Marine transportation in the United States constraints and opportunities : national ocean goals and objectives for the 1980's

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COASTAL ZONE
1983

NATIONAL ADVISORY COMMITTEE ON
OCEANS AND ATMOSPHERE (NACOA)

MEMBERS

Johii A. Knauss, Chairman Michael R. Naess
Vice President for Marine Programs President
Graduate School of Oceanography Westminister Ventures, Inc.
University of'Rhode Island Houston, Texas
Kingston, Rhode Island Vernon E. Scheid
S. Fred Singer, Vice Chairman Professor of Mineral Economics
Professor Department of Mining Engineering
Department of Environmental Sciences Mackay School of Mines
University of Virginia University of Nevada
Charlottesville, Virginia Reno, Nevada

FitzGerald Berniss Sharron L. Stewart
President, FitzGerald & Company Commissioner
Richmond, Virginia Texas Deep Water Port Authority
Paul Bock Lake Jackson, Texas
Professor, Department of Civil Engineering George G. Tapper
University of' Connecticut President
Storrs, Connecticut Tapper and Company
Carl Franklin Brady, Sr. Port St. Joe, Florida
President Jack R. Van Lopik
ERA Helicopters, Inc. Dean, Center for Wetland Resources
Anchorage, Alaska Louisiana State University
Sylvia A. Earle Baton Rouge, Louisiana
Curator of' Phycotogy James M. Waddell, Jr.
California Academy of Science Senator, South Carolina State Legislature
San Francisco, California Beaufort, South Carolina

Edward N. Gladish Don Walsh
Manager, Land Services Director
Champlin Petroleum Company Institute for Marine and Coastal Studies
Long Beach, California University of Southern California
Burt H. Keenan Los Angeles, California
Chairman ofthe Board and Warren M. Washington
Chief' Executive Officer Senior Scientist
Offshore Logistics, Inc. National Center for Atmospheric Research
Lafayette, Louisiana Boulder, Colorado
Jay G. Laiizillo Robert M. White
Purchasing Vice President President, University Corporation for
Channel Fish Company Atmospheric Research
Chelsea, Massachusetts Washington, D.C.

EXECUTIVE DIRECTOR: Steven N. Anastasion

STAFF: James A. Almazan, Rose M. Bird, Diane F. Buckley, Michael P. De Luca,
Linda K, Glover, Stephanie Y. Hughes, Victoria J. Jones, William J. Lounsbery,
Stephen P. Risotto, and Alice L. Roberson

Property of CSC Library

Marine Transportation
in the United States:
Constraints and
Opportunities

National Ocean Goals and
Objectives for the 1980's

National
Advisory
Committee on U.S. DEPARTMENT OF COMMERCE NOAA
Oceans and COASTAL SERVICE CENTER
Atmosphere
SOUTH HOBSON AVENUE
CHARLESSTON, SC 29405-2413

January 1983
Washington, D.C.

For sale by the Superintendent of Documents, U.S. Government Printing Office
Washington, D.C. 20402

NATIONAL ADVISORY COMMITTEE
ON
OCEANS AND ATMOSPHERE
3300 Whitehaven Street, N.W.
Washington, D.C. 20235

January 25, 1982

The President
The White House
Washington, DC 20500

Dear Mr. President:

I have the honor of submitting to you the report of the National Advisory
Committee on Oceans and Atmosphere (NACOA), "Marine Transportation in the
United States: Constraints and Opportunities."

NACOA believes the oceans hold unfilled promise of alleviating some of the
critical problems facing our Nation. A major national commitment to the
oceans over the next decade will bring to fruition many of these promises.
NACOA's continuing activity in developing national ocean goals and objectives
is intended to provide direction for such a commitment. Our report, "Ocean
Services for the Nation," was forwarded to you in January 1981, our report
"Fisheries for the Future," in July 1982.

This report focusses on the critical issues surrounding a less than adequate
state of our Nation's maritime transportation system. The Committee hopes
our effort will assist you in developing new policies and direction for this
vital sector of our national economy and security.

Respectfully yours,
@@4 14.
John A. Knauss
Chairman

It is necessary for the national defense and the development of its for-
eign and domestic commerce that the United States shall have a merchant
marine (a) sufficient to carry its domestic water-borne commerce and a sub-
stantial portion of the water-borne export and import foreign commerce of
the United States and to provide shipping service essential for maintaining
the flow of such domestic and foreign water-borne commerce at all times; (h)
capable of serving as a naval and military auxiliary in times of war or
national emergency; (c) owned and operated under the U.S. flag by citizens of
the United States inso@ar as may be practicable; (d) composed of the best-
equipped, safest, and most suitable types of vessels, constructed in the United
States and manned with a trained and efficient citizen personnel, and (e)
supplemented by efficient facilities for ship building and ship repair. It is
hereby declared to be the policy of the United States to foster the development
and encourage the maintenance of such a merchant marine.

Merchant Marine Act of 1936,
Public Law 49-1985

TABLE OF CONTENTS

FOREWORD ...................................................................................................................................... Ix

EXECUTIVE SUMMARY ................................ .............................................................................. xi

CHAPTER 1: INTRODUCTION ........................................................................................................ I

The NACOA Report .................................................................................................................... 7

CHAPTER 2: THE GROWTH AND CHANGING NATURE OF WORLD TRADE:
IMPLICATIONS FOR MARINE TRANSPORTATION ............................................. 9

The Shape of World Shipping ................................................................................................... I I
The United Nations Conference on Trade and Development Code of Conduct
for Liner Conferences ......................................................................................................... 12
National Subsidies ............................................... ........ -* ....*..... "" 15
Policy Implications for the United States .................................................................................. 15

CHAPTER 3: U.S. GOVERNMENT POLICIES AND REGULATIONS:
HELP OR HINDRANCE .............. .............................................................................. 17

The Rules ..................................................................................................................................... 19
Federal Subsidies ........................................................................................................................ 19
Federal Maritime Policies .......................................................................................................... 21
National Security Issues .............................................................................................................. 22
Future Prospects .......................................................................................................................... 23

CHAPTER 4: U.S. MARINE TRANSPORTATION SYSTEM .......................................................... 25

Characteristics of the Industry .................................................................................................. 27
U.S.-Flag Fleet ............................................................................................................................. 27
Flags of Convenien.ce ..........................................................I........................................................ 28
The Shippers ............................................................................................................................... 30
Domestic ("Jones Act") Shipping .............................................................................................. 31
Tug and Barge Operations ......................................................................................................... 34
Offshore Oil and Gas Operations .............................................................................................. 34

CHAPTER 5: THE LAND-SEA INTERFACE IN MARINE TRANSPORTATION ......................... 37

The Hub of Maritime Commerce ............................................................................................. 39
Ports, Harbors, and Terminals .................................................................................................. 41
The Federal Role in Port Development .................................................................................... 44
Shipyards ..................................................................................................................................... 45

CHAPTER 6: THE CROSSCUTTING AREAS ................................................................................... 51

The Intersect ............................................................................................................................... 53
National Defense Requirements ................................................................................................ 53
Personnel ..................................................................................................................................... 55
The U.S. Coast Guard .................................................................................................................. 56
Other Regulatory Activities ......................................................................I................................. 58
Tugs and Salvage ........................................................................................................................ 59
Science, Technology, and Education Support .......................................................................... 60

VII

CHAPTER 7: SUMMARY, CONCLUSIONS, AND RECOMMENDATIONS ................................... 63

Summary ..................................................................................................................................... 65
Conclusions ................................................................................................................................. 65
Recommendations ...................................................................................................................... 66

REFERENCES AND SOURCES OF DATA .................................................................................. 69

GLOSSARY ........................................................................................................................................ 71

APPENDICES .................................................................................................................................... 73

A. Marine Transportation Panel .................................................................................................... 75
B. Significant Contributors ............................................................................................................. 76
C. Federal Agency Observers .......................................................................................................... 77
D. Meeting Dates, Speakers, and Presentation Topics .................................................................. 78
E. Organizations Represented at the Panel Sessions ..................................................................... 82
F. List of Acronyms ......................................................................................................................... 83
G. "A Program for the Development of an Effective Maritime Strategy"
(by Presidential Candidate Ronald Reagan, September 15, 1980) ...................................... 84
H. "Statement by Presidential Candidate Ronald Reagan on Shipbuilding"
(August 19, 1980) .................................................................................................................... 87

Vill

FOREWORD

On May 18, 1979, 41 Members of the House of Representatives and 12 Senators cosigned a
letter to the President requesting that he designate the decade of the 1980s as, "The Decade of
Ocean Resource Use and Management." In November 1979, the Assistant to the President for
Domestic Affairs and Policy wrote to the National Advisory Committee on Oceans and Atmo-
sphere (NACOA) that "well-defined goals are necessary to making the Decade meaningful."
NACOA agreed to define such national ocean goals, and objectives in several critical areas, including
marine transportation, the subject of this report.
The NACOA Panel on Marine Transportation, consisting of NACOA members Don Walsh
(Chairman), Jack Van Lopik, and Michael Naess, held its first meeting on September 12, 1980.
Five subsequent meetings were held in November 1980; Januar y, February, and May of 1981;
and January of 1982, at which times speakers from government, maritime industry, and aca-
deme made 33 presentations focusing on key issues dealing with the U.S. marine transportation
system. A total of 43 government, industry, labor, and academic groups were represented. Appendix
D lists the meeting dates and corresponding speakers and presentation topics. The membership
of the Panel and the participation of others interested in the topical issues comprised consider-
able expertise from marine transportation constituencies and represented a fairly comprehen-
sive cross section of the industry (Appendices 13, C, and E).

From the outset, it was our intent to conduct an "audit" where representatives of each key
constituency in the U.S. marine transportation area could present their views on perceived con-
straints and opportunities for this industry. The NACOA Panel on Marine Transportation and
those contributing to its@ work permitted expert interactions with each speaker by eliciting
suggestions and ideas for possible remedies for each of the problem areas. From the Panel's
consideration and assessment of the many viewpoints and items presented come the conclu-
sions and recommendations found in our final chapter.

NACOA offers its report on marine transportation as a contribution to the contemporary
dialogue on this issue among the various sectors of our society, and as one key part of the
Committee's larger effort to define national ocean goals and objectives.

The NACOA Panel on Marine Transportation is indebted to the generous contributions of
the many people who prepared presentations for our meetings as well as those who participated
in the discussions. We have listed in Appendix B the names of those who offered valuable
insights to the NACOA review and to the formulation of the record. In addition, we wish to
acknowledge the dedicated staff assistance of LCDR Richard Wigger, U.S. Coast Guard, Robert
Gary, NACOA, and Steve Risotto, NACOA.

It must be noted here that the report does not necessarily reflect the views of any of the
individuals who participated with us or who provided information. The contents of the report
and the recommendations made are the responsibility solely of the National Advisory Commit-
tee on Oceans and Atmosphere.

