength is higher than we previously thought. At the same time, we need to recognize that the same events act as a reminder that our ability to project that strength to the places that it may likely be needed is hindered by the current size of our merchant marine.

Before getting to ideas that could result in growth in our merchant marine, it’s worth highlighting an actual operation that began this month 81 years ago that was a deciding factor in the largest war in history to underscore the importance of sealift capability. Ironically, it involved an allied supply line to the Soviet Union after Germany invaded it in June 1941 known as the Murmansk Run. Some 40 convoys involving 800 ships, the majority of which were US flag, were absolutely vital in supplying millions of tons of weapons and supplies to Artic ports between August 1941 and 1945. Without it, it is irrefutable that the Germans would have defeated Russia and the outcome of WWII and history thereafter would have been very different.

After the German invasion, President Roosevelt agreed to support Stalin with enormous supplies and ordered that maximum publicity be given to the convoys to both mollify Stalin and bolster the moral of the Soviet army. But that same publicity made the convoys the highest profile targets for German U-boats who wouldn’t let them pass unmolested. The casualties of both ships and men were massive, with one convoy having 24 of 35 ships sunk with the loss of 153 mariners. The Murmansk Run was one of the most perilous situations anyone would face during the war. Winston Churchill would describe it as “the worst journey in the world”. The mariners from the US and its allies that manned these ships were literally and figuratively the providers of a lifeline to freedom. Winston Churchill famously said, “Never in the field of human conflict has so much been owed by so many to so few” in paying tribute to the fighter pilots and bomber crews that established air superiority over England. The same thing could be said about the mariners involved in the Murmansk Run.

The US has the largest economy in the world, the largest Navy in the world and the 20th largest merchant marine in the world. Just after the end of WWII, the US also had the largest merchant marine in the world. The inconsistency in those relative rankings is a national security risk. There are structural reasons behind that decline including growth in US income and the emergence of flags of convenience, but it is imperative that actions are taken to stop that relative decline and begin to grow our merchant marine now.

Nobody knows precisely what the future holds, but we most certainly know that any projection of military force will require a supply line that can only be provided with certainty by our own merchant marine. Not having an adequate merchant marine isn’t a problem…until it is a problem. And at that point, it’s a real big problem.

The current situation in Ukraine and the likelihood that the military conflict could go on for some time is a reminder of the continuing importance of logistics. Indeed, the longer a conflict goes on, the more vital all aspects of logistics become. In any conflict the US has been in and will be involved in, the key and most important part of that supply chain is sealift capability, which can only reliably be provided by US flag vessels.

More specifically, the need to grow our merchant marine becomes more of an imperative when consideration is given to what country is now the largest potential threat and which should therefore be the focus of our planning. Just as much of our military planning rotated around Russia in the past, today much of our planning rotates around China. In comparison to the relative rankings of the US, today China has the 2nd largest economy and Navy and the 3rd largest merchant marine in the world. It’s relative rank on all of those categories has increased significantly in the past two decades. China continues to grow in all those areas and the striking dichotomy in the merchant marine ranking should be alarming. Indeed, if flags of convenience that can’t be counted on for allegiance by either side during a conflict are excluded, China already has the largest merchant marine in the world.

Military planning obviously involves going into detail on potential major conflicts that will hopefully never occur. When those scenarios are played out involving China, one of the major differences is the marine distances that could be involved. By definition, a maritime supply chain that is twice as long will require twice as many ships to deliver the same quantity of total supplies. In the case of WWII, the primary maritime supply chain was across the Atlantic where distances were in the 3,500 nautical mile range. To a significant extent, it’s likely that was also viewed as the primary supply line in military planning involving Russia.

In planning involving China, however, the various scenarios involve much longer marine differences. From our largest naval base in Norfolk, it is some 10,500 nautical miles to many points in Asia or three times the typical transatlantic distances. Even from the West Coast, the distances are around two-thirds more than typical transatlantic differences. The longer distances translate into the need for more sealift capacity to move the same quantity of supplies. Seventy years ago, we had direct experience during the Korean War on how a conflict in a faraway land stressed the capability of what was a much larger merchant marine then. At the peak, some 255 ships would be used to provide military sealift during that war.

Related to China, the news is full of reports on rising tensions related to Taiwan and whether China will ultimately launch an invasion to take full control of an island that they already view as a part of their country. For decades, the US has followed a “one China” policy while maintaining relations with Taiwan. This purposefully ambiguous policy has become more defined in the past year by President Biden who has said that the US would respond if Taiwan were to be invaded, in one response to a question saying he views it as similar to NATO article 5. Under that article, members would consider an armed attack on any member as an armed attack on them. Various military experts have said that President Xi of China has probably wondered if an assumption that China could quickly overtake Taiwan may be as overrated as the previous view of Russia related to Ukraine. In addition, he probably realizes that any US response to an invasion of Taiwan would be joined by a coalition of our allies, just as has occurred with Ukraine.

In any potential military conflict, it is abundantly clear is that China significantly outmatches the US in terms of sealift capability related to any projection of military force. That is obviously the case in anything that may arise near China or throughout Asia. That also however extends to almost any area of the world due to China’s significantly larger merchant marine. China has no sealift issue with hundreds of vessels across all category types. The government of China recognizes the important commercial and military role of its merchant marine and actively supports it with direct subsidies to shipping companies and indirectly with support to shipbuilding companies and other arrangements providing support. For instance, just one Chinese shipping company has reported receiving more than $1.8 billion in direct government subsidies in its annual reports over the last 17 years when it has been partially owned by public shareholders. That works out to an average of $108 million per year over that entire 17-year period. Over the last five years, the average was 49% higher at $161 million per year. That company and other Chinese shipping companies are also understood to benefit from favorable financing arrangements and from cargo directed to them by Chinese companies.

