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In 1936, more than 35% of all U. S. ^of ^ commerce and 29% of the dry cargo trade * s ried in American ships. Of vessels 2,000 gr0SS^j jn or more, 426, including tankers, were en^^sse|s, foreign trade. Domestic trades employed 800 ve .je including 300 tankers and a fair number of c0‘lS(_orn. passenger vessels. The active merchant marine jy prised some 1,200 vessels, totalling approX^’^jp^j eight million gross tons. Among the P jn
maritime nations, the United States ranked oU 0f
tonnage and fifth in number of ships with sPe 12 knots or more. There were 26 U. S. s£0StS with a total capacity of 106 ways. Construction^.^ were approximately one third higher than in
shipyards.1 bsiJ‘eS
Today, 44 years and some $8 billion in SUjvarely since the Merchant Marine Act of 1936, the P v£SSels owned, active, oceangoing fleet stands at 5- jorTiestiO aggregating 11.4 million gross tons. The e ^5) trade is almost entirely composed of tankers^ caa and four U. S.-flag cargo-passenger ships .
carry only 90 passengers each. In 1979, ^ 0cea°' flag ships carried less than 5% of total U- 'yor£ign borne foreign trade, even though U. S. ^fSt increased fivefold since 1950 jn
‘normal” shipping year after World War
terms of its privately owned fleet, woi
rldwid^'
Do American Shipping; and Shipbuilding: Have a Future?
commerce th«
■ —j ~ — . 1 . tonn^e
United States ranked 10th in deadweign ^
and 11th (behind Singapore) in number of s *P j£jve one bright spot is the relatively new and cornP and intermodal fleet (containerships, barge vess 0f roll-on/roll-off ships), which carries about
U. S. liner cargo. Subc°nr
Industry testimony before the Seapower g in mittee of the House Armed Services Comm ^ ^ 1974 identified 19 shipyards as comprising^ tion’s shipbuilding resource base. In I979i ^jof chant ships were under construction in ^ y,,rd shipyards. To construct a vessel in an Ame ^ jt$ in 1980 might cost almost twice as the‘r
foreign counterpart. Many yards have cut > j| cy capabilities and/or are operating at less than^ fajrly pacity. All things considered, it may yutLire? asked—does the maritime industry have a
log
Problems: Although not an exhaustive gpip'
the problems facing the merchant marine , nlajor builders, the summary below includes nl( •
concerns: crorica1^
► Operating costs for U. S.-flag vessels 1 have been higher than for their foreign cotnf
‘For footnotes, please turn to page 71.
0p a ^a'ssez-faire shipping environment (no subsidies agr an^ kind, n0 cargo preference/bilateral etnents, and no cabotage restrictions), American y Ps could not compete in ocean commerce. e United States does not have a single-minded aiijltlnie policy. As often as not, federal agencies ^ departments operate at cross purposes. 6re ^as keen t00 much tonnage in a number of tjlat^°ries f°r the past five years. Foreign tonnage Arn *S n0t UP *s °^ten “dumPe<J” into the 1). Lr'Can trades at cut-rate prices. Tightly bound by rtiis>artrnent Just'ce ar*d Federal Maritime ComaL... °n strictures, American companies find their U to compete with “dumped” tonnage a formid- St.a|nterrnodal rate agreements are subject to Inter- Co 6 ^0rnrnerce Commission, Federal Maritime authrn*SS*°n’ and Civil Aeronautics Board regulatory and °rit^' This has created considerable instability Th Uncertainty in intermodal freight movement. jn(.^ S. merchant marine has become increasingly tn in recent years; impediments to inter- itv 3 rnovement significantly affect a carrier’s abil- compete. 1 e Soviet Union is now the world’s fourth roje Maritime power. Aside from the Soviet ships’ ^a^_as naval auxiliaries, the peacetime goal is not to e a profit but to earn Western currencies and aVV,t^e ^ag- The primary method used to penetrate str e 'S t0 cut rates t0 whatever level is necessary to ► the cargo- sidi ,thout mandated Navy work, construction sub- |j ^s’ a°d American-built registry requirements, the 'nar" shipbuilding industry, like the merchant tJla'ne’ would be unable to compete in the world Utej et- Some of this added cost can be fairly attrib- nUrnb° *ne^*ciencies and ^ac^ °f modernization in a t | 3Cr yards; much is caused by higher wages. atl(j 1979, many European shipyards lost money, CaPa ' an’S yards were operating at about one-third bid ^nder such conditions, many foreign yards t0 'Vel1 under cost to secure a share of the limited shi na^e being built. Several unsubsidized American "g P'ng companies, not being required by law to American,” have recently placed orders in the i East. ► , its 6 bedrock justification for a merchant marine is Jj aux‘liary role in