A woefully equipped US Coast Guard is incapable of patrolling increasingly valuable Arctic waters, which could mean a major payday on the horizon for two vessel builders…
This may be an investment opportunity that’s too enticing to pass up.
Whether you believe in global warming or not — and despite the “Polar Vortex phenomena” — the polar ice cap in the north is shrinking.
Normally during the winter, the massive body of Arctic ice builds up, and then melts in the summer. The ebb and flow of the ice pack fluctuates every year, but according to government and university scientists, the summer melts have been melting more of the Arctic ice each year.
In 2012, ice coverage was over a million square miles less than the historical average – a loss that’s equal to four times the size of Texas.
Though the amount of ice returning was significantly greater in 2013, the coverage was still the sixth lowest in recorded history, according to federal officials.
This has big implications.
You see, under the Law of the Sea Treaty, countries with coastlines have ownership and control of surrounding waters and the land beneath them. Various changes have been made to the treaty over the years, but national boundaries are set for all countries with exposure to oceans.
In other words, a melting ice cap thus would allow the likes of Russia, Canada, Norway, Denmark (via Greenland), as well as the US, to claim even more of the continental shelf and the vast resources that come along with it.
According to the Wall Street Journal:
“As the ice surrounding the North Pole retreats, officials say, commercial shippers will be able to eventually move goods faster between Asia and Europe. More open seas will also give energy companies greater access to offshore oil and gas in regions controlled by the U.S. and estimated by military officials to be worth $1 trillion.
“The inevitable opening of the Arctic will essentially create a new coast on America’s north,” said Adm. Jonathan Greenert, the Navy’s top officer.”
But while this should be great news for all the countries involved, unfortunately America finds itself behind the eight ball.
A new ocean would require new policing to patrol and defend the new waterways – but we don’t have the means to protect what belongs to us.
Alaska has about 2,500 miles of Arctic coastline. With the Law of the Sea Treaty allocating up to 200 nautical miles of territory for each country’s shore/baseline, there is a lot of water that we have to watch over.
The Alaskan Coast Guard currently has a grand total of two icebreaker vessels patrolling the entire region.
By contrast, the Russians have 25 icebreakers, six of which are nuclear powered.
It doesn’t take much brainpower to compute the vulnerabilities we have up there.
And the risk is escalating.
“Maritime commerce is happening at a much faster rate than people realize,” said Rear Adm. Thomas Ostebo, who commands the Coast Guard’s Alaska district. “All this activity gives opportunity for calamity.”
On the other hand, calamity can often lead to investment potential, and military officials are calling for the government to bring out its checkbook.
The Navy contends that we’ll need as many as 10 icebreakers to keep shipping lanes free of ice, aid in search and rescue missions, and make US waters safe for scientific research and resource development.
And the price tag for each new ship? A whopping $784 million.
Top Ship Stocks To Buy
If somehow, the Navy does get the go-ahead to issue an RFP for this multi-billion dollar initiative, only a small handful of American shipbuilders are capable of delivering on such a massive contract.
Naturally, the two companies who built the Alaskan Coast Guard’s 2 ships, the USCGC Healy and USCGC Polar Star, would be in contention.
Healy was built by Huntington Ingalls (NYSE:HII) in 1999 and Lockheed Martin’s (NYSE:LMT) Polar Star was commissioned way back in 1976.
For HII, just one ship will earn nearly half of the Company’s $1.6 billion in revenue generated in Q3 2013. Therefore, winning a project like this would be game-changing for them.
And although it’s not a pure play shipbuilder like HII, LMT has enjoyed tremendous success with its fleet of naval systems, including combat ships.
Experience could play a factor here, and HII’s more recent Healy ship could be a deciding factor.
But before any considerations are even given, the willingness to fork out the money while the White House tries to keep a lid on government spending does raise concerns about the ability to get this project off the ground.
However, if the lack of funding means that foreign ships will be able to sail freely through our territorial waters with increasing frequency… a decision would have to be made.
With our national security under threat, there’s really little choice but to get these ships built and launched into the Arctic passage ASAP.
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