The following is the May 18, 2022 Congressional Research Service report Navy Aegis Ballistic Missile Defense (BMD) Program: Background and Issues for Congress. From the report The Aegis ballistic missile defense (BMD) program, which is carried out by the Missile Defense Agency (MDA) and the Navy, gives Navy Aegis cruisers and destroyers a capability for […]
The following is the May 18, 2022 Congressional Research Service report Navy Aegis Ballistic Missile Defense (BMD) Program: Background and Issues for Congress.
From the report
The Aegis ballistic missile defense (BMD) program, which is carried out by the Missile Defense Agency (MDA) and the Navy, gives Navy Aegis cruisers and destroyers a capability for conducting BMD operations. BMD-capable Aegis ships operate in European waters to defend Europe from potential ballistic missile attacks from countries such as Iran, and in in the Western Pacific and the Persian Gulf to provide regional defense against potential ballistic missile attacks from countries such as North Korea and Iran. The number of BMD-capable Aegis ships has been growing over time. MDA’s FY2023 budget submission states that “by the end of FY 2023 there will be 50 total BMDS [BMD Systems] capable [Aegis] ships requiring maintenance support.”
The Aegis BMD program is funded mostly through MDA’s budget. The Navy’s budget provides additional funding for BMD-related efforts. MDA’s proposed FY2023 budget requests a total of $1,659.1 million (i.e., about $1.7 billion) in procurement and research and development funding for Aegis BMD efforts, including funding for two Aegis Ashore sites in Poland and Romania. MDA’s budget also includes operations and maintenance (O&M) and military construction (MilCon) funding for the Aegis BMD program.
Issues for Congress regarding the Aegis BMD program include the following:
whether to approve, reject, or modify MDA’s annual procurement and research and development funding requests for the program;
the adequacy of MDA’s cost estimating and its reporting of costs;
what role the Aegis BMD program should play in defending the U.S. homeland against attack from ICBMs;
required versus available numbers of BMD-capable Aegis ships;
the burden that BMD operations may be placing on the Navy’s fleet of Aegis ships, and whether there are alternative ways to perform BMD missions now performed by U.S. Navy Aegis ships, such as establishing additional Aegis Ashore sites;
allied burden sharing—how allied contributions to regional BMD capabilities and operations compare to U.S. naval contributions to overseas regional BMD capabilities and operations;
the role of the Aegis BMD program in a new missile defense system architecture for Guam;
whether to convert the Aegis test facility in Hawaii into an operational land-based Aegis BMD site;
the potential for ship-based lasers to contribute in coming years to Navy terminal-phase BMD operations and the impact this might eventually have on required numbers of ship-based BMD interceptor missiles; and
technical risk and test and evaluation issues in the Aegis BMD program.
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Zim continues to outpace growth rates of rival container shipping lines, but investor demand fears are on the rise.
Zim, the world’s tenth largest container shipping line, posted the best quarterly results in its history on Wednesday. It hiked its full-year guidance and now predicts 2022 earnings will be around 20% higher than in 2021. And yet, shares of Zim — by far the largest U.S.-listed shipping company by market cap — fell as much as 8% in the hours after its earnings release.
The record results from Zim (NYSE: ZIM) came on the same day as a 25% plunge in shares of Target (NYSE: TGT) and a 1,165-point drop in the Dow amid investor fears of inflation and rising retail inventories.
Ample retail inventories imply reduced import demand, a negative for container freight rates. Inventories are up 43% year on year at Target, 32% at Walmart (NYSE: WMT) and Home Depot (NYSE: HD), and 10% at Lowe’s (NYSE: LOW).
Zim outpaces other container shipping lines
Zim reported net income of $1.7 billion for Q1 2022, almost triple net income of $590 million in the same period last year.
Throughout the pandemic era, Israel-based Zim has boosted quarterly revenues at a much faster pace than its larger competitors.
Between Q4 2019 — the last quarter unaffected by COVID — and the most recent quarter, Zim’s quarterly revenues have surged by 349%. Over the same period, Hapag-Lloyd’s quarterly revenues are up 187% and Maersk’s ocean revenues are up 121%.
Zim has outpaced its much larger container shipping rivals by concentrating more of its fleet on higher-paying markets like the trans-Pacific, by keeping more of its capacity in the spot market than some other carriers do, and by growing its fleet more quickly.
Higher freight rates, faster volume growth
Zim’s average freight rate came in at $3,848 per twenty-foot equivalent unit in Q1 2022, double its rate in Q1 2021.
Maersk and Hapag-Lloyd cover a much more diversified range of container shipping trades than Zim does and have higher contract coverage. As a result, Zim’s first-quarter average rates were 69% higher than Maersk’s and 39% higher than Hapag-Lloyd’s.
Since Q4 2019, Zim’s average quarterly freight rates are up 278%. In contrast, Hapag-Lloyd’s are up 161% and Maersk’s 145%.