a war or national emergency. PeaeVCr’ cbe type of vessel most competitive in taj Cet*rne trade (such as the non-self-sustaining con- tj^^bip) may be considerably less useful in a con- the8®ncy or war. On the other hand, the mission of ch ^tlt'me Administration is to promote a mer- nt marine, not necessarily a merchant marine tai- | lored to Navy wartime requirements. These very legitimate differences in goals were accented in hearings on sealift readiness held before the House Merchant Marine and Fisheries Committee on 12-13 December 1979- The Maritime Administration expressed its belief that the U. S. fleet has enough ships to support any anticipated contingency and that the ships are of suitable types. On the other hand, the Pentagon stressed the need for many more high-speed ships of a roll-on/roll-off configuration. ► The United States is increasingly dependent on imported raw materials and crude petroleum. At present, less than 3% of this trade is carried in American-flag vessels. From a national security view (not necessarily a national defense one), many strategists feel this country should not be so dependent on foreign-flag shipping to maintain its industrial mobilization base. The argument that much of this shipping is American owned, and hence under effective U. S. control, has been repeatedly rejected in the Congress. ► Under our antitrust statutes, shippers in the United States are barred from formally organizing. This is not the case in foreign countries. Input from shipping organizations, particularly with respect to intermodal pricing decisions by shipping conferences and individual lines, would be a plus for the industry in general. Moreover, abuses by conference and nonconference members would probably surface and be acted upon more quickly. The Omnibus Maritime Bill of 1979 (HR 4769) and Other Congressional Proposals: In July 1979, the “Omnibus Maritime Regulatory, Reform, Revitalization, and Reorganization Act of 1979” was introduced into the House of Representatives by the chairman and ranking minority member of the Committee on Merchant Marine and Fisheries. Its main proposals: ► A Deputy Special Representative for Maritime Affairs would be established in the Office of the Special Representative for Trade Negotiations in the White House. He would have authority to conduct international relations with respect to maritime affairs. In this respect, a number of policymaking, review, and procedural responsibilities would be transferred from the Federal Maritime Commission and the Maritime Administration. ► Shippers’ councils would be formed which would be exempt from provisions of the antitrust statutes. ► Rates of state-controlled carriers would not be set below a rate which is just and reasonable. Nor could an ocean common carrier offer rates detrimental to the commerce of the United States. The State Department would have the responsibility for obtaining |
^Miners / Anrii loan | 67 |
► The United States should not sut
iferencf’
give every consideration to using U. S.-fUg v. ,
o —j ------------------- --------- cp n ^ 1 Ci c1
Shipowners were urged to “. . . give every c ^jr tion to use of American shipyards to supp i new tonnage.”
■ „ rhe 0&'
Hobson’s Choice: During the hearings on ^ fjl3t nibus Maritime Bill (HR 4769), it was apparen
The LASH (lighter aboard ship) vessel is an example of conflicting civilian and military needs. While it is a superior achievement in marine architecture, it cannot be operated efficiently in many commercial trades. Yet it is high on the list of ships most wanted by the military.
documents and information located in a foreign country when necessary to determine the reasonableness of a particular rate.
► The declaration of policy of the Merchant Marine Act of 1936 would be amended to define the “fair share” of U. S. foreign commerce to be carried on board American ships as not less than 40%.
► The Merchant Marine Act of 1936 would be amended to mandate . .an efficient and competitive shipbuilding capacity that is also sufficient to satisfy the needs of national security.”
► A construction differential subsidy would be paid only on vessels that incorporated national defense features as established by the Secretary of the Navy. Moreover, subsidized (construction and/or operation) vessels must be offered for enrollment in the Sealift Readiness Program (SRP).2
► Operating differential subsidies would be made available to vessels constructed in foreign yards but registered under the American flag. U. S.-owned vessels built under a construction differential contract could be operated under a foreign flag.