EXECUTIVE SUMMARY

The National Advisory Committee on oceans and The remaining 12 commercial yards predict that
Atmosphere (NACOA) is concerned about the deteri- their order books will go to zero in the next 3 to 4
orating situation found in many parts of the U.S. marine years, if current trends continue.
transportation system. In brief, the following sum- Although the growth of world trade has leveled
marizes some of the major problems and existing off owing to the poor state of the world economy
conditions: and the present oil glut, it is clear that world trade
�In 1950, the U.S. merchant marine ranked first in will expand in the future. The diverse, but effec-
the world (by deadweight tonnage); by 1980, we tive, assistance programs of foreign governments
ranked eighth, despite significant government sub- greatly aid foreign ship operators and their ship-
sidy programs designed to cover differential oper- yards in competing with the United States. These
ating and construction costs between the U.S. mer- direct and indirect government subsidies keep
chant marine and its foreign competition. foreign-flag industries in "good track position"
�Although the United States is the major trading for the time when world trade will move into a
nation in the world, foreign-flag vessels carry over more vigorous growth mode. The United States
does not now have such effective programs.
96 percent of our exports and imports (on a ton- Merchant marine and shippi Ing acts dating to the
nage basis). In fact, foreign-flag ships of only seven early part of this century identify and attempt to
nations transport 75 percent of our international remedy many of the problems facing the U.S.
waterborne commerce. marine transportation system. Yet, these acts have
�The five major maritime shipping nations, the Sovi- not effectively maintained an American merchant
et Union, Greece, Japan, Norway, and the United marine capable of meeting our national security
Kingdom, carry from 50 to 32 percent of their for- needs.
eign trade in their own flag vessels. The United
States carries only 4 percent. There are recent indications of potential improve-
�Employment in the U.S. maritime industry has ment as a result of actions taken or being considered
dropped drastically in the past 10 years. Seagoing by Congress, the Reagan Administration, and the indus-
employment has plunged 65 percent from 1965 try. Some of these are:
to the present. In the shipyards, employment of Drastic reduction of the domestic regulatory
skilled workers devoted to merchant ship construc- framework that is unequally imposed on U.S. ship
tion has dropped by 71 percent in only the past operators in competition with foreign-flag oper-
seven years. Most of' this decrease in maritime ators.
employment is caused by the competitive disad- * Recognition and removal of subsidy programs that
vantage of U.S. ship operators and shipbuilders. do not work and the consideration of new, more
�Senior U.S. military planners seriously doubt effective programs.
whether the United States has sufficient sealift - An increased Navy shipbuilding program that will
capability (which must come largely from the provide work and upgrade part of the shipbuild-
commercial sector) to meet our military assistance ing base.
treaty commitments throughout the world. - Increased military development and use of char-
�The 27 U.S. shipyards that comprise the active base tered commercial vessels for military sealift re-
of major U.S. shipbuilding capability are in seri- quirements. This also will stimulate new vessel
ous trouble, and unless the government takes vigor- construction and older vessel conversion for these
ous offsetting actions, some yards will be forced charters.
to close in the next couple of years. A move towards Congressional consideration of a
�The U.S. Navy's expanded shipbuilding program national cargo reservation formula that will help
to construct 150 new vessels will assist the ailing the United States match the practices of many other
foreign states that reserve percentages of their
industry, but 75 percent of the work will go to imports and exports for their flag vessels.
just four yards and, only 15 of the 27 yards are A close relationship between maritime labor and
now equipped to build military vessels (warships). industry to develop better work practices leading

to cost savings, a better competitive position, and - National security
more growth (and thus more jobs) for the U.S. - World trade and its implications on marine
merchant marine. transportation ,
Special, limited incentives to assist the U.S.-flag a U.S. domestic marine shipping trades
operator in international trade to replace and a Ports, workers, and terminals
upgrade his ship assets through @oreign construc- a U.S. policies and regulations
tion and acquisition. e Foreign government policies for marine trans-
portation.
National Security: NACOA has observed that:
The Basic Determinant (a) Congress and the Administration have
affirmed for the past 60 years that a U.S.-
A basic question that requires policy reaffirmation flag marine transportation industry, with
at the highest levels is whether or not a U.S.-flag mer- the supporting industrial base, is essential
chant marine is vital to our national security* inter- to our Nation's national security in peace
ests. From a pure "free-market economics" point of and in times of emergency.
view, it might seem highly desirable to let foreign (b) Legislation and Federal Government reg-
treasuries and companies subsidize both the carriage ulati@n, programs, and subsidy supports
of U.S. maritime trade and the cost of vessels built have not had the desired impact on the
overseas. These would then become subsidies to the U.S. marine transportation industry.
U.S. economy. It is our view that certain actions should be initiat-
However, our review points to the weaknesses of ed or expedited if the U.S. merchant marine is-to devel-
our current marine transportation system. We lack op and fill the major security and economic role that
control over a substantial portion of our maritime agrees with proclaimed U.S. policy.
imports and exports. Military advisors warn us of the NACOA's recommendations, which derive from its
inability of our merchant marine to meet treaty broad overview of the major elements of this indus-
obligations and wartime needs. And as our shipbuilding try, are the following:
base disappears so does our emergency or wartime
construction surge capability. 1. The Construction Differential Subsidy program
should be eliminated by Congress through amend7
if' national security is key, then the time has come ments to the Merchant Marine Act of 1936.
for the U.S. merchant marine to again emerge as a 2. the Maritime Administration should initiate
strong force in our trade. This implies a regulatory discussions with the liner operators to encour-
structure and operating environment competitive with age early termination of Operating Differential
that of foreign-flag operators and their respective ship- Subsidy contracts and eventual elimination of
building bases. The Merchant Marine Act of 1936, Presi- the program.
dent Reagan's 1980 pre-election statements on our mar-
itime industry, and many other Congressional and Pres- Simple removal of subsidy assistance without a
idential statements point to the importance of a via- simultaneous offset of new remedies and incentives
ble U.S. merchant marine to our national security. But, could be a crippling blow to the industry. In our view, it
in the case of the Act, these goals have not been is important that these subsidy reductions be phased
achieved in nearly a half century of effort. Although out at a rate commensurate with the achievement of
some of the statements recommended by President benefits from other actions. Because such remedies
Reagan are being implemented, it is perhaps too soon and incentives for industry promotion can only become
to tell how effectively the Administration's directions effective over a period of time, coordination of the
will be translated into actions benefitting the U.S. recommended reductions in subsidy with the follow-
marine transportation system. ing Actions is essential:
3. The Maritime Administration should promptly
provide competitive incentives for U.S. shipyards
NACOA's Recommendations: to bridge the gap between termination of the
in this repo .rt, our aim has been to assess the ade- Construction Differential Subsidy and other mea-
sures that would offer increased work for U.S.
quacy of U.S. marine transportation in terms of:
yards.
4. Congress should enact legislation to: (a) autho-
The terni national security as used in this report includes not rize closed liner shipping conferences and empower
only national delense but also control over a significant part of the these conferences to collectively set intermodal
transportation systern that keeps our econorny functioning. transportation rates, and (b) permit shippers who

X11

consign cargoes to establish "shippers councils" sels should be made consistent with the accept-
to negotiate collectively with the liner confer- ed standards established by the world's leading
ences. classification societies.
5. Given the recent involvement of the U.S. ship- 9. The Department of Defense (a) should be en-
building industry in the task of rebuilding our couraged to continue to shift to the private
naval fleet and given the absence of Construc- sector the ownership of andlor the contract'
tion Differential Subsidy funds, the Maritime management for the major share of its noncom-
Administration should relax restrictions gov- batant (sealift and service support) ship capacity,
erning the current Operating Differential Sub- and (b) should be urged to continue to offer
sidy (ODS) program as follows: charters of sufficiently long duration to en-
(a) U.S. shipowners should be permitted to qualify courage operators to build or buy vessels through
for ODS with respect to foreign-built vessels utilizing their own in vestment funds.
registered under the U.S. flag provided they 10. The current review of regulations affecting the
otherwise meet the criteria for qualifications, U.S. maritime industry by the Presidential Task
and Force on Regulatory Relief should be expedited.
(b) U.S. shipowners should not be disqualified IL Congress should take the lead in formulating
from ODS, when they would otherwise quali- national cargo policy within an expanded sys-
fy, simply by reason of operating other ves- tem of bilateral agreements.
sels in foreign -flag shipping activities. 12, The Department of State should expedite the
development of an effective response to, the
This does not contradict our recommendation to ter- Code of Liner Operations of the U.N. Confer-
minate the ODS program; it simply recognizes that, ence on Trade and Development (UNCTAD).
in the interim, some immediate adjustments need to 13. The Title XI and Capital Construction Fund pro-
be made to.the ODS program to make it work more grams should be preserved by the Maritime
effectively while means. are found to reduce and everi- Administration with their benefits remaining
tually terminate the program. applicable solely to vessels of U.S. registry
6. U.S. ship depreciation allowances and schedules constructed in U.S. shipyards.
should be made competitive with those provid- 14. The Maritime Administration should increase
ed by foreign governments for their merchant the level of its support for research and devel-
fleets. opment and coordinate its efforts with those
7. Congress and the Administration (a) should sup- of the industry.
port continuing Federal investment in major port We recognize that some of the recommendations in
developments in the interest of national securi-
ty and (b) Congress should pass legislation that this report imply costs to U.S. taxpayers. However,
would greatly streamline the planning and with the stated U.S. policy that a strong merchant fleet
permitting process for port improvement devel- and shipbuilding industry are of high priority for
opments. national security, the costs for achieving a strong U.S.
8. U.S. Coast Guard regulations relating to design maritime industry should be considered along with
and standards of construction of U.S.-flag ves- those of the Department of Defense.

X111

Chapter I
Introduction

The NACOA Report .......................................................................7

CHAPTER I
INTRODUCTION

As the world's largest trading nation, the United States Much "ideological mythology" surrounds the ques-
recorded $8 billion for ocean shipping services in its tion of what is wrong with the U.S. merchant marine.
balance of payments in 1980. Of this amount, 54 percent Suggested causes include: 1) Costly labor practices; 2)
of' our exports and 68 percent of our imports, by value, inefficient operators; 3) poor quality workmanship; 4)
required maritime shipping. Marine transportation car- bad management by shipping companies; 5) irrational
ries about 99 percent of U.S. import-export cargo ton- and uneven interpretation of the laws by Federal
nage, but U.S.-,flag ships carry only 4 percent by ton- agencies; 6) overregulation; 7) predatory practices by
nage; 27 percent of our general cargo (liner operations), foreigners; and 8) Federal subsidies that may have dis-
and about 2 percent of our bulk cargo trades. Simply couraged efficiency. A bit of truth exists in each of these
stated, foreign-flag vessels transport 96 percent of statements. The U.S. 'marine transportati .on system
American trade. requires constructive and prompt action to arrest the
What are the net losses to our economy in paying for
foreign carriage of our trade? The answer to the ques- Table I.-Percentage of a Country's Imports
tion is not easily developed nor resolved. Not only do and Exports Carried by its own Merchant Fleet
the revenues and multiplier effects of U.S.-flag ships of the Major Maritime Shipping Nations, 1979
have to be considered but so do those of U.S. shipyards
that Would build and repair U.S-flag vessels to a great-
er degree if our fleet were larger. American ports and Rank by
harbors also might gain added economic benefits through Deadweight Percentage
increased purchases of domestic goods and services by Tons in Number Deadweight of Trade
U.S. operators. However, if transportation costs for Nation 1979 of Ships, Tonnage' Carried
U.S.-flag vessels are higher than foreign-flag vessels, Liberia' ....................... 1 2,380 158,702 -
a requirement to use U.S.-flag vessels extracts a cost Greece ........................2 2,876 63,542 48
from other parts of our economy. Japan .........................3 1,751 61,192 39
United Kingdom ....... 4 1,110 41,937 32
Our economic well-being and thus our national securi- Norway ...................... 5 632 39,494 37
ty are dependent upon marine transportation for about Panama' ..................... 6 2,347 35,257 -
Soviet Union ............. 7 2,512 21,590 50
90 percent of the vital strategic materials required to United States' ............ 8 569 20,540 4
support our economy. We must question how much we France ........................9 359 19,884 24
wish to rely upon foreign carriage of these products vital Italy ............................ 10 624 18,489 25
to our national security. Although a massive interna- Spai114 ......................... 11 506 l2f656 46
tional conspiracy to deny the United States raw mate- Federal Republic
rial imports is most unlikely, many troublesome aspects of'Gerniany ........... 12 502 12,485 16
surround a lack of control over some significant volume I Includes only oceangoing vessels of 1,000 gross registered tons
of' this trade. Many analysts who have studied the bal- and over.
ance of' international maritime trade believe national Liberia and Panama are the two major flag of convenience nations.
flag carriage of 40 to 50 percent (tonnage) of a maritime Includes only privately owned vessels. Does not include the U.S.
nation's trade is a healthy level. Whether 40 or 50 percent Government-owned fleet, which in 1979 consisted of 296 vessels of'
3,049,000 dwt.
or a lesser figure is the appropriate balance, clearly a 4 Value for Spain's percentage of trade carried is for 1976.
4-percent level is much too small from a national securi-
ty point of'view. Sources: Maritime Administration. 1979. Merchant Fleets of the
World. office of Trade Studies and Statistics, Washington,
Table I is a stark comparison of U.S. performance with D.C.
that of' I I other major merchant fleets. It should not Maritime Administration. 1981. Maritime Subsidies. Office of
be surprising that as recently as 1977 the Soviets and International Activities, Washington, D.C., p. 148.
their growing state-owned merchant fleet carrie Id more Transportation Institute. .1982. office of Government Re-
ofour trade than we did. lations, Washington, D.C.

