U.S. Military Reliance on the Commercial Tanker Market

Assured versus Assumed Access: Two very different capabilities

 An NDTA Educational Editorial

Important Topic: Approved for publication by VADM (ret.) William A. Brown, USN

January 2020

Executive Summary: On the surface, the pool of Medium Range (MR) sized tankers trading commercially numbers approximately 3,000. This relatively large fleet allows for different views and approaches towards accessing commercial tankers based upon a defined set of demand criteria. Two areas, in particular, have a significant impact on the interpretation of assured versus assumed access. First, is an understanding of the nuances of the tanker commercial marketplace. Second, is the constantly evolving geopolitical landscape that influences foreign governments and company(ies) decision making. This paper will explore these two areas in more detail, alongside a contrast of U.S. policy versus China policy. There is no concrete conclusion to be offered here, simply due to the dynamic nature of the variables any conclusion may be invalidated in short order. Consequently, it offers a set of considerations U.S. defense decision makers should be aware of as they assess a posture of assured versus assumed access to commercial tanker capacity.

U.S. and China: Very different philosophies regarding tanker capacity

The Chinese Policy is “National Oil, Carried Nationally.” The Chinese goal, towards which they are rapidly progressing, is to be self-sufficient in tanker capacity as part of their broader, holistic approach to maritime power. The U.S currently has a limited maritime strategy, and as a subset of that, has no policy concerning what the national security approach towards the transport of oil for defense purposes should be.

The U.S. appears to be deadlocked in a debate regarding assured versus assumed access. If the U.S. adopted an assured access approach, it would be comprised of U.S. Flagged ships owned by U.S. companies and crewed by U.S. citizen mariners—somewhat similar to the Chinese strategy (which applies to the entire nation of China, not just their military).

The assumed access approach relies on the outsourcing delivery of fuel to the military in times of conflict—with limited description regarding the private parties involved and the extent which access to product would be guaranteed. Working out these details will come at the start of conflict, when demand signals surface for fuel requirements. The assumed access approach relies on the concept that the international tanker market is large compared to the U.S. military demand in a peer to peer full scale conflict. While some discussions are beginning to brew for an assured tanker program, currently the U.S. is accepting risk that in the event of a large conflict, sufficient foreign flag tankers (crewed by non-US citizens) would be offered to the U.S. military. The de facto conclusion is that limited U.S. flag tanker capability is required at this time. In effect, this approach provides a false reassurance, blind to some latent fatal flaws in the assumptions that underlay the approach.

The pool of commercially available tankers is impacted by several factors in the marketplace.

Tanker ownership—does it really matter? Much of the tonnage assumed access supporters rely on is owned by Chinese, Russian, and Iranian national shipping companies (7th, 9th and 3rd largest tanker companies in the world respectively). These companies will not support U.S. efforts. The 6th largest is Singaporean company whose willingness to support U.S. efforts in a conflict with China would be uncertain.

Is the available commercial market able to fulfill DoD requirements?  Equasis statistics places the number of tankers in the global fleet of the appropriate size at 2642 at the end of 2018. Those tankers are in both the chemical and oil trade. However, ships in the chemical trade are not suitable for defense requirements for Clean Petroleum Product (CPP).  Similarly ships in this size category carrying heavy oil/dirty cargo are not suitable for DoD CPP work without costly and time-consuming clean-up work. In addition, tankers such as those containing FAME contamination which occurs in bio-diesel or benzene are not compatible for use in transport of aviation fuels. Those ships, therefore, may not be available within prescribed timeframes, if at all, for DoD work. Therefore, the number of ships of the correct size carrying compatible CPP are much smaller than the global fleet identified.

Owner versus Charter party? Tankers may be chartered to interests opposed to U.S. interests. So, even though owned by firms sympathetic to U.S. interests, they are often not controlled by them.

Pooling Agreements? Tanker availability is often traded in commercial pools where multiple owners operate as a single commercial block. Even if one owner is sympathetic to U.S. requirements the ship may be tied up with other owners who are not. Every owner will be mindful of what commercial relationships will exist after any conflict is over. Each will consider the amount of risk they are willing to absorb in order to satisfy U.S. government requirements. Likewise, owners may have their ships tied up in long term charters and therefore not available to shift to U.S. government work. It is true that owners can simply default on their commercial contracts to aid the U.S. government, but the willingness of owners to do so should be appropriately discounted.

