No discussion of U. S. sea power is complete unless the Merchant Marine is included. Not only is a sound Merchant Marine necessary to support the military and national effort in war, but also it now has a major role in the political and economic aspects of the cold war struggle. The Merchant Marine is vital for conducting trade throughout the world in the cold war. In limited war, the Merchant Marine would be expected to play an important role in assisting the military forces overseas. And in general war, it would be hard-pressed to provide for the emergency requirements of rescue, rehabilitation, distribution of goods, and services.
The Soviets are expanding their merchant fleet to carry out their politico-economic offensive. It follows that the U. S. Merchant Marine must be able to counter such economic thrusts, and that we must likewise use our merchant fleet as a weapon in the cold war arsenal.
Since Khrushchev now sees the economic field as the battle ground, it is likely that the Communist merchant fleet will be used as an instrument of economic warfare in conjunction with its normal role of transporter. The Communists could use their ships to interfere with world trade. By setting low rates, they could compete with free world shipping to grab vital cargoes and disrupt shipping routes.
Maritime forces face a twofold threat. In peacetime, there is the threat of obsolescence, deterioration, and a failure to preserve a maritime force of adequate size, mobility, and efficiency. In time of war, there is the more direct threat of destruction.
Twice in this century, the United States has been forced, at enormous cost, to build a great fleet of merchant ships to support wartime operations.
In World War I, we spent about three billion dollars for a fleet that was not completed in time. This merchant fleet was not even retained for use. Quoting Vice Admiral E. L. Cochrane, “The World War I ships were built collectively by citizens of the United States, and they were owned collectively by them. But the fleet never became theirs for private commercial operation because the American people did not have the inclination or the understanding necessary to turn a government-owned fleet into a great national asset—a powerful Merchant Marine.”
In World War II, 12 billion dollars were spent to build a merchant fleet. Of this fleet of over 4,000 ships (43 million deadweight tons), American shipowners acquired about 1,300 ships. More than 2,000 were placed in the reserve fleet. Many of these 2,000 ships are now being scrapped, age having taken its toll despite preservation measures.
In recognition of the necessity for the United States to maintain a merchant fleet adequate for the commerce and defense of the nation, Congress passed the Merchant Marine Act of 1936. This act stipulated that the American merchant fleet should be owned and operated by U. S. citizens. It was intended to enhance national defense and the development of foreign and domestic commerce. It set forth a program to give subsidies for construction differentials and for operating differentials. It provides for subsidies to serve those routes considered essential for the fostering and development of our foreign commerce.
The Merchant Marine Act of 1936 was amended in 1952 by the Long Range Shipping Act. This amendment sought to overcome the approaching block obsolescence of the merchant fleet through encouraging new construction by: (1) broadening the tax benefits of non-subsidized operations; (2) limiting the mortgage liability of purchasers of new passenger vessels; and (3) reducing the age at which vessels could be traded into the government.
The Long Range Shipping Act extends construction differentials to all ships operating in the foreign trade of the United States. Its principal feature provides that the Maritime Commission, at its discretion, can purchase a vessel when she is 12 years old, if that ship is to be replaced by a new one. It also broadens the availability of construction reserve funds for use in reconstruction and reconditioning of ships. This law is a step forward in overcoming a great weakness, that of ship obsolescence.
Notwithstanding its purpose, the objectives of the act of 1952 have been frustrated in some degree by budgetary limitations. The ship replacement programs of the subsidized lines, in connection with which the government has contractual obligations, have been delayed because Congress has failed to appropriate funds for construction differential subsidies. In fiscal year 1960, the Maritime Administration had commitments for the construction of 23 vessels, but the funds appropriated forced reduction of this program to 14 ships.
Clarence G. Morse, chairman of the Federal Maritime Board, reported that he was reviewing the subsidy picture. Operating differential subsidies cost the United States about $140 million annually. They are intended to give U. S. operators parity with low cost foreign competition. Under subsidy practice, ships are not permitted to deviate from a prescribed itinerary. Liners must continue to serve their ports in off-season at the same frequency as in peak travel. Foreign ships are not so restricted. They shift from transatlantic service in the winter months to the lucrative New York-Caribbean cruises.
In 1961, we are again faced with a Merchant Marine growing older, in need of modernization, replacement, and expansion. The Merchant Marine is slowly deteriorating in quality and in its ability to cope with the requirements of cold war. This is an immediate problem and one that may have far reaching effects on national security.