present downward spiral. Many of the current dif- offshore service industry. Several coastal States
ficLilties, will be influenced by such contemporary forces are now bringing suit in court against these actions.
as the state of' our economy, increasing maritime nation- The Construction Differential Subsidy (CDS) pro-
alisin by foreign states, and the fundamental economic gram has been zero-funded since fiscal year 1982.
policy directions of the Reagan Administration. The Maritime Administration is not executing new
Marine transportation is changing rapidly both within contracts under the Operating Differential Subsidy
our country and overseas. Since we began our NACOA (ODS) program and is attempting to negotiate early
review in late 1980, several key events have occurred termination of existing ODS contracts with some
in the United States: liner companies.
-In 1982, American shipyards acquired only three
� The Omnibus Maritime and Regulatory Reform, new orders for ships 1,000 gross registered tons or
Revitalization, and Reorganization Act of 1979 was more; no new orders have been placed in 1983.
the subject of extensive hearings; however, it failed *In March 1982, the House Merchant Marine and
to pass out of the House of Representatives. Fisheries Committee passed a bill intended to facili-
� The Senate's Ocean Shipping Act of 1980 failed to tate and streamline port developments and im-
pass the House of Representatives. provements (the Port Development and Navigation
� The Shipping Act of 1981 failed to pass the Senate. Improvement Act of 1981, H.R. 4627). A similar bill
� Presidential Candidate Ronald Reagan issued two had been passed by the Senate Committee on En-
statements on the U.S. maritime industry, one giving vironment and Public Works in December 1981 (the
an eight-point program for its revitalization, and National Harbors Improvement and Maintenance
the other dealing with its shipbuilding base. (See Act of 198 1, S. 1692).
Appendices G and H.) -The United Nations Law of the Sea (LOS) Confer-
� In August 1981, the Maritime Administration was ence voted to adopt the Convention (Treaty) on the
transferred from the U.S. Department of Commerce Law of the Sea on April 30, 1982. Subsequently, the
to the U.S. Department of Transportation. United Nations General Assembly ratified this
� Foriner Secretary of Transportation Drew Lewis, action. The Treaty will come into force when 60
as the Reagan Administration's maritime spokes- nations have ratified it. The United States voted
man, in December 1981, announced the Adminis- against adoption, and President Reagan has indicat-
tration's intention to propose sweeping reforms ed that the United States will not sign the Treaty.
of' the unequal antitrust regulations that apply to The Treaty may have some impact on marine trans-
U.S. shipping operations in U.S. foreign trades. portation activities through freedom of navigation,
� Vice President George Bush began a Presidential Task rights of transit, and establishment of pollution con-
Force on Regulatory Relief, which will presum- trol over shipping.
ably lead to some regulatory relief in the U.S. marine -In mid-1982, the Reagan Administration asked the
transportation system. maritime labor unions to accept pay freezes. The
� The Economic Recovery Tax Act of 1981 created a reaction from labor was mixed, with some unions
general tax relief environment that leads to more agreeing and others rejecting the request.
favorable tax treatment of the U.S. marine trans- aIn May 1982, then Secretary of Transportation Drew
portation industry. For example, the depreciation Lewis announced the "first phase" of the Admin-
period for a ship has dropped from 14.5 years to 5 istration's proposed national maritime policy.
years. This phase proposes:
� Defense spending increases will stimulate improved - To permanently allow U.S.-flag ship operators to
commercial shipping activity where such ship- build vessels overseas, to put them under the
ping can be chartered to the U.S. Department of U.S. flag, and to allow the ships to be eligible
Defense (DOD). This is also in line with President for ODS.
Reagan's policy to get the government out of areas - To create a DOD-owned, contractor operated
where the private sector can be more efficient. fleet of "Defense- relevant multi-purpose carriers."
� The U.S. Navy's shipbuilding program will be greatly - To allow foreign investment in U.S.-flag shipping
increased. This should help modernize and main- companies involved in foreign trade to rise from
tain a significant segment of the U.S. shipbuilding a permitted maximum of 49 to 75 percent.
industry. - To remove the 50-percent tariff duty on overseas
� The Reagan Administration announced a strong repairs of U.S.-flag ships.
cornmitment to the establishment of user fees. Con- - To exempt salaries of U.S. seamen from income
taxes.
gress has generally opposed the user fee initiatives. - To improve the efficiency of the existing ODS
� Secretary of the Interior James Watt has accelerated program through administrative reform.
leasing schedules for the U.S. outer continental shelf - To reduce unnecessary regulation in shipbuild-
area, which could increase opportunities for the U.S. ing and ship operations.

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In this 1900 campaign poster, Presidential Candidate William McKinley focussed on major issues dealing
with our country's rapid industrial expansion. Between 1870 and 1900, the gross national product of
the United States had grown by 82 percent. Clearly linked to McKinley's "prosperity at home and
prestige abroad" was maritime commerce.

CREDIT: Smithsonian Institution, Washington, D.C.

- To eliminate rate regulation of U.S. domestic time. A careful reading of the Shipping Act of 1916 and
trades by the Federal Maritime Commission. the Merchant Marine Acts of 1936 and 1970 conveys a
� In August 1982, Congresswoman Lindy Boggs intro- sense that the national policy statements needed to sup-
duced the Competitive Shipping and Shipbuilding port and stimulate improvement in the U.S. marine
Revitalization Act of 1982 (H.R. 6979). This Act transportation system have been well articulated. If this
would have used the mechanism of gradually is the case, then why have these acts not effectively met
increased cargo reservation (preference) to U.S.-flag their original purposes and the needs of today? Perhaps
operators for U.S. bulk commodities (coal, grain, the principal answer rests in their not being adminis-
oil, etc.) to stimulate construction of a bulk carrier tered with consistent full vigor and understanding. In
fleet under the U.S. flag. addition, Congress and the Executive Branch have not
� In August 1982, former Transportation Secretary maintained these acts as "living legislation." This
Lewis announced "phase two" of the proposed requires frequent review and modification as the marine
maritime policy that would increase the ceiling transportation world changes at home and abroad. Such
on Federal loan guarantees for shipbuilding (the is the difference between policy and the policy-opera-
"Title Xl" Program) from $600 million to $900 mil- tion framework; one is static, the other dynamic.
lion. Also, the Administration's support for the Not all aspects of U.S. maritime interests are in seri-
Jones Act provisions of reserving U.S. domestic trade ous trouble. The U.S.-controlled shipping of the world,
to U.S.-built and U.S-manned vessels was restated. called "flags of convenience" or "open registry" vessels,
� In September 1982, the House of Representatives accounts for a fleet that has nearly three times the
passed the Shipping Act of 1982, H.R. 4374. The Sen- tonnage of the U.S.-flag merchant marine. These are
ate failed to pass a similar bill (the Shipping Act of almost all bulk carriage vessels and represent about one-
1982, S. 1593) before the 97th Congress adjourned. quarter of the world tonnage in open registry. Thus,
The Senate version largely corresponds with the U.S. capital and management are, in a way, major forces
Administration proposal. in the world's marine transportation industry. Such ves-
� In December 1982, legislation (P.L. 97-389) prevent-
ing foreign seamen working for U.S. companies in sels do not employ American seamen nor were they
foreign waters from filing suit in U.S. courts unless built in American yards, and because of preferential
they have no other recourse was signed into law. tax treatment, they probably add little economic ben-
efit to our economy. Finally, even though U.S. owned,
Although not an exhaustive catalog of the events there is some uncertainty as to their usefulness to our
affecting the U.S. marine transportation system over count .ry in times of national emergency.
the past two years, this listing demonstrates the dynarn-
ics of this system over a fairly short period. Moreover, Our offshore oil and gas industry is supported by a
the positive and negative impacts of these actions are large U.S.-owned and operated fleet of over 2,000 units
not assessed here. Since the time of the Revolutionary (of a world total of about 4,000). This fleet is generally
War, myriad major government actions have been initi- in excellent financial condition although the current
ated in the name of improving our U.S. marine trans- oil glut has temporarily depressed its operations. In the
portation system. Most of these actions have been area of support for the offshore oil and gas industry,
ineffective and have not provided this Nation with need- the United States is often competitive in building and
ed Continuity and growth for its marine transportation selling vessels, platforms, etc. to foreign operators.
system. instead, we have seen more of a "sawtooth"
cyclical response-up in times of national emergency The promising prospect for a major future U.S. export
and down in times of peace. Beginning with George trade in coal could provide opportunities for the con-
Washington, more than 25 of our presidents have struction and operation of a U.S. dry bulk carrier fleet.
attempted, with the support of Congress for the most But the U.S.-flag bulk carrier fleet (of all types) engaged
part, to formulate a merchant marine policy. Histori- in foreign trade consists of only 48 vessels, most of which
Cally, Such policies have failed due to dual lack of con- are near the end of their service lives; only 20 dry bulk
sistent view of maritime needs and continuity of leader- vessels (colliers, general bulk, ore/bulk/oil, tug-
shill. barge) operate under the U.S. flag (1981 figures). Con-
Many continue to suggest that our Nation needs a sequently, for the United States to stake its claim in an
"Nalional Maritime Policy," with a high-level policy expanded coal trade, Federal policies would have to be
official leading its administration. In fact, the Reagan modified, possibly including some cargo reservation for
Administration is expressing its proposed maritime pro- U.S.-flag vessels. The capitalization and construction
gram elements as parts of such a policy. Its chief spokes- of the needed ships would take several years. In view
man is a cabinet officer, the Secretary of Transportation i of the world oil surplus and the reduced pressure for
The history of past Presidential administrations and rapid expansion of the coal trade, the United States has
Congresses shows that maritime policies (perhaps more time to plan and develop its bulk fleet and associated
corrcctly, micropolicies) have been with us for some port facilities.

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The U.S. dry bulk fleet has declined from 32 vessels in 1972 to 20 vessels in 1981. This fleet, including the PRIDE OF TEXAS,
comprises less than I percent of the world dry bulk tonnage.

CREDIT: Transportation Institute, Washington, D.C.

The NACOA Report Trade routes reserved to the United States in U.S.
coastal waters and between U.S. Territories and
Iii our examination of the complex of elements Possessions (i.e., "Jones Act Trades"). Ship opera-
comprising U.S. marine transportation and the maritime tions supporting offshore oil and gas development
industry, we have focussed on those issues that we also are considered, including U.S. companies
believe pose major problems for the entire system. We operating in foreign waters.
have reviewed activities with respect to: The land-sea interface in terms of harbor, port, and
9Changes hi patterns of international trade and their terminal operations; ship construction and repair
impact on the world's marine transportation systems. industry; and other issues, such as intermodal
9Changes in foreign marine transportation activities connections, port services, and navigation/traffic
as they respond to market pressures, national and control.
international policies, and new technological op- "Crosscutting areas," i.e., activities that follow
portunities. U.S. marine transportation activities no matter
9Regulations and policies of the Federal Government where they operate, such as national defense, labor,
that govern the U.S. marine transportation indus- regulation, etc.
try, as well as attempts to apply our rules to for- We also are sensitive to the economic realities ex-
eign operators in U.S. trades.
oOperations and types of carriage of the U.S. ocean- pressed by the present Administration. We do not
going (bluewater) merchant marine fleet; the suggest that huge sums of new Federal money be pushed
question of U.S.-controlled (open registry) ships; into this industry (an unrealistic expectation). In-
and viewpoints of the customers and shippers who stead, we point to fundamental policy changes, relief
use these fleets. in regulatory burden, and tax incentives that could stim-

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in World War 1, the U.S. Shipping Board's Emergency Fleet Corporation orchestrated one of the greatest shipbuilding efforts
the world has ever seen. The U.S. Shipping Board, established by Congress in response to the heavy demand for ships from the
Allied forces, set up the Emergency Fleet Corporation to request, lease, purchase, and build vessels. This effort brought as-
sembly line production to American shipping.