► Efficiency standards for U. S. shipyards would be established by the Secretary of Commerce. Incentive payment could be provided to shipyards that eliminate wasteful practices, and the federal government could make direct grants to shipyards for capital improvements.
► Construction subsidies would be reduced by 15% for vessels not constructed as part of a series design.
► The Secretary of Commerce would study the costs and benefits of terminating or reducing the operating differential subsidy program.
Concurrent with the introduction of the omnibus bill, bills were introduced in the Senate that would, among other things, encourage bilateral UNCTAD- type cargo sharing arrangements, and promote dry bulk shipbuilding and operation.3 (The United Nations Committee on Trade and Development [UNCTAD] is composed of all [not just major] trading nations and over the past years has recommended to the General Assembly a cargo-sharing arrangement which would promote the growth of merchant marines in developing nations.)
In August 1979, two bills designed to increase the U. S. share of its bulk trade carriage were introduced
in the House—the Maritime Bulk Trade c 1979 and the Merchant Marine Act Bulk Sh*PP ^ Amendments of 1979. This legislation wou vide a per diem subsidy for bulk carriers w ^
eluded operating and capital cost elements an ^
date a minimum share of U. S. bulk commerc American-flag vessels.
President Carter’s Proposals: In March 1978, ^ ^
dent Jimmy Carter appointed an interagency ^
force to undertake a comprehensive year-long jn
of federal maritime policies. Sixteen months a^o’use a letter to John Murphy, chairman of the Merchant Marine and Fisheries Committe^.^ president outlined administration recommen ^ ^ to revitalize U. S. shipping, based on the res
his task force report.4 The recommendations
eluded the following: j( to
► Rewrite laws governing liner conferences • £
define clearly the standards of acceptable con ^
practices and the limits of conference antitr ^
emptions, and to reemphasize our commit competition in ocean shipping.” Antitrust emptions for shipper councils would be autn
► With respect to bulk shipping, “• • • reStfljepaif on foreign resales, international trading rights,
in foreign shipyards, and eligibility to own tjy
eign and U. S. flag vessels should be sign* 1
revised.” rhe
abscribe to
UNCTAD Code of Conduct for Liner Cont~-^ ^ which sanctions cargo sharing on a basis of ^
the host country, 40% for the trading partner, 20% for third-flag carriers. . of
► The Maritime Administration (Departmt^^^
Commerce) was designated as the chief _Plriti<*e for the executive branch of government m affairs. j to
11 ruCLi
► American exporters and importers were ^ssels.
der^'
h
j e apartment of Defense and the Maritime cJi^ln'stration, for example, are against operating fc*** subsidies for foreign-built ships. Ship-
v *mpact on the Nation's capabilities to pro-
Ce naval and other vessels for the national well- emg ”6
'n§ ^ Snares ’n a policy of limited bilateral cargo-shar- fe<jea^reernen ts, two are most important. First, the PinT^ £°vernment >n effect might encourage ship-
PlaCe
w°uld be better served with American tonnage
Second, bilateral
'Pore
afitg evenly distributed Pai r
interests were confronted with a 47f)(JS°n s choice5—to accept some features of HR they found objectionable or run the risk of see- arn ^ ^e8^s^at’on so changed and/or crippled by pQsements as to make a mockery of its stated pur- Pof °^,Prov*ding a “unified and consistent maritime
Ad
pre‘^rs afe particularly hostile. In this regard, the StatS^ent of the Shipbuilder’s Council of America
^he Omnibus Maritime Bill, as a base for new ^ar'time policy, portends a disastrous effect on COrnmercial shipbuilding capabilities of the
niCed States. In all probability, it would ad- verselv F
dll,
b,
°Pdo °t'rler hand, many shipping firms favor the U) n building foreign and the lessened require- ti„„ .t0 buy American” on vessels whose construc-
* ,s subsidized.