Cargo volume is the other key driver of Zim’s revenue-growth outperformance.
Maersk and Hapag-Lloyd have low fleet growth in percentage terms (off a much larger base), and much of the incremental capacity has been offset by port congestion. Zim has dramatically expanded its fleet size off a small base over the past two years, primarily by leasing ships. The more ships Zim leases, the more revenue it generates in the near term (and more risk from lease costs it faces in the medium term).
Zim carried 859,000 TEUs in Q1 2022, up 5% year on year. Since Q4 2019, pre-COVID, Zim’s quarterly volumes have risen 23%. In sharp contrast, Hapag-Lloyd’s are down 1% and Maersk’s are down 9%.
More sector focus on contract rates
Last year, the story of container shipping’s boom was largely focused on spiking spot rates. This year, attention has turned to contract rates.
The thesis that 2022 container shipping profits will top 2021 profits goes like this: Spot rates, even though they’re on the decline, will end up much higher on average for the first half of this year compared to the first half of last year. Second-half spot rates will probably fall year on year, offsetting some of the gains in the first half.
But even if second-half spot-rate declines are extreme, contract rates should come to the rescue. In the trans-Pacific trade, annual contracts often run from May 1 to April 30. Contract rates during the first half of 2022 (signed last year) are much higher than the previous annual rates. And the new contracts that started May 1 are up sharply yet again, which should buoy average rates (including both contract and spot) in the second half of 2022.
Maersk has 71% of its 2022 volumes on contract, Hapag-Lloyd 50%. A little over 25% of Zim’s global business is on contract, including 50% of its trans-Pacific business.
During Wednesday’s call, Zim CEO Eli Glickman confirmed that contract rates for this year have more than doubled.
Zim increased guidance for full-year earnings before interest, taxes, depreciation and amortization to $7.8 billion-$8.2 billion (up from $7.1 billion-$7.5 billion previously, or by $700 million at the range midpoints). “The main reason for the improved outlook is better than initially anticipated contract rates,” said Zim CFO Xavier Destriau. “Those contract rates kicked in on May 1, so that will largely impact Q3 and Q4.”
Spot rates could soon fall below contract rates
Destriau said that Zim’s guidance assumes “spot rates would start to normalize in the second half and to some extent, the reduction in the spot market would be offset by the incremental revenue we generate on the contract cargo compared to last year.”
As spot rates pull back, the market focus is turning toward how spot rates compare to contract rates. Historically, if spot rates fall too far below contract rates, cargo shippers switch volume to spot, given that most annual contracts are not legally binding.
Xeneta reported during a webinar on Tuesday that Asia-East Coast spot rates are already below contract rates.
Xeneta’s data also shows that the spot-to-contract rate gap in the Asia-West Coast trade narrowed dramatically between mid-March and mid-May.
Destriau confirmed that the average rate of Zim’s trans-Pacific annual contracts starting in May “is not that far off from where the spot rate is today.”
The top enlisted officer in the Navy told a House panel it will be next year before the sea service reports its findings into a rash of suicides aboard carrier USS George Washington (CVN-73), as well as sailors’ living conditions aboard carriers undergoing extensive mid-life overhauls in the nation’s shipyards. Testifying before the House Appropriations […]
Master Chief Petty Officer of the Navy Russell L. Smith addresses the crew aboard the Nimitz-class aircraft carrier USS George Washington (CVN-73) during an all-hands call in the ship’s hangar bay on April 22, 2022. US Navy Photo
The top enlisted officer in the Navy told a House panel it will be next year before the sea service reports its findings into a rash of suicides aboard carrier USS George Washington (CVN-73), as well as sailors’ living conditions aboard carriers undergoing extensive mid-life overhauls in the nation’s shipyards.
In what will likely be his final appearance before the committee, Smith added, “I wouldn’t say Newport News [Shipbuilding] is the problem” either. He noted the yard is working on two carriers simultaneously, making parking near that yard’s gates problematic. The situation discourages sailors from leaving the place where they both live and work.
Smith, who visited the carrier in late April, said instead the sailors continue to live and work in “the heat zone.” He added that he has taken sailors’ concerns from his “all hands” meeting with the crew to senior Navy leaders for action.
Smith said “we can minimize the churn” of having to move off the ship to housing ashore, but 184 sailors opted to stay aboard George Washington likely because they didn’t want to commute back and forth to work or move several times within a few months. After another delay, work is scheduled to finish in March 2023.
The 400 sailors who were living aboard the carrier at Newport News Shipbuilding in Virginia were all offered the opportunity to move to housing off the ship, but 184 chose to remain aboard, he said.
In a committee better known for “brick and mortar issues,” like barracks, family housing, child care centers, dry docks, warehouses and runways, the members zeroed in on what sailors were actually doing on the ships during the overhauls and who was watching out for their mental health.