CREDIT: Smithsonian Institution, Washington, D.C.

ulate positive change and help begin the long task of vices to the United States at discounted prices. However,
reconstructing our Nation's merchant marine and its if we believe our national security requires some sig-
supporting industrial. base. It is encouraging to note that nificant fraction of vital imports and exports to move
both the Administration and Congress are moving in in U.S.-flag controlled vessels, then the economic cal-
this same direction. culus becomes a bit more difficult. National security
Perhaps the fundamental issue to be addressed before then enters the realm of policy consideration, The ancil-
all others is: What is the national interest in having a lary benefits of a pool of trained U.S. mariners and the
strong U.S.-flag merchant marine with the attendant maintenance of a surge capability in our national
shipbuilding base? Certainly, our shipping services exist shipbuilding industrial base are important related
to serve the purpose of moving our foreign trade, which considerations. Moreover, as we note in Chapter 6, the
is vital to our economy. And, certainly, the shipping United States is tied to over 40 mutual assistance trea-
services should be provided as economically and com- ties overseas, and senior military planners have ex-
petitive ly as possible for the good of the entire econ- pressed doubts about the ability of our shipping assets
orny. There are some, therefore, who believe that on a to meet significant emergency demands. The case for
simplistic economic basis, we should take advantage or against a viable and healthy maritime industry for
of' foreign shipyards and ship operators, who are sub- our country must be developed on more than simple
sidized by their treasuries and who offer goods and set- economic questions alone.

Chapter 2
The Growth and Changing
Nature of World Trade:
implications for
Marine Transportation

The Shape of World Shipping ....................................................... I I
The United Nations Conference on Trade and Development
Code of Conduct for Liner Conferences ..................................... 12
National Subsidies .......................................................................... 15
Policy Implications for the United States ..................................... 15

CHAPTER 2
THE GROWTH AND CHANGING NATURE
OF WORLD TRADE:
IMPLICATIONS FOR MARINE TRANSPORTATION

The Shape of World Shipping er necessary on a contract basis. Bulk cargoes are those
raw materials usually shipped in large quantities (full
The volume of' international trade and the distances shiploads) between ports. The bulk trades are as close
over which this volume is transported mold the shape to a free market system as one gets in international ship-
of' world shipping. In addition, the demand for ship- ping, with essentially no regulation. Wet bulk carriage
ping is affected by political and natural events, and vari- refers primarily to the transport of oil. The primary fea-
OLIS production technologies, including the inventory ture in the wet bulk area today is the shift of control of
policies of'the various manufacturing companies. oil transport away from the oil companies. In the dry
Since the end of World War II, and particularly in bulk sector, the major feature is the increase in inter-
the past 15 years, there has been a rapid growth in the national coal trade.
Volume and distances of world trade which, coupled Under all reasonable future scenarios for world eco-
,with the emergence of new nation states, has affected nomic growth, world trade is expected to grow, albeit
the size, number, and type of ships as well as the eco- at a low rate and with much uncertainty as to what the
nomic and political conditions under which these ships relative developments in the different trades and com-
operate. modities may be. The expectations for the decade of
The increasing cost of fuel has been another impor- the 1980s are for the increased demand primarily for
tant factor in the increased shipping demand of recent shipping in liner trades. The present "oil glut" is expected
years. High energy costs have made slow steaming a to be worked off in the next three to four years at which
desirable and efficient alternative for shippers. These time gradual price increases will begin. The offsetting
slower speeds have increased the demand for ship impact of decreased demand due to conservation al-
tomiage, because a given volume needs more cargo to ternative energy sources, and price resistance is diffi-
be profitable. Stockpiling of goods, were it to become a cult to assess. As oil prices increase, the substitution of
common practice, also would temporarily increase coal for oil is expected to have a dramatic effect on the
demand for shipping. coal trades. A switch from oil-based technology to coal-
based technology would naturally stimulate greater
TO Understand international shipping, it is important demand for coal production and associated transport
to recognize that it exists in two forms, the liner trade systems. The U.S. interagency Coal Export Task Force
and the bulk trade. Bulk carriage can be further divid- (ICE) has estimated (1980) that the demand for U.S. coal
ed into wet (oil, chemicals, etc.) and dry (coal, grain, would be primarily in the export market. However, it
etc.) cargo. Each segment has its own unique set of cir- would seem that if substitution of coal for oil is economi-
curnstances and problems. cal for our foreign customers, it also may be economi-
Liner trade can be compared to a bus system, in which cal domestically. In that case, competition for the coal
oceaii carrier vessels are operated on a predetermined may well result in a lower export increase than fore-
and fixed itinerary over a given route, at regular inter- seen by the ICE Task Force.
vals, carrying general cargo. The ship operators are on the whole, the volume of trade and its rate of
referred to as common carriers. It is in the liner trade growth in the 1980s are expected to be sufficient to pro-
that one finds the system of conferences, or associations vide a basis for ocean shipping activity of the charac-
of common carriers whose purpose is the self-regulation teristic "feast and famine" type. This cycle is created
of price and service competition. by our inability to level out and maintain merchant
If' the liner trade can be compared to a bus system, marine assets and supporting shipbuilding base through
.the bulk trades, wet and dry, resemble a taxi system, economic up and down trends. Assets and capabilities
in which vessels carry cargoes wherever and whenev- dissipate in down cycles while replacement in up cycles is

time consuming and very costly compared to a "steady stipulate the conditions for carriers participating in its
state" situation. What may be of greater importance own trade, that trade is now too small to carry these
for shipping operations are the changes in international conditions over into the world shipping scene. At the
political and institutional arrangements. Of interest here same time, international trade has become more impor-
are the United Nations Conference on Trade and Devel- tant to the U.S. economy. While in 1970, exports and
opment (UNCTAD) Code of Conduct for Liner Confer- imports accounted for about I I percent of our Gross
ences (the "Code"), the issue of state -controlled trad- National Product (GNP), that proportion had risen to
ing, and the new Law of the Sea (LOS) Treaty. 21 percent, 10 years later.

Although the world trade picture is primarily de- Hence, the basic effects of the growth and changing
pendent upon prospects for economic growth within nature of world trade on the United States have been:
the Organization for Economic Cooperation and Devel- rapid growth in non-U.S. related trade; rapid growth
opment (OECD) and the major Asian shipping countries of world tonnage and the proliferation of national mer-
(South Korea, Taiwan, etc.), the developing countries, chant marines; a weakening of the U.S. position as the
particularly the Pacific Rim states, also are expected to major force affecting the operating conditions of the
play a major role in determining future trade growth. world shipping industry; and a U.S. economy increas-
Sources and markets for internationally traded goods ingly dependent on international trade.
have shifted, and the developing countries have become If we do not increase our U.S.-flag shipping assets,
increasingly important participants in international then the U.S. seaborne trade will become increasingly
trade. These countries represent 84 percent of the world's dependent on foreign-flag carriers over whom we
coastal nations and many have emerged as modest ship- will have increasingly less leverage. The national security
ping powers. Some of these developing countries have implications of this development must be considered.
attempted to emulate the model of the Organization of Figure I paints a vivid picture of the lack of growth of
Petroleum Exporting Countries (OPEC) in setting up our merchant fleet compared to that of five other nations
commodity cartels for items, such as bauxite, copper, whose growth is rapidly expanding.
and coffee, but none have been successful.
Overlying the entire maritime scene are international Percentage- of Merchant Fleet Growth 1970 to 1981
conventions and treaties (i.e., actions of the International 6901161,
Maritime Organization [IMOD that affect our domestic
industry in all its aspects. Additionally, the Law of the
Sea Treaty with its provisions in areas, such as freedom of 440%
navigation, transit, and pollution, may affect these
industries in as yet undetermined ways, particularly
because the President has indicated the United States
will not sign the treaty. 135 146%
71%
All of' the above developments have resulted in, a more
complex and competitive environment for shipping car- -2%
riers where attendant problems are increasingly resolved
through high-level political processes involving the
trade and foreign policies of the trading partners. In 0%
other words, shipping issues are becoming increasingly I A A AA-A% A A A
U.S. USSa. France Mexico S. Korea China
political rather than commercial in nature. We have Satirce Merchant Fleets of the World Maritime Adrnin@trcdion
a new environment for world trade and shipping, and
we must recognize this fact and modify our maritime Figure 1. -Comparison of Merchant Fleet Growth from 1970 to 198 1.
policy accordingly.

The greater the number of trading partners and trading
areas, the less will be the relative influence, over time, The United Nations Conference
of an), single partner or area. Therefore, even a major on Trade and Development
trading nation, such as the United States, tends to lose
some economic leverage, vis-a-vis the rest of the trading (UNCTAD) Code of Conduct
world, by virtue of its decreasing trade share. For exam- for Liner Conferences
ple, the proportionate share of the United States in world
trade has declined from about 50 percent Jn the 1950s Perhaps the most important recent policy develop-
to about 20 percent in 1980. With its trade becoming ment for global maritime operations is the UNCTAD
less important for world shippjng, the United States is Code of Conduct for Liner Conferences, which is close
less able to influence the conditions under which world to ratification. The Code would create a framework for
shipping operates. Although the United States can still national control of the international liner shipping

industry. It would ensure that the majority of liner cargo companies. Already, state -controlled shipping (gov-
between two states is carried and shared by the trad- ernment owned and/or operated) accounts for 28 percent
ing partners. The Code provides that shipping lines of of the world's merchant vessels and 18 percent of the
the two trading nations be given "equal rights to tonnage capacity.
participate in the liner freight and volume of traffic gen- The extent to which the Code will affect- U.S. trades
e,rated by their mutual foreign trade" with ships of third depends on whether or not the United States becomes
party nations entitled to "a significant part, such as 20 party to the Code. in the absence of acceptance, open
percent." This has generally been referred to as the conferences would presumably remain in U.S. trades.
40-40-20 forumla. The Code's acceptance by the rest We must expect the closed conference system in Code-
of the world, possibly with significant reservations by controlled trades to squeeze out cross-traders, and the
the European Economic Community (EEC), is virtually tonnage released (or in excess) in this manner will
certain. The EEC reservation is basically that the Code's migrate to the open trades of our country. .The effect
guidelines for cargo sharing will be applied in the EEC would be over-tonnaging with excessive rebating (illegal
trade with the developing countries only. The guidelines for U.S. liner companies) by foreign operators. This
will not apply to EEC trade with OECD countries pro- would place U.S. operators at a severe competitive disad-
vided these countries grant reciprocity to the EEC trading vantage and pose problems for the Federal Maritime
partners. The general acceptance of the Code will pose Commission, the Federal agency in charge of monitor-
a problem inasmuch as the United States, the world's ing tariffs of rates and charges of all ocean common carri-
largest trading nation, may be operating outside this ers engaged in U.S. foreign trade.
new international framework for shipping.
The UNCTAD Code is generally considered unac- Whether it would be better for the United States to
ceptable by the U.S. Government. Basic U.S. objections accede to the UNCTAD Code or to enter into its own
to the UNCTAD Code are that it contradicts, or is in con- multi-lateral and bilateral agreements outside of the
flict with, U.S. domestic antitrust statutes, and it also code is a question requiring careful consideration. The
provides for later modification of the Code (a Treaty) United States has had successful bilateral shipping
without observing. our national laws with respect to agreements with a few trading partners. An orderly
advice and consent of the Senate." Despite the inevi- buildup of the U.S. merchant fleet requires access to a
tability of implementation of the UNCTAD Code, the secure cargo base for its rational utilization. Whereas,
United States has resisted.its acceptance. This could ulti- the United States currently carries a fair proportion of
mately result in considerable trade disadvantage to the its liner trade tonnage (about 27 percent), it carries a
United States and the "dumping" of excess world liner negligible proportion of its bulk trade (about 2 percent)
shipping tonnage (excluded from Code trades) into the hence, it is in the latter that the major prospects for
U.S. liner trades. In other words, there would be ship- growth and development are to be found.
ping with no other place to go but into the open U.S. The relative success of the cargo sharing scheme nego-
foreign trade conference system, which is required to tiations for liner trades (the Code) has prompted
take any carrier willing and able to provide regular ser- UNCTAD to suggest a similar scheme for bulk trades.
vice on a trade route. So far the proposal has not gained widespread accep-
tance, although bulk cargo sharing is practiced by some
The Code will create special opportunities for ex- developing countries. Nevertheless, the bulk sharing
pansion of merchant fleets for those countries that have scheme looms on the horizon and may well become an
the cargo volume but not the available ship tonnage. If important concern. This issue is clearly tied with
the United States remains outside the Code, there will attempts by developing countries and others to phase
be no secure cargo base (in terms of the 40 percent res- out f lag- of -convenience, or. open registry, ships-
ervation of cargo) for the building up of a U.S. fleet. vessels operated under foreign registry to avoid unfavor-
For the emerging shipping nations, the situation is able domestic flag regulation. Since a large portion of
somewhat different. Their acceptance of the Code may be the world's flag- of- convenience tonnage is owned by
immediately reflected in national laws protecting their U.S. firms, our interests are dearly at stake. The phasing
shipping from outside competition. Because one of the out of the open registries would bring pressure to bear
important elements of the Code is to mandate a closed on the United States to bring these ships under Ameri-
can flag. There would also be pressure for U.S. accep-
conference system where membership is restricted, tance of the bulk sharing scheme as well. if, in the mean-
shipping companies will seek membership in confer- time, a U.S.-flag bulk fleet has been created in response to
ences where pooling of both revenue and cargoes will a government initiative and forecasts of future coal
undoubtedly be the norm for the future. Given the grow- exports, over-tonnaging is a distinct possibility. However,
ing capital intensity of shipping operations, we should with an orderly phase-in of U.S.-flag bulk shipping,
also expect these companies to receive increasing state such as that prescribed in the 97th Congress by H.R.
aid in their operations. We may see a growing propor- 6979, the Competitive Shipping and Shipbuilding
tion of the trade being carried by state-owned shipping Revitalization Act of 1982, this may not be a problem.