The U. S. Merchant Marine is not, however, as claimed by some, dwindling at an alarming rate. Neither is it expanding and improving at an acceptable rate. As of 1 October 1957, the private fleet totaled 1,013 ships of 13,019,304 deadweight tons. On 1 October 1959, this fleet totaled 1,020 ships of 13,780,066 deadweight tons. This fleet contained 677 dry cargo and passenger-carrying ships of 7,329,358 deadweight tons. Subsidized are 313 ships of approximately 3.4 million tons; about 700 vessels are non-subsidized. There has been some reduction in the number of war-built, Liberty-type ships in the National Defense Reserve fleet.
One of the difficult problems is the replacement of tramp ships, most of which are Liberties. Tramp operations are not subsidized. Consequently, in view of present high construction costs, there is no incentive to build ships for this type of trade with any hope of competing with foreign-flag tramp operators who have much lower operating costs.
It should be noted that U. S.-owned ships which are registered under “flags of convenience” are included in the calculations of mobilization capability presented by the Maritime Administration-Navy Planning Group. These ships are predominantly tankers; about half of the U. S.-owned tanker fleet does not fly the U. S. flag. Included in the Department of Defense estimates of availability are about 530 U. S.-owned ships of foreign registry—-under flags of convenience—totalling over ten million tons. Any reduction in the number of ships under “effective U. S. Control,” or any diminution of the degree of control are matters of concern.
The practice of registering U. S.-owned ships under foreign flags was initiated prior to World War II, principally by oil companies for whom the operation of shipping was a secondary function. They needed to expand their seagoing fleets to provide a steady flow of oil, but they operated in a highly competitive market, and economy was imperative. Foreign registration under certain countries permitted retention of control and ownership by U. S. interests. Labor costs, roughly equivalent to those encountered by Western European nations, resulted in reasonable and competitive costs. During World War II, and prior to the entry of the United States, when our sympathies lay with the Allies, the U. S. Neutrality Act prohibited U. S. ships from entering the war zone. In order to deliver the goods and fulfill the lucrative purchase orders, many U. S. firms transferred their ships to Panama. This practice has been continued because it makes shipping operations more economical.
Any mention of these ships usually conjures up a picture of an old hulk, unable to meet U. S. standards of safety, with a crew on slave wages. Such is definitely not the case. More than 50 per cent of these ships were built in the last five years; the tankers average about 40,000 tons, some are as big as 106,000 tons. They are modern, fast, and efficient; they meet the most rigid requirements for safety at sea; the crews are paid wages equal to European standards.
This fleet provides 43 per cent of the total, active U. S.-controlled fleet. In every respect, it presents a better picture than the U. S. flag fleet, so long as there remains no doubt concerning effective control. This control does not derive from any bilateral treaties between governments. The fact of control and the degree of control are contained in agreements between the ships’ owners and the Maritime Commission. One persuasive feature is that of war risk insurance coverage. War risk insurance is almost unobtainable from private commercial companies. Private underwriters can no longer afford to insure against maritime war losses. The U. S. government will issue war risk insurance coverage to U. S. shipowners who will sign “effective control” agreements. Since the risk coverage is contingent upon the effectiveness of control, agreements can be quite suitable to the Maritime Commission. There has been no objection to these arrangements on the part of the foreign flag nations involved. In fact, these ships rarely put into their ports of registry; there is virtually no question of expropriation.
Although there are understandings with NATO nations, their shipping has at times been unavailable for our needs. In the Middle East crises, they have in fact been a detrimental factor. For example, in the Lebanon crisis of 1958, the presence in the area of certain NATO flags would have been unacceptable. U. S.-controlled ships flying flags of convenience were not so restrained, since it was recognized that these ships did not represent a potential extension of national power.
Recently, however, pressures have been brought against these vessels. European shipping interests resent them for purely economic reasons. Objections have been supported by international maritime labor organization and aggravated by actions of the American maritime labor unions. The Maritime Transport Committee of the Organization for European Economic Recovery has frequently served as a forum for European criticism of American shipping policies. At the Geneva Conference on the Law of the Sea in 1958, this committee achieved acceptance of the principle that a genuine link in the form of positive control must exist between the country of registry and the ship flying that country’s flag. This statement was aimed directly at outlawing flags of convenience. Liberia, with the third largest tonnage in the world, was denied a seat on the Maritime Safety Committee, for the stated reason that since she did not control the ships, she could not have any real interest.
Recent demonstrations included an East Coast, 4-day boycott of all flag-of-convenience ships in December 1958. Over 100 such ships were temporarily immobilized and a strong effort was made to discredit the ships as unfit, and to prove them guilty of disrespectful or un-American tactics.