“Everybody there is working,” when the ship is in the yard, Smith told the panel. Although what a sailor is doing is different from what they enlisted for or during a deployment, he said the sailor “also has a job of maintaining the equipment” they would be using when at sea.
“Sailors are no better or worse than we were coming in,” Smith said, and noted the Navy stopped making sailors live aboard ships when they were in port as he did when he received his first two assignments. “We don’t do that anymore.”
Although circumstances for a junior, single sailor have changed, Smith stressed it was more incumbent now for chiefs and petty officers “to lean in” and look after sailors’ mental well-being.
Navy Secretary Carlos Del Toro and Chief of Naval Operations Adm. Michael Gilday, who just completed an inspection of Newport News Shipbuilding and the carrier, expressed similar thoughts. Like Smith at the hearing, Del Toro said in a statement Tuesday, “In the most positive sense of the word, we need to be good Shipmates.” He added, “when you notice someone in your division or work center starting to act different or something just isn’t right with them, don’t be afraid to say something directly to them or to get someone from the medical or resilience team involved as soon as possible. We sometimes call that ‘invasive leadership,’ but I think a better term is involved leadership.”
“Suicide is a massive problem,” Smith said at the hearing.
Speaking personally in his prepared remarks and again in spoken testimony, Smith said the pandemic has exacerbated the need for mental health counseling and shone a spotlight on the scarcity of providers available nationwide.
“We are in desperate need of providers, as wait times for all but the most egregious cases – those at the precipice of suicide – is averaging five to six weeks for an appointment. This lack of capacity and resulting wait times is something I can personally attest to, as I sought care last spring and had to move forward with seeing a civilian provider at my own expense – something our sailors cannot afford, and should not have to endure,” Smith said.
He told the panel that as soon as the carrier’s command requested help from the Special Psychiatric Rapid Intervention Team (SPRINT), it sent help to the carrier to assist sailors. The team is located at the nearby naval hospital in Portsmouth, Va.
Several committee members said what happened aboard George Washington was similar to three suicides aboard carrier USS George H.W. Bush (CVN-77) in 2019, when it, too, was in for an extended mid-life overhaul at the Norfolk Naval Shipyard in Portsmouth, Va.
This week, the Navy reported that other steps have been taken to address longer-term mental health concerns and quality-of-life issues aboard ships undergoing extended overhaul. For George Washington, the Navy is installing cell repeaters in the ship’s skin, offering wireless internet and unveiling an improved morale, welfare and recreation program for off-duty sailors living on the carrier.
On cell phone connections for sailors in shipyards or on deployment, Smith said, “there is something to being connected with someone at home” that improves morale.
The Navy Suicide Prevention Handbook is aguide designed to be a reference for policy requirements, program guidance, and educational tools for commands. The handbook is organized to support fundamental command Suicide Prevention Program efforts in Training, Intervention, Response, and Reporting.
The 1 Small ACT Toolkit helps sailors foster a command climate that supports psychological health. The toolkit includes suggestions for assisting sailors in staying mission ready, recognizing warning signs of increased suicide risk in oneself or others, and taking action to promote safety.
The Lifelink Monthly Newsletter provides recommendations for sailors and families, including how to help survivors of suicide loss and to practice self-care.
The Navy Operational Stress Control Blog “NavStress” provides sailors with content promoting stress navigation and suicide prevention.
The Navy is inching toward 1,000 separations due to COVID-19 vaccine denial, with the sea service approving separations for another 56 sailors over the past week. The Navy currently has 980 total separations due to continued refusal to get vaccinated against COVID-19, according to the service’s weekly COVID-19 update. Of the separations, 861 are active-duty […]
Hospital Corpsman 2nd Class Gregzon Fontanilla, from Guam, prepares a COVID-19 vaccine aboard the America-class amphibious assault ship USS Tripoli (LHA-7) on May 10, 2022. US Navy Photo
The Navy is inching toward 1,000 separations due to COVID-19 vaccine denial, with the sea service approving separations for another 56 sailors over the past week.
The Navy currently has 980 total separations due to continued refusal to get vaccinated against COVID-19, according to the service’s weekly COVID-19 update. Of the separations, 861 are active-duty sailors, while 97 are reservists. The total also includes 22 entry-level separations for sailors within their first 180 days of service.
The current separations are sailors who who have not applied for religious exemptions, as the Navy is currently suspended from separating anyone who requested a religious waiver for the vaccine due to a court ruling. However, any of the separations before the court ruling on March 28 could have included those who had requested a religious exemption and were denied.
The Navy had approved 37 religious exemptions for sailors who were going to retire or voluntarily separate from the service, but those cases were put on hold as a result of the court ruling.
The sea service has also granted 13 religious exemptions for members of the Individual Ready Reserve on the condition that they get vaccinated if called to active-duty or reserve status.
The Navy has also granted 14 permanent and 214 temporary medical exemptions for active-duty sailors and one permanent and 81 temporary medical waivers for reservists.