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The world's first liquid-cargo carrier, the GLUCKAUF, built in England in 1886, weighed 3,000 deadweight tons. Today,
tankers, renown liquid-cargo carriers, weigh in the hundreds of thousands of tons and encompass areas ranging the
length of four football fields. The GOLDEN ENDEAVOR, a 90,000 deadweight ton Panamax tanker completed in 1973, is
one of 29 U.S.-flag tankers operating in international trade.

CREDIT: Maritime Administration, Office of Public Affairs, Washington, D.C.

National Subsidies The second development has been much more notice-
able. in the past, oil was sold on long-term contracts
In addition to the UNCTAD shipping issue, there is in large volumes to the major oil companies, and this
the state- controlled trading issue. Its roots are largely necessitated long charters, usually on large ships.
political rather than economic. State-owned shipping However, over the past 10 years, we have seen more
companies operating outside normal principles of cost and more sales to state companies, brokers, and deal-
and profit motives (bent on earning foreign exchange ers, in reasonably small lots on voyage, or a few con-
and expanding political influence) are undercutting secutive voyage, charters. This has meant that the oil
freight rates in various trades and are thus causing havoc companies have released much of the tonnage they pre-
on the traditional trade routes. These companies account viously had on long-term charter. The OECD now cal-
for over 28 percent of world shipping tonnage, and the culates that between 60 and 65 percent of the world
percentage is growing. The Organization for Economic tanker tonnage is in the free market, whereas in the
Cooperation and Development (OECD) has passed leg- past only 10 to 20 percent was in this market. This large
islation to deal with these issues, The United States has free tonnage is depressing rates and causing wide rate
addressed the problem of state -controlled carriers by fluctuations. Consequently, the efficient allocation of
passing the Ocean Shipping Act of 1978. Through this tanker tonnage has suffered.
Act, the tariffs of such carriers are monitored to ensure
they are fair and reasonable if they wish to participate In sum, we now have a fragmented market in terms
in the U.S. market. of charter length and allocation where market control
is shifting from the oil companies to the oil-producing
The People's Republic of China is expected to enter nations. As the oil-producing countries achieve the cen-
into international trade on a massive scale in this decade. tralized control previously held by the oil companies,
China's demand for shipping space will be matched by the consumer nations will become more dependent than
a planned increase in its own flag tonnage. China now ever before on the oil-producing countries. And no
has an impressive fleet amounting to about 10.5 mil- longer will oil companies have the ability to reroute
lion deadweight tons. it is expected to double by the tankers in times of crisis.
mid-1980s. There are potential consequences of these.
events for the United States. if the Chinese tonnage is
acquired and the trade does not materialize, then we Policy Implications for the
would have a situation that greatly resembles the Rus- United States
sian situation in the U.S. North Atlantic and Pacific trades
in the late seventies, where unemployed Russian ves- The United States must consider its options in the
sels entered these shipping markets and undercut the face of the inevitable adoption of the UNCTAD Code
freight rates. That is, we may find unemployed Chinese by the majority of the world's shipping nations.. If we
vessels moving into the open trades of the United States adhere ijoin) to the Code, perhaps with reservations sim-
and playing havoc with the freight market through dis- ilar to those taken by the EEC, the U.S.-flag shipping
counted rates and rebates just as the Russian fleet did industry could be protected from over-tormaging. A
four years ago. On the other hand, should the trade second option would be to engage in an active program of
develop as expected, then under the bilateral shipping seeking bilateral shipping arrangements with our major
agreement with China, the U.S. fleet, particularly the trading partners. We presently have such bilateral
bulk fleet should it materialize, would have an oppor- arrangements, along with certain variations of them,
tunity to have a secure cargo base. with a few nations. To do nothing would simply embrace
Also of' importance to the U.S. bulk shipping indus- all that is wrong in not following either option; there
try are events and developments in the international would be virtually no positive gain for our Nation in
oil market. Two events seem to have changed the situ- this case, As we noted, there is some question as to
ation since the 1973 oil embargo. First was a decision whether the Code runs counter to some aspects of U.S.
by the oil-producing nations to get a share of down- domestic law by putting jurisdiction over U.S. citizens
stream operations which included a greater share of the and corporations in the hands of a non-U.S. system.
ocean transportation link. In the years following the We believe such concerns could be addressed through
1973 crisis, the Organization of Arab Petroleum Ex- some reservations to the U.S. adherence of the Code.
porting Countries (OAPEC) has built up a modest tanker It is wrong, however, to assume that U.S.. adherence
fleet of both crude and product carriers. OAPEC had to the Code would solve all of the problems of the
previously lost a considerable amount of its ability to U.S.-flag liner operations. To be sure, it would provide
control world oil supplies, despite its position as the a strong element of cargo reservation under the 40-40-20
world's major oil source, because it did not control its percent formula, although there are those who believe
own tanker fleet-the heart of the transportation that guaranteed cargo also could guarantee inefficien-
system. cies and higher costs. Moreover, the rate setting pro-

visions of the Code would discourage destructive price in privately owned U.S.-flag ships. To date, the impact
cutting by operators "buying in" to a trade route between of U.S. cargo reservations has been largely ineffective
two states operating under it. On the other hand, the in world trade because of the legislated limitation to
application of U.S. domestic antitrust regulation only the government -sponsored cargoes. Without the as-
to U.S.-flag operators competing side-by-side with surance of cargoes, the U.S. merchant marine will have a
foreign operators (who are exempt from these regula- difficult time competing in world trade. As we have
tions) out of U.S. ports and in the same trade routes, outlined in the preceeding paragraphs, there are several
has provided distinct disadvantages for the U.S. mer- ways to assure cargoes. The primary need is for the
chant marine. In addition, other regulatory restraints, Administration and Congress to consider a total, inte-
applied solely to U.S. operators (e.g., manning, training, grated national cargo policy and then formulate the
safety, etc.), seem to exceed the norms of other major legislation necessary to support it.
maritime fleets and simply add cost burdens for the
U.S.-flag fleet. The U.S. decision on how to respond to The question of maintaining a strong U.S. merchant
the Code's adoption should be coupled with a review marine in the face of an aggressive and expanding inter-
of domestic regulation of the U.S.-flag shipping industry national shipping community really boils down to the
to permit it to be competitive with its side-by-side com- issue of national security. The institutional devices
petition operating under foreign flags. necessary to support and protect a U.S.-flag fleet must
Although the adoption of the Code is perhaps the be competitive with similar devices employed by for-
major international, near-term event that will affect eign shipping companies (and in many cases, foreign
the U.S. marine transportation system, there are other, governments). By and large, these devices amount to
long-term trends that also must be considered. Perhaps both direct and indirect subsidies. If the United States
the fundamental issue is the reservation of cargoes. chooses not to meet this international competition, the
Forty-five maritime states have some form of cargo, res- immediate result will probably be the actual saving of
ervation fbr their flag merchant shipping. This reser- some costs in shipment of our trade through the lower
vation practice often includes both liner and bulk trades. cost, subsidized foreign companies. But the long-term
In the United States, the practice of cargo reservations issues of controlling a significant part of the transpor-
applies only to shipments of government -sponsored tation system that keeps our economy functioning
cargoes (military assistance equipment, imports of and whether or not we have the ships necessary to meet
U.S. government purchases, the U.S.-Soviet grain ship- our military commitments overseas in time of national
metits, etc.) where 50 percent of the cargo must be carried emergency cannot be solved in this way.

Chapter 3
U.S. Government Policies
and Regulations:
Help or Hindrance

The Rules ....................................................................................... 19
Federal Subsidies ............................................................................ 19
Federal Maritime Policies .............................................................. 21
National Security Issues ................................................................. 22
Future Prospects ............................................................................. 23

CHAPTER 3
U.S. GOVERNMENT POLICIES AND REGULATIONS:
HELP OR HINDRANCE

The Rules else because of a closed conference (e.g., the UNCTAD
Code) may choose to enter the open system in the U.S.
As stated in the Merchant Marine Act of 1936, U.S. trades. This often leads to over-tormaging (excess capaci-
policies and regulations are to "foster the development ty), which in turn leads to unrealistic rates and exces-
and encourage the maintenance" of a merchant marine sive rebating by foreign operators eager to "buy in" to
capable of serving our defense and commercial needs. a trade route. In a deferred rebating system, a shipper
The objectives have not been reached and maintained who moves all his cargo with the conference over a
in a consistent way, except in time of war. period of time receives a rebate at regular intervals on
Relative to other major maritime shipping nations, freight payments made in a specified period of time.
the United States has a small merchant marine of about Such,deferred rebating is illegal for U.S. operators.
525 active vessels. (See Table 2 in Chapter 4 for a detailed
breakdown.) in other terms, the U.S. merchant marine
ranks I I th in its number of ships and 8th in its dead- Federal Subsidies
weight tonnage. In 1950, the United States was first in Compared to their foreign competition, U.S.-flag
both categories. operators have higher operating costs primarily because
Today, the U.S. fleet carries only about 27 percent of of their higher crew costs-. Until recently, they also had
the Country's liner trade and 2 percent of our bulk trade, higher shipbuilding costs, because they were required
or about 4 percent by tonnage of the total combined to build in U.S. shipyards to be eligible for various bene-
trade. The resulting high dependence on foreign-flag fits. The Merchant Marine Act of 1936 established the
shipping means that in a time of national crisis, we may Construction Differential Subsidy (CDs) and the Oper-
have difficulties in carrying out policies independent ating Differential Subsidy (ODS) programs to provide
of the interests of foreign powers that control inter- direct Federal aid for the construction and operation
national shipping. We do not have the ships necessary of a U.S.-flag vessel. These subsidies are intended to
to provide for our commerce or, under emergency condi- place U.S. operator costs at parity with foreign competi-
tions, for our military sealift needs.. tors. The Maritime Administration (MARAD) oversees
A significant reason for this state of affairs in liner these programs.
shipping operations is that U.S. operators, because of The Operating Differential Subsidy (ODS) is available
our national antitrust laws, have to follow different rules to the operator of a U.S.-flag liner or bulk vessel, whether
than do foreign carriers in competition in the same trade he owns or leases the ship. The operating subsidy is based
routes. Although the Department of Justice and the Fed- on the difference between the fair and reasonable cost
eral Maritime Commission can at any time pursue anti- of insurance, maintenance, repairs, and wages for a
trust enforcement actions with respect to U.S. operators, U.S.-flag vessel and the estimated cost of the same items
most foreign countries have enacted "blocking statutes" if the vessel were operated under foreign registry.
that make it a criminal offense for their carriers to release
documents to U.S. courts or agencies without their own MARAD and the operator may agree to a lesser amount
government's consent. of subsidy than that which is necessary to achieve parity.
Another effect of antitrust is the requirement for open Operators holding ODS contracts must be U.S. citizens
maritime shipping conferences in U.S. trades. This means and must operate only U.S.-flag vessels. The subsidized
that a conference must accept any and all shipping com- vessel must be operated in the U.S. foreign trade along
panies who want to participate in a particular confer- an essential trade route. Before 1981, a subsidized ves-
ence trade. It also means that any foreign carrier who sel also was required to be built in U.S. shipyards, but
might have been unable to engage in a trade somewhere Congressional action gave U.S. operators a one-year