The net result of these pressures has been to force the transfer of these ships away from U. S. “effective control.” Shipowners say that, rather than place their ships under the U. S. flag without subsidy, the only alternative is to transfer or sell their ships to foreign interests, with consequent transfer of registry. During the first nine months of 1959, 28 such ships of nearly one-half million tons were transferred to European registry. Additionally, newly constructed ships, planned for U. S. control, are being diverted to foreign, uncontrolled registry.
The flag-of-convenience ships play an essential part in national defense. The term should more properly be “flags of necessity.”
Even when ships under foreign flags of convenience are included in U. S. Merchant Marine planning estimates, deficiencies cited by the Maritime Status Report may be summarized as follows:
(1) Passenger Transports: Numerical deficits are considered manageable. It is strongly emphasized that qualitative deficiencies, especially as to speed, are serious.
(2) Dry Cargo Ships: The deficit for emergency use is in excess of 200 ships. In subsequent months this will be substantially greater. Age will make this problem more serious.
(3) Tankers: A serious deficit exists now, but currently scheduled construction should present a satisfactory situation by 1963.
The United States has completed a transition from self-sufficiency in raw materials to a raw materials deficit. In this one respect, the sealanes are the lifelines for America, and hence for all the NATO nations. If we were to be suddenly cut off from the rest of the world, the operations of our steel mills would be sharply curtailed; strict rationing would of necessity be imposed throughout all our economy for lack of imported minerals. As an indication of our position of dependency on the sealanes to supply rapidly growing deficits in certain materials, note the report of the President’s Material Policy Commission, which listed estimated increases in demand by 1975 as follows:
|
Estimated Percentage Increase in Demand of Certain Materials by 1975 |
||||
|
Material |
Actual Increase ($ millions) |
Projected Percentage Increase in Total Demand |
||
|
|
1950 |
1957 |
Percent |
1975 |
|
Aluminum |
84 |
199 |
137 |
358% |
|
Copper |
243 |
383 |
60 |
45% |
|
Lead |
136 |
157 |
15 |
61% |
|
Nickel |
77 |
207 |
187 |
100% |
|
Rubber |
458 |
350 |
23 |
104% |
|
Tin |
202 |
130 |
35 |
27% |
|
Zinc |
65 |
153 |
136 |
38% |
|
Iron Ores |
245 |
540 |
120 |
— |
It can be seen that copper, nickel, and zinc have by 1957 already exceeded the estimated increase projected to 1975.
The Maritime Status Report prepared by the Joint Maritime Administration-Navy Planning Group in May 1959 summarizes the requirements and availability of the U. S. Merchant Marine as follows:
(1) The United States is deficient in capabilities to meet national wartime requirements for merchant-type ocean shipping.
(2) Deficiencies are both quantitative and qualitative in all three major categories of ships—passenger transports, dry cargo ships, and tankers.
3) Present shortages, however serious, are less critical than the approaching block obsolescence of passenger and cargo ships.
The U. S. Merchant Marine has not kept pace with the requirements for successfully supporting our economy in certain types of war, and for meeting transport and logistic requirements of deployed combat forces. In 1958, only 12 per cent of our foreign trade was carried in U. S.-flag ships. The importance of a healthy Merchant Marine is recognized, but unfortunately the U. S. merchant fleet suffers from violent fluctuations of unhealthy boom and acute depression. The two factors indispensable to the maintenance on a commercial basis of efficient and cheap overseas shipping services are: (1) a reasonable and relatively stable freight level, and (2) fiscal systems which make it possible for owners to accumulate funds for replacement and expansion. American shipowners have been discouraged by labor union demands, strikes, freight charges, and wages out of proportion to world market competition.
Since 1946, national defense features in the construction of U. S. ships have been of paramount importance. The Merchant Marine Act of 1936 called for a well-balanced fleet of vessels suitable for economical and speedy conversion into naval or military auxiliaries. The U. S. Navy has steadfastly insisted that new ships must be faster.
Vice Admiral Callaghan, then Commanding Officer, Military Sea Transport Service, said, “Slow speed may be quick death in a future war.”
Vice Admiral R. E. Wilson stated,
The vulnerability of merchant ships to submarine attack can be reduced in some measure by certain built-in “national defense features.” The more important of these are:
a. speed
b. compartmentation for damage control
c. increased fire and shock resistance
d. extra endurance and cruising range
e. defensive armament and equipment
The importance of speed cannot be over-emphasized. Speed is the best passive defense that merchant type ships can employ against hostile submarines. The faster the target, the more difficult it is to hit with submarine torpedoes, and the more difficult it is for a submarine to get into position for launching a torpedo attack. These are simple derivations from the laws of probability. An advantage of high speed is the flexibility in routing.