fere^Wf Issues: There are some fundamental dif- §Oal C6S *n t'le var'ous approaches. HR 4769’s stated p ls t0 have American-flag ships carry 40% of Pro ■ °cean foreign commerce by working out ap- partr,ate cargo-sharing agreements with our trading ap ners> but President Carter strongly opposes this Caracb. The problem is not so much whether sion° sbaring agreements are the answer but the illu- i^fin ^'at SOme sort °f compromise is possible. Of the
II f> j
n trades in which such agreements were in
Sr, wben, in fact, the commerce of the United iates
^efnents jn a worJd with too much shipping ton- of . are inherently unstable from an economic point Pop W' ^ore importantly, they would be subject to eXaltlCa* vicissitudes of the worst sort. Imagine, for ear^f^C trying to negotiate, much less maintain, Or Y0'S^ar'nS arrangements with nations such as Iran beSfletnam, even should such agreements be in our p ec°nomic and national security interest, dry j^'dent Carter has noted that there are only 19 Pro U ^ sbips in the American merchant marine and t>ie^°Ses rebuilding this part of the fleet. Several °f pending legislation specifically address this tbeern- With the exception of the Carter proposal, CeUterpiece in each is a cargo-sharing agreement
with our trading partners.
If the United States wants to carry 40% of its commerce, it must adopt the UNCTAD Code of Conduct as its national policy. If not, it must be prepared to subsidize the greater part of its merchant marine indefinitely. And the cost will not be small. It has been noted that “. . . only one or two of the 10 subsidized operators would have made a ‘very slight’ profit last year [1978] without the subsidy; the rest lost money even with it.”7 By and large, this has been the case historically.
A second major issue is how to ensure a U. S. shipbuilding base and at the same time allow American shipping companies the option of placing orders in foreign yards. The first thing to understand is that the shipbuilding industry should be as dependent on naval construction as on commercial contracts. It is nonsense to imply that a policy allowing American firms the option of building foreign would be responsible—the scapegoat, that is—for the demise of the shipbuilding industry. The Navy is composed of about 450 active ships, approximately 150 short of the 600 widely considered to be necessary. If the Congress and administration tomorrow were to fund a 600-ship fleet, the needed shipbuilding program would approximate 20-25 ships a year until the year 2000. Those arguing against provisions in the omnibus bill allowing American firms to build foreign on the grounds it weakens our shipyard mobilization base must equally be prepared to vote and fight for funds to ensure an adequate Navy.
On the other hand, it is only in rare instances that American shipyards build for foreign account. The standard explanation is that they are not cost competitive. But does this not beg the question? In this respect, the federal government orders and pays for (at least in part) much of the military hardware that is sent to our military allies and client states. No one questions the fact that we subsidize those purchases. If Third World nations are determined to foster merchant marines, and it seems they are, why shouldn’t they have the option of “Buying American”? We are quick to note how effectively the Soviet Union shows the flag with its merchant marine. Why could not the United States “show the flag” with American- built ships? A modest “foreign aid” building program would not be expensive. It would show off American technology, demonstrate America’s commitment to aid developing nations, and help keep American shipbuilding capability in place. It can, of course, be argued that by subsidizing its shipyards in this way, the United States would be engaged in the same “unfair practices” cited by our shipbuilders with regard to foreign governments and at worst be
shipping line.)
fact
that naval shipyards compete with their conr>rn -o0s counterparts. And while the bitter and acrim .£ debates of 1974 may be dormant in 1980, *ie conflicts are still present and can be expecte seCtof nite should greater cutbacks in the commercia ^ take place. A case can be made for the Navy .^e(.s or, preferably, lease its yards to private ship ^ and employ the freed resources in more urgent ajj Given the tight budgets and manpower shortag ^ services face, the idea has much to comment One of the better provisions of HR 4769 lS quirement that American-flag vessels aided wl pf0- sidy funds be enrolled in the Sealift Readines^_^j gram and that vessels whose building is sUpeat;lireS. be optimally fitted with national defense
The language of the bill is plain and unequ'
■ manaaL ,
enough in
far
ral
tention, not
accused of “dumping” shipping in a market which already has too much tonnage. An admittedly simple response would be “So be it. We are willing to negotiate.”
Another very important consideration is whether any of the present proposals before Congress could appreciably lessen the construction differential subsidy bill annually presented to the taxpayer. In my judgment, they could not. A sustained commitment to rebuild the Navy to, say, 600 ships would, of course, require less merchant ship subsidy funds to maintain a particular shipyard mobilization base. On the other hand, if the 300-ship build in American yards that was contemplated in the Merchant Marine Act of 1970 is mandated in any new legislation, construction subsidy funding would markedly increase. In this respect, Chairman John Murphy estimated the annual cost of implementing HR 4769 at $5 billion annually—most of which would go for construction subsidies.