authority to build ships in foreign yards and put them vessel replacement program, the Merchant Marine Act of
under the U.S.-flag in subsidized operations.* 1936 attempted to link direct government aid to U.S.
Regular, long-term operating subsidy contracts are ship operators and shipbuilders. The Omnibus Budget
written for 20 years. Under the ODS contracts, subsi- Reconciliation Act of 1981 broke this link by allowing
dized operators are required to construct new vessels ODS-assisted vessels to be foreign built. Although this
to replace the existing vessels in their subsidized fleets action benefits U.S.-flag operators, this build-abroad
as they become obsolete. In'accordance with the Reagan authority presents severe problems to U.S. shipyards.
Administration's intention to phase out the ODS pro- Under this temporary authority, MARAD has approved
gram, MARAD has not issued any new ODS contracts the construction or acquisition of 36 new vessels to be
and is negotiating the early termination of existing con- built in foreign yards. The dollar value of this work,
tracts with a few subsidized companies. Currently, exported mainly to Japan and South Korea, is more than
MARAD administers about 150 ODS contracts totaling $1.2 billion.
over $400 million annually. Legislation proposed in the 97th Congress would have
The Merchant M arine Act of 1936, as amended, also extended this build-abroad authority for another year.
provides for a Construction Differential Subsidy (CDS) The Reagan Administration supports the permanent
to build vessels to be used in the foreign commerce of extension of this authority. Without a Presidential
the United States. The subsidy program was intended request for zero CDS funds for fiscal year 1983 (see foot-
to enable U.S. shipyards to construct vessels at parity note below) and with the failure of the 97th Congress
with foreign yards, and to enable U.S. operators to obtain to pass ODS legislation, the tempora Iry build-abroad
U.S.-built vessels at competitive world prices. authority has expired.
Under the CDS program, a U.S. shipyard or purchas- in addition to direct subsidy, practically all maritime
er could apply to MARAD for construction subsidy to nations offer various forms of indirect government sub-
aid in the construction or reconstruction of a vessel sidy to their shipbuilding and shipping industries.
One form of indirect subsidy is through tax benefits and
"which will meet the requirements of the for- tax-free revenue funds. In the United States, vessel
eign commerce of the United States, will aid operators in the U.S. foreign trade and the non-con-
in the promotion and development of such tiguous and Great Lakes domestic trades may obtain
commerce, and be suitable for use by the United certain tax benefits through the maintenance of Capi-
States for national defense or military purposes tal Construction Funds to construct qualified vessels.
in time of war or national emergency." The Capital Construction Fund (CCF) program is a method
The vessel was required to be manned by U.S. citizen of aiding American vessel operators in accumulating
crews and remain documented under our laws for not the capital necessary for the construction, reconstruc-
less than 25 years (20 years for tankers and other liq- tion, and acquisition of vessels of American registry built
uid bulk carriers). The construction subsidy could cover in the United States. A Senate proposal in the 97th Con-
up to 50 percent of the domestic cost of the vessel. gress would have allowed U.S. companies to use CCF
funds to buy or to build ships in foreign yards.
The last CDS authorization, for fiscal year 1981, was
$135 million dollars. Considering the high cost of con- The CCF program is authorized by Section 607 of the
structing merchant vessels and the large disparity in Merchant Marine Act of 1936, as amended, and arose
cost between building in U.S. versus foreign ship- from 1970 amendments to the Act. Section 607 of the
yards, this level of funding does not go very far in achiev- Act allows for the deferment of income taxes on cer-
ing the objectives of the CDS program. At the Admin- tain deposits of money or other property, if these funds
istration's request, Congress eliminated CDS funds for are used to construct vessels in U.S. shipyards. Fund-
fiscal year 1982. holders may invest CCF assets in certain securities and
By requiring vessels with operating subsidies to be stocks to develop an expanded pool of tax-deferred
U.S. built and by obligating subsidized operators to a funds. MARAD sets the guidelines on where CCF may
be invested and determines who may have a CCF. Cur-
rently, there are about 130 individual fundholders whose
CCF assets total around $600 million.

In 1981, Congress included in the Omnibus Budget Reconciliation Another technique for indirect maritime subsidy is
Act (P.L. 97-35) a provision permitting U.S.-flag ship operators to in the form of low interest government loans or gov-
buy vessels To be operated in foreign trade in foreign yards, to put
them uncier the U.S. flag, and to receive ODS. This was to be only for ernment loan guarantees for ship construction. The Ship
fiscal Year 1982 but Could extend to fiscal year 1983 if the President Financing Guarantee Program, derived from Title XI
requested at least $100 million for CDS (for U.S. yards) or initiated of the 1936 Merchant Marine Act, as amended, autho-
the cquivaient in an alternative building program. in the past, any rizes MARAD to guarantee loan obligations to aid in
U.S.-Hag operator could build his ships in foreign yards for interna-
tional trade, but the operator was not eligible for either CIDS or ODS. financing the construction or reconstruction of vessels

designed for use in the domestic and foreign commerce of Government study the question incident to the consider-
the United States. Its purpose is to assist U.S.-flag ation of a comprehensive national cargo policy. We now
operators in obtaining private, rather than direct Fed- have a partial policy in the reservation of government
eral, financing to build ships in American shipyards. cargoes, but the larger issue of a policy for all seaborne
Under Title X1, payment of the principal and interest trade should be carefully studied. If a national cargo
on approved loans is guaranteed by the Federal Govern- policy is then declared, Congress should enact legisla-
ment. As a result, the shipowner is able to obtain tion to establish such policy.
long-term financing at favorable interest rates. A number of other countries also practice cargo res-
Vessels eligible for guarantee under Title XI include ervation, but they do so with respect to the much greater
passenger and cargo vessels, tankers, towboats, dredges, volume of commercial cargoes. In addition, they have
and barges, as well as fishing vessels, ocean thermal a number of aids that go well beyond those applicable
energy conversion facilities and plantships, and ocean- in this country. Examples are low interest govern-
ograpbic or pollution treatment, abatement, or con- ment loans, duty free imports of shipbuilding materi-
trol vessels. To qualify for Federal loan guarantees, the als, export credit to shipyards, trade in allowance (scrap
shipowner, managing agent, and bareboat charter- and build programs), basic tax exemption, reduced pilot
er must be a U.S. citizen. and dock fees, and partial or complete government
The Title XI program is self-sustaining and exists at ownership of shipping companies and shipyards.
no real cost to the U.S. Government. Premiums received
from shipowners for the guarantee of the obligations Federal Maritime Policies
and other fees, totaling about 1/2 to I percent of the
outstanding balance annually, are deposited in the in the area of ship depreciation, rules of foreign
Federal Ship Financing Fund administered by MARAD. governments allow considerably faster write-off of a
As of June 30, 1982, Title XI loan guarantees were over ship than the United States allows. Prior to 1981, the
$7 billion. write-off period for U.S. shipowners was 14 1/2 years.
In its fiscal year 1984 budget, the Reagan Adminis- The Economic Recovery Tax Act of 1981 shortened this
tration has proposed raising the annual ceiling on new period to five years, but U.S. depreciation policy is still
commitments for Title XI loan guarantees from $600 not as liberal as those of other major maritime nations
to $900 million. A Senate proposal in the 97th Congress that recognize the long leadtimes involved in ship
would have set a limit of $2.25 billion on new loan guar- construction and the substantial investment expense
antee commitments during fiscal years 1983 to 1985, shipowners experience prior to delivery of the ship.
with no more than $850 million to be committed in Other nations allow ship owners to begin depreciation
any one year. The House of Representatives had proposed before the vessel is placed into service, with write-off
eliminating the restriction on vessel type and increas- beginning as early as the moment of contract signing.
ing the Title XI ceiling from $12 to $15 billion. For example, Norwegian shipowners may writeoff up
As noted earlier, there also is some aid extended to to 25 percent of the ship's value before it is delivered.
the U.S. ships. through limited cargo reservation legis- Shipowners in the United Kingdom may writeoff the
ship in only one year from the contract signing. U.S.
lation directed to military goods and cargoes genera- shipowners must wait until the vessel is delivered to
ted by Federal agencies, such as the Agency for Inter- begin depreciation. In addition, U.S. owners must fol-
national Development (AID), the Department of Agri- low a particular write-off formula, while foreign nations
culture, and the Department of Defense. There has to allow free depreciation where owners are allowed
be government involvement in the movement of the considerable discretion in determining the amount they
cargo or in its acquisition before the laws become appli- writeoff in a given year. The positive impact of a liber-
cable. With government- impelled cargoes comprising alized U.S. depreciation policy depends on whether the
nearly 16 percent of the income received by the U.S.-flag company involved is generating enough profits to
liner companies, this form of cargo reservation has con- encourage building and, thus, depreciating ships.
siderable impact on the liner segment of the U.S. indus-
try, However, while the policy exists and is supported, with respect to. shipbuilding, several issues crop up.
there is cause for some concern, The early deliveries Since 198 1, it has been possible. to build ships in foreign
for the U.S. strategic petroleum reserve were carried in yards and put them under the U.S. flag and receive
foreign-flag vessels to a considerable extent. Although operating subsidy. However, building in the United
this situation has been resolved, many believe that cargo States is the only way to maintain a certain mobiliza-
reservation for U.S. agriculture shipments continues to be tion base for shipbuilding. Building for naval purposes
a problem. is generally different from building for commercial pur-
Because the issue of cargo reservation is so complex poses, in both construction and repair yards. Of the 27
and difficult to analyze, it is important that the U.S. major yards in the United States, 15 are considered capa-