There is an array of measures the US can take to reverse the decline and begin to grow our merchant marine. Thought leadership in encouraging and promoting new commercial initiatives in both international and domestic markets should be ramped up. Programs like the operating differential subsidy that existed in the past and allowed any carrier that operated a US flag vessel in regularly scheduled international service to obtain a subsidy should be revisited. Specific government initiatives directed towards vessels that have been identified as the type most in short supply from a military sealift perspective in particular make lots of sense. For instance, government funded initiatives like the recent Tanker Security Program involving 10 ships to target specific identified shortcomings need to be replicated and funded. The subject of direct government support is controversial with many, but the simple truth is that the withdrawal by the government of previous types of support is the proximate cause for much of the reduction in the number of US flag vessels operating internationally. At the same time we’ve withdrawn support, other countries have sharply stepped-up direct support of their own merchant marines. The justification for government support in the past has been that the maritime industry is uniquely tied to national defense in a time of emergency. As the Russia-Ukraine war vividly demonstrates, that remains a solid justification today.

The operating cost difference of a US flag vessel compared to a typical foreign flag vessel is currently $13,689 per day. To put that difference into perspective and highlight what a program that funded it could deliver, assume a new program targeted at the types of vessels most needed for potential military sealift and supply line needs was created involving 10 vessels operating internationally. A program size of 10 ships duplicates the common sense and targeted focus of the Tanker Security Program. The cost of such a program would be equivalent to 0.00664% of our current national defense budget. To underscore how small that amount is relative to the entire national defense budget, it is equivalent to 35 minutes of spending. On the benefit side, a group of 10 such vessels could form a transoceanic conveyance system that would deliver the equivalent of some 20,000 tons of cargo each day. Such a supply line would provide everything needed to sustain several divisions of warfighters if that were necessary. A military division generally includes 15,000 soldiers. With that cost to benefit ratio, is there any reasonable multiple in terms of the number of such programs that military experts say are needed for sealift that shouldn’t be supported by rational members of Congress?

Even a group of just 10 US flag ships could not only play a critical role in any one of a number of situations, but they would provide jobs for hundreds of American mariners. Having additional seagoing billets for the highly trained seafarers that come out of our maritime academies and schools needs to be a top priority. All of our efforts in building back our merchant marine need to take into account the impact they will have on maintaining a pipeline of trained mariners as any decline there could have dire consequences. No matter the number of cargo ships on hand or that could be built in an emergency, what value are they without skilled American mariners to operate them?

With the widely reported disruption in container shipping over the past year, both policy makers and the public have learned firsthand how much the economy and products they buy are connected to maritime supply chains. As aggravating as that has been for businesses and consumers, the ramifications of an inadequate military maritime supply chain go well beyond empty store shelves during the holidays. Sealift capability in particular needs to be looked at in that light. It is such a critical function that if it isn’t sufficient, it can literally obviate the ability to use military force.

Given these facts, it is imperative that adequate sealift capability across the wide spectrum of all potential needs be fully covered. Like not having enough fuel in a plane, the dire consequences of not having enough require never getting anywhere near empty. All of this should have policy makers making the effort to ensure that there are in place whatever multiples of the 10 ship example above to ensure that America will have adequate sealift capability under all scenarios.

Container shipping is the transport mode making the majority of world trade possible. In addition to being a vital segment, the composition of its costs is very different than the other shipping segments. In container shipping, costs related to the ship itself are the minority of the overall costs for which the carrier is responsible. In contrast, in other shipping segments, most of the costs incurred by the owner relate to just the ship itself. Container shipping is therefore the segment where the crewing cost difference is the smallest percent of total costs. This fact makes the container shipping segment the one that U.S. flag vessels operating internationally could be the most competitive before taking into account further differentiating characteristics.

Last October I wrote an article that went into detail on a number of ideas related to commercial initiatives in the container space that could grow our merchant marine. That article also highlighted other segments that are the best candidates for growth, and it can be accessed here.

We need to reverse the decline in the size of our merchant marine. For national security reasons, we must be assured that in all circumstances we have sufficient US flag ships for sealift and an adequate number of trained mariners to operate those vessels. More ships mean more jobs, and more jobs means we’ll have the trained mariners if and when we need them. Starting that virtuous circle puts us in the position to be totally confident that we have the sealift capability to project our military strength anywhere in the world where it may be needed. In doing what makes the most sense for our country today, we’ll also be honoring the legacy of the American mariners who made the Murmansk Run possible and kept all the maritime supply lines that were critical for victory during WWII open. But it goes well beyond that. William Faulkner line, “The past isn’t dead. It isn’t even past” comes to mind to underscore the continuing importance of a strong merchant marine.

John D. McCown has been involved as both an operator and investor in the shipping sector for four decades. He was the co-founder and former Chairman & CEO of innovative U.S. flag container carrier Trailer Bridge, Inc. More recently, his focus on the industry has been from an investment perspective, including several years as the transport sector head at a $20 billion hedge fund. His primary interest now is on entrepreneurial projects within the maritime space. Mr. McCown is the holder of two maritime related patents and also has an MBA from Harvard Business School. He writes extensively on maritime subjects and is the author of the recently published book “Giants Of The Sea”, the story of the modern cargo shipping industry and the entrepreneurs mostly responsible for its development.