Our studies show that with increases in speed above twenty-five knots, the proportionate reduction in vulnerability definitely pays off. High speed design is expensive, but it will prove of great value in time of war. The importance of speed will increase as submarine development advances.
Only three U. S. commercial ships (Constitution, Independence, and United States), however, are capable of speeds of 25 knots. Construction of two additional super-liners was authorized by legislation passed by the 85th Congress, but to date no funds have been appropriated for them.
Speed is a factor which is important for more efficient operation and for safety in transit during combat operations. But for cold war operations, efficiency can only be attained by significant improvement in the attitudes of both labor and management. They must both come to mutual agreement regarding modernization, mechanization, and automation of ships, plus handling equipment, and terminal facilities.
The principle of shipping freedom is increasingly threatened by measures of various countries to protect their fleets or even to create a merchant fleet. These are listed by the Organization for European Economic Recovery Maritime Transport Committee as follows:
(1) Measures in the field of exchange control.
(2) Legislative provisions in favor of the national flag.
(3) Arrangements made by governmental organizations giving preferential treatment to national flagships.
(4) Preferential shipping clauses in trade agreements.
(5) The operation of export and import licensing systems so as to influence the flag of the carrying ship.
(6) Port regulations.
(7) Taxation measures.
Preferential treatment by governments of national flag shipping and discriminatory shipping practices demand attention.
U. S. legislation in general requires that 50 per cent of the goods provided under provisions of financial assistance be shipped in U. S.-flag vessels. The U. S. Congress in 1954 adopted the Butler Bill (Public Law 664) which made this requirement permanent. The unfortunate result of this legislation whatever the motives which inspired it, has been to encourage other countries, where shipping has never been an important part of their economy, to impose even more restrictive measures.
These measures have not been conducive to a powerful merchant fleet. The U. S. shipbuilding program is almost wholly for registration in the United States, and is entirely dependent on government orders and subsidies. Building costs in the United States are not competitive with world prices, and in most cases, ships built in the United States cost twice as much as ships built elsewhere.
Action which should be taken to alleviate Merchant Marine deficiencies includes the following:
(1) Congress should provide funds to increase the base of subsidization. It should increase the fleet to the limits permitted by the act of 1936.
(2) Congress should also amend the act further to provide for subsidy and replacement of tramp shipping.
(3) Passenger ships currently subsidized should be given greater freedom to minimize off-season adherence to schedules and take advantage of the more lucrative cruise trade, in return for offering stable and regular service on assigned routes.
(4) The subsidy base should include additional cruise and trade routes.
(5) Funds should be provided for the two super-liners currently authorized, and an augmentation program begun which would provide at least one new super-liner annually.
(6) The ships assigned to the U. S. National Defense Reserve Fleet should be brought to an acceptable standard of preservation. Those ships with marked deterioration, including over 1,000 Liberty ships, should be scrapped. Their usefulness has passed.
(7) We need to reorient our views concerning the ships (about 530) now registered under flags of convenience, but owned in the United States. Until measures are undertaken to create a U. S. merchant fleet that can compete throughout the world, we need to take a more tolerant and paternal approach, and eventually transfer these flags-of- convenience ships to U. S.-flag registry. This impinges on labor-management relations, long neglected.
(8) Labor and management must come to a realization that both stand to gain if the ships of the U. S. Merchant Marine include the maximum advantages of technological advances in ship design and automation. Subsidies for construction should require these improvements. The subsidy could be increased in direct proportion to the degree of automation as an incentive.
Finally, it needs to be stressed that subsidization need not be a heavy burden. Ships which are constructed with defense features will cost more. These costs should be subsidized. If, however, these ships are built to be modern, efficient, and competitive through automation, they can for the most part operate profitably. Profitable operations require no subsidization.
Politically, the United States must be prepared to counter Soviet rate-cutting tactics to disrupt shipping. Where the Soviets attempt pre-emptive buying of the entire product of a country whose military allegiance we desire, the United States should be prepared to make equally attractive proposals and to carry the goods in U. S. ships.
A graduate of the U. S. Naval Academy in the Class of 1933, Captain Schade attended the Armed Forces Staff College, the National War College, and was a Fellow in International Affairs at Harvard University. During World War II, he commanded submarines on 11 war patrols. His other assignments include duty with CinCNELM, Operation SANDSTONE, CinCSouth, and Commander of a Submarine Squadron. At present he is Head, Navy Plans Branch, Office of the Chief of Naval Operations.