ble of building warships. The question arises whether to what he believes is a valid conference agreement.
our shipbuilding capability is sufficient in terms of But, under existing law, if that agreement were chal-
physical plant, as well as manpower, to accommodate lenged and later overturned, the operator is not only
the Administration's plans for expanding the naval fleet subject to the penalties that are contained in the 1916
by 150 or more vessels in the next few years. While the Shipping Act, but he also may be subject to all the
physical plant is there, the manpower a vailability may be penalties contained in the antitrust laws. There is both
questionable because of the widely fluctuating ship- corporate and personal liability involved. The current
building cycle. There is no sustained planning that allows Congressional and Administration initiatives on anti-
the shipbuilding industry to have a steady volume of trust immunity can help remove these problems.
work to maintain a capable and stable labor force. Recall that the 40-40-20 cargo sharing formula rule
instead, when there are no orders, the labor force is of the UNCTAD Code would make it possible for coun-
dispersed; and when orders pick up, there are extra costs tries without their own ships to charter or designate
and time involved in training a new labor force. certain flags as their own preferred carriers. Just as
Many foreign governments have made policy de- developing countries may charter and designate flags
cisions to keep their shipyards open. They build vessels as their national carriers, so could the United States if
for long-term political and economic reasons. In some it chose to join the UNCTAD Code. This would provide
cases, these vessels are sold below actual cost; how- transport capacity to meet our 40-percent share but
ever, this practice has maintained the shipbuilding would not provide a national fleet.
industrial base for the time when the market returns However, a cargo base can be obtained without the
and when emergency situations may require it. We have UNCTAD Code. Nothing precludes our government from
not adopted this "future gain" strategy in the United negotiating bilateral agreements that would encompass
States. it would be too simplistic to argue that the for- not only liner cargo, but also bulk cargoes, as was done
eign yards do this only for socialist, make-work reasons. recently with the People's Republic of China. The U.S.
.It is, in fact, a simple investment in the future where agreement with China calls for a sharing of seaborne
an in-place industrial base will be able to gear up quickly trade in which the two countries each carry 30 percent
and competitively when the present ship glut is reduced. of the tonnage traded between the two nations, with
The United States, lacking this sort of subsidized advan- the remaining 40 percent available to third-party car-
tage, must load the start-up costs into overhead charges, riers. In the past, the United States has had other bilateral
which thus reinforces the notion that U 'S. yards are too arrangements (e.g., with Brazil and Argentina) for reve-
costly to be competitive in a world market. The United nue pooling and equal access to cargo transport that have
States also has higher shipyard labor costs as well as a worked well.
number of special (regulatory) construction require-
ments, primarily those of the U.S. Coast Guard and the
Occupational Safety and Health Administration, which National Security Issues
increase costs in U.S. shipyards compared to those of
foreign yards. The result is a widening gap between U.S. What advantages are there for a U.S. taxpayer to subsi-
and foreign shipbuilding costs. dize a U.S.-flag vessel, especially in bulk trades? The
In the regulatory area, it is unclear whether the basic answer depends on whether there is any defense need
antitrust immunity specified by the 1916 Shipping Act for a U.S. dry bulk fleet to import vital raw materials.
and the penalties given in that Act supersede other gen- Some argue that we can rely on flag carriers of the North
eral U.S. antitrust laws. This Shipping Act established Atlantic Treaty Organization (NATO) and the U.S.-
a system of limited antitrust immunity for U.S. ship- owned foreign flag fleet in time of emergency. However,
ping companies operating in international trade. The there can be instances of heightened international
Act's intent was to permit our operators to compete tension when NATO would not be involved and NATO
against foreign shipping that operated in ways counter ships not necessarily available.
to our domestic antitrust laws, to which they were not Bulk vessels have little direct military, logistic utili-
subject. Despite several amendments of this Act in the ty as part of the combat suppor-t train for the armed
66 years since its passage, the Act has not provided forces. They are absolutely vital, however, for the trans-
the full measure of immunity envisioned by its drafters. port of the raw materials needed to supply our defense
Agencies of the U.S. Government, notably the Depart- industries and to supply vital bulk commodities (e.g.,
ments of Justice and State, have often taken actions that foodgrains, fuel, etc.) needed by allies Who may be cut
have run counter to the intentions of the Act. The result off from normal sources of goods. A U.S. citizen-manned,
has been confusion, delay, and continued loss of com- U.S.-flag bulk fleet will be much more predictable and
petitive position in our U.S.-flag liner operations. This controllable than a foreign-flag fleet would be, but there
makes the current situation most difficult. Today, an will be a subsidy cost (i.e., cargo reservation) for develop-
operator may go through all the procedures to have an ment and maintenance of this national emergency
agreement approved and to join a conference. He is party capability.

@4 N "7

A IPT

P
143
Mir

Our Nation's merchant marine is an essential strategic resource. The Oiler USS NEOSHO (AO-143) cruises alongside the com-
mercial tanker SS ERNA ELIZABETH to prepare to take on fuel in the Caribbean Sea.

CREDIT: U.S. Navy, Washington, D.C.

There is also the basic controversy of whether any Administration has suggested some remedies for the
military sealift capability will be necessary in a future ambiguities described in this chapter. Agreement by
war. Such capability implies a large element of protracted, the White House and many Members of Congress that
conventional warfare-an assumption not universally certain working antitrust immunities should be applied
accepted. Opposed to that view is the continuing pos- to the U.S. merchant marine operators in the liner trades
sibility of regional, but major conflicts, such as Korea is a significant step in the right direction. The House
or Vietnam, where sealift capability will remain es- and Senate versions of the Shipping Act of 1982 seem
sential. Moreover, in the latter cases, there was no to embody most of the necessary features.
warfare (i.e., submarines, surface combatants, air strikes) If Congress completes its action and the antitrust rem-
directed against the shipping capacity. This, however, edies become law, and with an attendant phase-out of
cannot be assumed to be the rule for the future. Since the ODS subsidy program (CDs has effectively been
World War 11, there have been over 140 conflicts between terminated as of 1981), a more efficient operation of
nations. For those in which the United States was con-
cerned, sealift capability has always been a major factor. the U.S.-flag liner fleet could result. It is important,
however, that the Administration carefully monitor the
positive impact of its remedies as it removes past sup-
Future Prospects ports for this industry. The removal of ODS, through
no further contracts, and negotiations for early termi-
Although thepolicy objectives of the various merchant nation of existing contracts, must be done at a rate that
marine acts are clear, the actual mechanisms and institu- permits other remedies to take effect.
tions developed to regulate this industry have not On the other hand, a case where benefits have been
achieved these objectives. There is an urgent need to
specify clearly the nature and mix of the U.S. merchant unequally applied was noted in the earlier discussion
Rect that would meet our Nation's security needs and on the build-abroad authority for U.S.-flag subsidized
still respond to commercial demands. The Reagan operations. This practice provides significant benefits

for U.S. operators and seagoing labor, but it creates very ... provide a unified direction for all govern-
serious problems for the U.S. shipbuilding industry, es- ment programs affecting maritime interests of
pecially for those yards that are primarily in commer- the United States. We must insure that there is
cial construction work. active cooperation between the Navy and the
It would appear that a major growth direction for Merchant Marine and the governmental depart-
adding to the U.S. merchant marine will be in the bulk ments responsible for each. We must see that
trades, especially coal, but this is dependent upon some long-range building programs for naval and
type of cargo reservation legislation being enacted by merchant ships are established and carried out
Congress. The Boggs Bill (H.R. 6979) would have pro- without falling victim to petty bureaucratic jeal-
vided a graduated implementation of cargo reservation ousy. This is the role of the President and I
that could help meet this need. This proposed legisla- shall see that our maritime policy is coordi-
tion would have stimulated the construction of a bulk nated to insure that it achieves the objectives
fleet on the order of 158 new vessels of 120,000 dead- we set for it.
weight tons each for carriage of 20 percent of reserved (Emphasis added by NACOA)
bulk cargoes (for U.S.-flag operators) phased-in over a
period.of 16 years. The gradual phasing in of such a con- The move of MARAD to the Department of Transpor-
tation and the increasingly visible role of the Secretary of
struction program, the naval construction program of
about 150 new vessels, and a modest replacement pro- Transportation in making major Administration an-
gram for U.S. liner vessels could all work towards estab- nouncements on its "maritime policy" may be positive
lishing a stable base for the U.S. shipbuilding industry. steps in this direction. At the same time, however, indus-
try representatives are concerned that the relief and
it should be noted at this point that the average return reform efforts by the Administration ' now two years
on equity for the U.S.-flag liner industry has been a very in office, are not being developed quickly enough to
low 8.6 percent over the 5-year period of 1976 to 1980. deal with its real, near-term problems. We believe that
In a ranking of 10 other industrial groups (manufac- on balance the right proposals are being made; it is the
turing, mining, retail, air transport, etc.), this industrial speed with which they are being put into action that
sector ranks second from the bottom, the place held by concerns us.
the railroads. Therefore, any plan to drop operating sub- The NACOA Marine Transportation Panel heard lit-
sidy must be applied very gradually to avoid added tle during its "audit" of this industry to indicate that
financial crisis among the eight subsidized companies there is significant industry interest for more of the past
remaining in this sector. To cut back suddenly on sub- direct subsidies or cash transfers from government. This
sidies while continuing to apply antitrust sanctions to shows a recognition of the realities of the present eco-
liner operators will prevent American operators from nomic situation but, more importantly, the realiza-
competing on terms similar to those of foreign-flag com- tion that past subsidy programs derived from our laws
petitors. Again, this problem seems to have been rec- have simply not met industry expectations.
ognized by both the Legislative and Executive Branches The topic of this chapter, "U.S. Government Policies
over the past year. and Regulation: Help or Hindrance" seems to reflect
The underlying theme in our discussion is the need where the major concern lies. There is general agree-
for a unified and coherent direction for our national ment that regulatory relief; tax incentives to achieve
maritime policy together with its managerial frame- parity with foreign operators; defined and acceptable
statement by government as to the proper role of our
work. This was a point made by Presidential Candidate maritime industry as part of our national security; and
Reagan in September 1980 (Appendix G) when he said a clear, consistent direction for national maritime policy
that the United States must develop a specific naval all would provide much of the needed impetus to revital-
maritime program that will: ize this industry without additional direct subsidy.

Chapter 4
U.S. Marine
Transportation System

Characteristics of the industry ....................................................... 27
U.S.-Flag Fleet ................................................................................ 27
Flags of Convenience ..................................................................... 28
The Shippers .................................................................................. 30
Domestic ("Jones Act") Shipping .................................................. 31
Tug and Barge Operations ............................................................. 34
Offshore Oil and Gas Operations ............................................... ... 34

CHAPTER 4
U.S. MARINE TRANSPORTATION SYSTEM

Characteristics of the Industry amounting to 81 ships, are employed by various Fed-
eral agencies.
U.S. ocean shipping consists of two major sectors, the The U.S.-flag fleet, whether engaged in domestic or
foreign (international) trade and the domestic ("Jones foreign operations, is used primarily for industrial
Act") trade. These sectors have been almost entirely
separate in terms of government policies, regulations, (private or proprietary) carriage, tramp shipping, U.S.
and subsidy. Generally, a ship operated in (or built for) agency operations, and liner services. Industrial, or pro-
the foreign sector cannot be used in domestic trade. But, prietary, carriage is usually transported in specialty ships
there have been infrequent special cases of interchange required by particular commodities, such as automobiles,
between the sectors, and such interchange may become newsprint, lumber, etc. Tramp shipping operates on a
more common in the future. non-scheduled basis serving all types of commodities,
routes, and shippers. When a carrier in this part of the
There are two categories of U.S., shipping vessels: industry provides services to a particular shipper for a
U.S.-flag ships and U.S.-owned ships under foreign flag. specific period of time, it is often referred to as inde-
The foreign shipping sector contains both categories, pendent shipping.
while the domestic contains only the U.S.-flag ships.* Certain types of goverriment-owried or financed
cargoes are preferentially routed via U.S.-flag commer-
U.S.-Flag Fleet cial vessels. This preference extends to all overseas trans-
port of supplies for the armed services. Moreover, at
To fly the U.S. flag, the vessel must be owned and least half of all government-generated cargo, primarily
manned by U.S. citizens. As of April 1982, the U.S.-flag agricultural and petroleum products, must be carried
fleet (active and inactive) consisted of 850 ships amount- by privately owned, U.S.-flag commercial vessels.
ing to a little under 16 million gross registered tons (grt) Uners, which consist of conventional cargo, container,
or 24.4 million deadweight tons (dwt). Of the total, 575 and roll- on/roll-off (Ro-Ro) ships, barge carriers, and
are privately owned while 275 belong to the Federal tug-barge systems, operate on fixed routes and sched-
Government. The privately owned fleet had 509 ships ules and may be subsidized or non-subsidized. At the
in service while the government -owned vessels totaled
end of 1981, only 10 liner companies operated U.S.-flag
16 in active service. The balance of 325 vessels are in vessels in international trade.
the inactive fleet.
Three of these companies are now (1982) having finan-
The composition by vessel type of the U.S.-flag fleet cial difficulties. Eight of them were receiving gov-
is given in Table 2 and its use in Tables 3 and 4. Note ernment subsidies. In 1965, there were 19 liner com-
that the major portion of the active U.S.-flag fleet (252 panies in U.S.-flag service. In 1982, the U.S.-flag fleet
ships or 63 percent of the active dwt) is engaged in the provided 20,000 shipboard jobs compared to 57,000 jobs
domestic trade sector. Only 192 ships, or 26 percent of in 1965.
the dwt, is in the foreign trade sector; of this part, 20 From Tables 3 and 4, we can see that the U.S.-flag
ships, or 15 percent of the U.S.-flag foreign trade ton- fleet engaged in domestic trade is a bulk fleet, while
nage, is in cross trades ("Foreign to Foreign"). The the U.S.-flag fleet engaged in foreign trade is a liner
remaining I I percent of the deadweight tonnage, fleet. This also is shown in Table 5 on the participation
of U.S.-flag vessels in our Nation's seaborne trade.