A third issue is at once the easiest and most difficult—how to ensure the executive branch of government speaks with a single mind on maritime affairs. President Carter has designated the Maritime Administration as his administration’s official voice, but it will be only a cosmetic change at best unless two things are done. First, there would need to be legislation specifically limiting Department of Justice intransigence with respect to what it traditionally has perceived to be anti-competitive practices of liner conferences. HR 4769 encourages strong conferences and at the same time allows a firm certain individual initiatives in rate making. While this is a logical approach, the limits of Justice Department authority should be more precisely spelled out.
The harder problem is with the Department of State. Although the omnibus bill mandates State Department assistance in discovering predatory rate practices, those who have observed the lack of State Department enthusiasm for an American-flag merchant marine over the years have every right to remain skeptical. This deficiency cannot be legislatively corrected, however, but requires a U. S. President committed to a forceful maritime policy. Paul Hall, president of the Seafarers International Union and perhaps the most respected of all maritime labor spokesmen, has observed that what is needed at the State Department is an “American desk” where a major responsibility would be that of furthering the country’s maritime interests.
Some Further Observations: In 1937, American coastal and intercoastal shipping was a relatively thriving part of our ocean shipping. In 1980, it is but a shadow of its former self. In light of c e ,qq cost of energy and the fact that a ship can rn°^jroad tons of freight one mile on a gallon of fuel, a r 200 tons, and a truck 70 tons for the same lsK*neW it would seem to make good sense for an^t),is maritime policy to emphasize the reemergence ^ a sector of the merchant marine. In a similar v ^ comprehensive maritime bill might, in ad jjl sorting out regulatory obstructions to int j efl. movement, also consider the economic gains ^ ergy effectiveness of encouraging ocean-rail particularly with respect to land bridge (Imagine, for example, a single rail company ning the continent merged with an around-the
Any maritime policy must squarely face th
However, does it go mi cuuug.. Genei
Navy-merchant marine cooperation? The ^ a Accounting Office in the past has pointet number of instances in which private sector ^
assets could replace Navy tonnage.9 And a sti^ ^jp- solved question is to what extent commeri * ping can perform Navy underway replenishm sions. Any new maritime policy must a uSt
grey hull vs. black hull issue. The bottom can
be that if the privately owned merchant niar^ eJti' perform the function, Navy resources shou jtlJteS ployed in uses where no commercial su exist—in the combatant forces. A parallel case ^ Defense Department’s late 1979 proposal to ^ a(1j cargo ships to be loaded with combat equip0 ^^jle deployed to the world’s likely trouble sPotSstj0ll of the rapid-response concept is valid, the ^u£an0thet who will operate and man these vessels is ‘ matter. No prima facie case has been made t ^ mercial ships and civilian crews cannot do c ^ Two promotional features of HR 4769 ^t
because the goal is undesira ’
"th.
U, s . ...
th- Ports- If part of the rationale for this subsidy is rrn SUC^* sblPs could serve as troop carriers in an Klav;-nCy’ then it must be pointed out that the
'Kept, if a (jefense benefit is questionable, the chief
side erat'°n tyien 'S ty>e subsidy cost- tbe P^us
’^a s'ngle ship would provide a number of jobs.