Commercial tanker companies will be mindful of the potential implications to their long-term business of actively working against the Chinese and the resulting potential to be frozen out of considerable commercial relationships, not just with the Chinese but with those aligned with them.

Entering Harms Way? The assumed access model presupposes that tanker owners are willing to put their assets in harm’s way. We can expect our logistics capabilities will be contested. The Chinese model for a conflict with the U.S. places heavy emphasis on attacking the logistical underpinnings of any U.S. expeditionary effort. Thus, the variable of attrition must be accounted for.

Security of the Supply Chain?  The assumed access tanker model surmises foreign crews will be willing to sail on those voyages. Outsourcing our logistics capabilities for critical areas such as fuel, puts the trust that the military places in safe fuel at risk. We open ourselves to potential tampering with our U.S. military fuel distribution efforts. Likewise, a foreign firm may have back office operations that flow through Chinese hosted IT systems.

Emerging Geopolitical Considerations

Financing? The direct influence of the Chinese government in non-Chinese shipping is much larger than the U.S. military appreciates. Chinese state-run banks are the 2nd and 3rd largest global ship finance institutions. These banks finance, in whole or as part of a syndicate, thousands of ships for owners all over the world. This role, and corresponding influence of the Chinese government, will not be apparent until the Chinese government chooses to exercise it due to the obscure, but critical, nature of this aspect of the business. Similar concerns exist given the heft of Chinese financial institutions in global ship leasing and insurance.

OBOR? The indirect influence of the Chinese government in non-Chinese shipping built up through Chinese influence operations such as the One Belt/One Road (OBOR)/Maritime Silk Road initiative cannot be discounted but cannot be quantified nor predicted until such time as the Chinese government chooses to exercise it. As an example, Greece is the largest tanker owning country in the world. The Chinese, as part of OBOR, own a controlling interest in the port of Piraeus, Greece’s main port servicing Athens. They have further invested hundreds of millions of dollars developing the port into a gateway into Central Europe, which is very beneficial to the Greeks. Shortly after taking a controlling interest in the Port Authority of Piraeus the Chinese moved to have Board meetings of the Port Authority alternate between Greece and China. So at the behest of China, Board meetings for the Port Authority of Piraeus now happen in China. The ability of China to influence Greek tanker owners to not cooperate with U.S. military tanker needs is crystal clear. This level of potential influence is replicated in virtually every country the U.S. might view as allies and/or potential sources for tanker capacity.

Horizontal deterrence? The Chinese government, through considerable, sustained and strategic investments, has developed a considerable capacity for horizontal deterrence and escalation which can be applied to both countries and individual firms. The complex web of linkages through which international business is conducted means these areas of vulnerability may not be immediately apparent to the US until a potential ally or sympathetic firm declines to help due to the application of horizontal deterrence.

Summary

Assumed tanker access is built on a very large set of assumptions which cannot be validated and the success of that model cannot be tested. Therefore, under assumed access it cannot be known if the fuel DoD requires to sustain forces will actually be available at the time and place of need. Unfortunately, under assumed access there is no plan B to implement even if time allows. While there are many questions in the assumed access approach as noted above, the biggest is what happens if the assumptions are wrong?

Assured access requires a detailed plan, dependent upon the scale desired. Growing a cadre of tanker qualified officers requires a deliberate strategy supported by a platform upon which to do it (i.e. vessels under U.S. Flag—which a program to incentivize owners to reflag). Officers on tankers, and in particular deck officers, require credentials and experience that dry cargo officers do not have, and one can only acquire by actually sailing on tankers. A tanker qualified officer is also qualified to sail on dry cargo ships, but not the other way around. A dry cargo officer is not qualified to sail tankers until the additional experience and credentials are acquired. In the unlicensed ratings, tankers carry rated personnel that only operate on tankers (e.g., pumpman).

Growing the U.S. Flag international tanker fleet will be sensitive to the commercial market, making an incremental approach the preferred approach. Similarly, the shore-based infrastructure requires time to evolve. Tanker management requires a different skillset for competent, responsible shore-based operations. Hereto, rapid growth has the potential to attract less competent, inexperienced, opportunistic companies to the business who lack the resources to invest in required back office competencies (e.g. cybersecurity). Therefore, growing a competent assured access capability requires a deliberate strategy focused on the right assets, crews and infrastructure, accomplished in a process that balances urgency to grow a U.S. commercial tanker fleet with the imperative of resolving it correctly.

NDTA is an educational non-profit organization dedicated to effective education regarding the logistics needs of the U.S. military and the U.S. Government.