of a
shou,der‘can seamen, the last place a subsidy dollar
Promotion of U. S. cruise ships operating from
Th
'rally
er f A
rew practical alternatives to the basic problems
rhe maritime industry. Most distressing, StaPs> is that the president chooses not to underbill t^le sbrinbing capability of our shipyards Pro tS as much from the lack of a naval building rhaf^111 as from tbe lack of a maritime program. Or Pnj -We are faced with a hard choice of adopting the jn Code of Conduct for Liner Conferences or
°Pe mitely continuing an increasingly expensive tHienatmS differential subsidy program. It is one tjv ° to exrol competition in a theoretically competi- tit ^orld; it is quite another to ignore the mul- ^0 e °f constraints that inhibit competition in the real a' subsidies, cargo preference laws, cabotage
ti* er because of questionable economics. The first is
aVy bas shown a singular lack of interest in the
tbe other hand, given the relatively higher wages
8° is into a labor-intensive endeavor. e other section of HR 4769 which is econom- giv"/ SUsPect ‘s rbe explicit encouragement the bill g r° series construction. The problem is that to tbe admittedly lower costs of a series build, we °Pd ^ <f0rcin8” acceptance °f a ship char *s not 'nially designed for its intended trade. The vesVe!nment'sPonsored LASH (lighter aboard ship) ach 6 *S a Case ln P°int- Although it is a superior AmleVement *n marine architecture and a credit to tyQrdrican technology, it was oversold. In other s, the trades in which the vessel could earn a the C Were ^ound t0 be limited. On the other hand, ty vessel is high on the list of ships most
|0e<a by the Department of Defense. Hence, the ^itl/ COnstructi°n costs of a series build together ^ tbe national defense value of a particular ship had* ^ we'8bed against efficiency in commercial Ijarde' balance, HR 4769 may have come down too ^itl °n t*le Slde encouraging lower shipyard costs °ut regard to other considerations.
an °nc!us'°n: The Omnibus Maritime Bill, on bal- ^ ls a good departure point for framing a new jsltlrrie policy. In fact, its sponsors point out that a sWas never intended to be a final solution but rather Cortlng point. It is in this context that the above ha;7ents and suggestions are made. On the other off V tbe Proposals outlined by President Carter
facin restriction, and the host of discriminatory practices that nations employ to protect their shipping.10
Do American shipping and shipbuilding have a future? Indeed they do, if we accept the fact that some hard choices, and not necessarily Hobson’s choices, must be made.
Dr. Whitehurst is a Professor of Industrial Management at Clemson University. His teaching and research areas are in logistics, transportation, and defense economics. Professor Whitehurst received his Ph.D. in economics from the University of Virginia and did post-doctoral study in defense studies at Edinburgh University. He is the author of a number of articles and books on the merchant marine, including “The National Defense Reserve Fleet: Past, Present, and Future,” which appeared in the February 1977 issue of the Proceedings.
!U. S. Maritime Commission, Economic Survey of the Merchant Marine (Washington, D.C.: U. S. Government Printing Office, 1937), pp. 26, 27, 34, 38.
2Under the Sealift Readiness Program (SRP), a shipping firm wishing to bid on the movement of defense cargo must prepledge a portion of its fleet for use in a non-mobilization contingency.
3Merchant Marine Act amendments (S. 1457, 1459, 1462); Shipping Act amendments (S. 1460, 1461, 1462, 1463). These amendments deal with developing a dry bulk fleet, coordinating a national maritime policy, emergency cooperative activity among common carriers by water, and transportation of U. S. mail by sea.
4Letter from President Jimmy Carter to Chairman John M. Murphy, House Committee on Merchant Marine and Fisheries, 20 July 1979. 5Thomas Hobson was an English liveryman (circa 1631) whose practice it was to require every customer to take the horse which stood nearest the door or take no horse at all. True to its original meaning, Webster's International Dictionary today defines Hobson’s choice as (1) an apparent freedom of choice where there is no real alternative; (2) the necessity of accepting something objectionable through the fact that one would otherwise get nothing at all.
Shipbuilders Council of America, Shipyard Weekly, 26 July 1979, p. 2. 7“The search for a workable maritime policy," Business Week, 17 July 1979, p. 100.
See C. H. Whitehurst, Jr., “Is There a Future for Naval Shipyards?" Proceedings, April 1978, pp. 30-40.
See U. S. General Accounting Office, "Navy Should Reconsider Planned Acquisition of Two Multimission Ships” (21 June 1976), and "Navy Should Reconsider Plans to Acquire New Fleet Oilers and Ocean Tugs” (30 August i978).
10The chief argument against cargo preference is that it adds to both producer and consumer costs. The point is valid, yet must be balanced against the generally supported position that the United States needs a merchant marine for national security reasons. If this is accepted, it is then a question of which approach—cargo preference or operating subsidies—is more efficient. In 1977, the U. S. General Accounting Office issued a study estimating the cost of cargo preference for oil imports. It would be well worth the effort for GAO to examine the costs and benefits of cargo-sharing arrangements in general.