The relatively high U.S.-flag participation in liner
The Reagan "phase one" program proposes to permit foreign trades, while still much below the 40-percent level of
o),vnership of' U.S.-flag shipping companies engaged in foreign trade to the UNCTAD Code, has been accomplished through rapid
rise from 49 percent to 75 percent. Thus, a foreign trade shipping adoption of the most sophisticated ship technologies
company might not be owned and operated by U.S. citizens. How-
ever, this is still only a proposed action. available, largely ship technologies developed in the

Table 2.-U.S. Oceangoing Merchant Marine as of April 1, 1982

@ I n Thousands of Tons)

Privately Owned Government Owned Total'

Number Number Number
of' ships GRTI DWTI of ships GRT DWT of ships GIRT DWT

Active Fleet'
Combined passenger/cargo ................ 5 65 45 5 58 39 to 123 84
Freighters, ............................................ 82 903 i,iW 9 53 67 91 956 1,170
Bulk (arriers ......................................... 15 284 500 0 0 0 15 284 500
Tankers ..........w ..........I........................... 259 7,179 13,873 2 14 21 261 7,193 13,894
intermodall .......................................... 130 2,611 2,729 0 0 0 130 2,611 2,729
Tug-barge ................................. ........... 11 184 342 0 0 0 11 184 342
Li(]Llitied natural gas ......... ................. 7 584 500 0 0 0 7 584 500

Total ...................................................... 509 11,810 19,092 16 125 127 525 11,935 19,219

Inactive Fleet'
C0111bined passenger/cargo ................ 2 30 13 51 530 328 53 559 341
Freighters ................................. ........... 27 283 359 186 t,504 2,039 213 1,787 2,398
Bulk carriers .........................................3 40 70 0 0 0 3 40 . 70
Tankers ..................... ........................... 15 668 1,335 13 130 208 28 798 1,543
hiterniodal ........................................... 12 207 228 9 126 137 21 332 365
Titg/barge ........................... .................1 26 41 0 0 0 1 26 41
Li(ILlifiCd 11atUral gas ........................... 6 459 428 0 0 0 6 459 428

'Total .......................... ........................... 66 1,713 2,474 259 2,290 2,712 325 4,001 5,186

Total U.S.-Flag Fleet ........................... 575 13,523 21,566 275 2,415 2,839 850 15,936 24,405

Totals are preliminary and reflect rounding.
Gross registered tons.
Deadweight tons.
111CILIdes 3 vessels in bareboat charter and 10 vessels in custody of other agencies.
These are the conventional break-bulk ships.
These are the new technology ships, including Roll-on/Roll-off, container, and barge carriers.
111CILIdes National Defense Reserve Fleet, which consists of 245 ships.

SOUrce: Maritime Administration. 1983. Office of Trade Studies and Statistics, Washington, D.C.

United States. The relatively few conventional ("break international (bulk) trades under the U.S.-flag because of
bulk") cargo vessels remaining represent about 16 U.S. wage scales, American ship construction and repair
percent of the active fleet. Container ships, barge car- costs, and domestic antitrust, financial, and taxation
riers, and Ro-Ro vessels comprise the majority of liner rules. They assert that these restrictions are disadvan-
fleet. tageous compared to other major shipping nations
engaged in bulk (non-liner) shipping. Counterarguments
are that increased work in U.S. shipyards is lost, that
Flags of Convenience employment of seamen is lost, and that there is an
element of tax evasion involved. Nevertheless, the pres-
The U.S.-owned fleet registered under foreign flag ent "free market" nature of bulk shipping works against
is indicated in Table 6. At the end of 1981, this flag of profitable operations under the U.S. flag. Foreign oper-
convenience, or open registry, fleet consisted of 639 ators can simply purchase and operate these vessels at
ships, or 60.9 million dwt. Eighty-eight percent of this cost level5 well below the lowest levels of U.S.-flag
tonnage is in tankers, I I percent in bulk carriers, and I operations.
percent in cargo percent. According to MARAD statis-
tics, about 25 percent of world open registry tonnage Although there is a potential cargo base for expan-
is U.S. owned. This U.S.-owned, open registry fleet, sion of the U.S.-flag bulk fleet and an expected future
including the Effective U.S. Control (EUSQ fleet, is about upsurge in coal exports, the existence of the U.S.-owned
2.5 times larger, in terms of dwt, than the total U.S.-flag foreign flag fleet may pose a disincentive to expansion. It
neet. provides a more readily available, and more attrac-
Industry representatives of this U.S.-owned fleet argue tive, investment alternative than does U.S.-flag ship-
that it is not possible to operate competitively in the ping under existing policies.

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The United States pioneered the use of con tainerships-vessels designed to carry standard-sized boxes of general cargo that fit
flatbed tractor- trailers and flatcars. Easily loaded and unloaded, containerized vessels, introduced in the late 1950s, have
enabled steamship companies to reduce port time and cargo handling costs. The SEA-LAND PRODUCER, a 26,000 deadweight
ton vessel, sails in the U.S. container fleet, the largest container fleet in the world.

CREDIT: National Oceanic and Atmospheric Administration.

Table 3.-Use of the Active U.S.-Flag Oceangoing Merchant Fleet (>- 1,000 gross tons) as of April 1, 1982

(In Thousands of Tons)

Combination
Total Passenger & Cargo Freighters Tankers'

Status and NUIllber Number Number Number
Area ofUse of Ships GRTI DWT2 of ships GRT DWT of ships GRT DWT of ships GRT DWT

Foreign Trade
Nearby Foreign ......... 12 152 270 0 0 0 6 34 45 6 118 225
Great Lakcs-Seaway
Foreign ................... 0 0 0 0 0 0 0 0 0 0 0 0
Overseas, Foreign ....... 160 3,119 3,900 4 45 37 143 2,653 3,032 13 421 831
Foreign to Foreign .... 20 808 753 0 0 0 11 179 175 9 629 578

Total ........................... 192 4,079 4,923 4 45 37 160 2,866 3,252 28 1,168 1,634

Domestic Trade
Coast%vise ................... 94 1,507 2,577 0 0 0 8 92 121 86 1,415 2,456
Intercoastal ................ 80 2,549 5,902 0 0 0 3 25 43 77 2,524 4,959
Non-C0116911011S ........ 78 2,426 4,562 1 20 8 28 428 441 49 1,978 4,113

Tota I ... ....................... 252 6,482 12,141 1 20 8 39 545 605 212 5,917 11,528

Other U.S. Agency
Operations
Military Sealift
Command Charter 65 1,249 2,028 0 0 0 31 434 548 34 815 1,480
Bareboat Charter
aild Other Custody 16 124 127 5 58 39 9 52 67 2 14 2

Total ........................... 81 1,373 2,155 5 58 39 40 486 615 36 829 1,501

Grand Total ............... 525 11,934 19,219 10 123 84 239 3,897 4,472 276 7,914 14,663

Gross Registered Tons.
2 Deadweight Tons.

Source: Maritime Administration. 1983. Office of Trade Studies and Statistics, Washington, D.C.

The Shippers Although shippers and carriers hold different views
on bilateral arrangements and dosed conferences, there
As the customers, or "employers," of the fleet, the are many areas in which they agree. One of these areas
shippers are an important part of the U.S. marine trans- is the rigidity of the essential trade route concept under
portation system. Their needs and views to a large extent the Merchant Marine Act of 1936. These routes are
shape the market context for the U.S. international liner defined specifically, and only liner operators on the
trade. The main policy premise of the shippers is the 11 essential" routes are eligible for ODS. This decreases
free choice of carriers, the shipping companies that the flexibility of the carriers, and it affects their ability
transport the liner cargo. They, therefore, support the to operate efficiently, or to maximize their services
conference system where independent operators also and profits. The shippers view this inflexibility as a det-
are allowed to serve the trade. in addition, shippers riment to moving their goods in a timely and cost-
would like conferences to give up their rights to set and effective manner where such shipments do not follow
maintain uniform rates for all members; they want con- the essential trade routes. The shippers would like to
ference members to have the right of independent action, introduce a scheme called "immediate discount" or "cash
Shippers oppose bilateral agreements and mandatory discount" rates. Such an immediate discount system
would be very similar to a dual rate system with low-
cargo sharing. They believe such arrangements can drive est or preferred rates going to large volume, repeat
up or "fix" shipping costs. At the same time, they sup- customers. On the whole, it would be entirely accept-
port American-flag carriers and recognize the need able to U.S. carriers, as a counter to the deferred rebate
for added antitrust immunity to permit them to be more system practiced by foreign operators.
competitive. Thus, it also may be timely for them to
consider the elements of a national cargo policy given Shippers emphasize the need for a "shippers' coun-
the inevitability of the UNCTAD Code. cil," corresponding to a liner conference, as a counter-

Table 4.-Use of the Inactive U.S.-Flag Oceangoing Merchant Fleet
1,000 gross tons) as of April 1, 1982

(in Thousands of Tons)

Combination
Total Passenger & Cargo Freighters Tankers

Status and Number Number Number Number
Area of Use of' Ships GRT1 DWTI of ships GRT DWT of ships GRT DWT of ships GRT DWT

Temporarily
Inactive ............... 17 390 585 0 0 0 11 133 173 6 257 412
Laid-Up (Privately
Owned) ................ 48 1,305 1,872 2 30 13 30 379 467 16 896 1,392
Laid-Up (Privately
Owned/NDRD)l 1 18 16 0 0 0 1 18 16 0 0 0
Laid-Up (non-
NDRF/MARAD-
owned)4... ..... ....... 14 147 172 3 39 23 10 97 131 1 11 18

Total... ........................ 80 1,860 2,645 5 69 36 52 627 787 23 1,164 1,822

National Defense
Reserve Fleet
Merchant Types .... 166 1,385 1,870 0 0 0 166 1,385 1,870 0 0 0
Military Types ...... 79 756 671 48 490 305 19 147 176 12 119 190

Total ........................... 245 2,141 2,541 48 490 305 185 1,532 2,046 12 119 190

Cralld Total ............... 325 4,001 5,186 53 559 341 237 2,159 2,833 35 1,283 2,012

Gross Registered Toils.
DeadNveight Toils. ,
National Defense Reserve Fleet.
Maritime Administration.

Source: Maritime Administration. 1983. Office of Trade Studies and Statistics, Washington, D.C.

balancing force if the closed conference system for liner The shippers have long believed that free access to
carriers becomes a reality in the U.S. trades. From the the U.S. trades has generated healthy competition and, in
shippers' point of view, such councils are seen as an turn, more choices of rates and services. However, a
effective alternative to government regulation. Most significant number of shippers are now reconsidering
carriers agree on the need for such councils so that they this position because of the inevitability of the UNCTAD
can find out exactly what the shippers' position is on Code. The consequences of this agreement, when it
certain issues. To operate effectively, however, the coun- becomes international law, with all major trading
cils would require the same kind of antitrust immuni- nations in the world agreeing to it except the United
ty the liner companies are requesting. Both House and States, are of great concern. The shippers' view is that
Senate, versions of the Shipping Act of 1982 would have tacit enforcement of limited closed conferences is a quid
provided for the establishment of shippers' councils with pro quo of carrier support for formation of shippers'
such antitrust immunity. councils. These conferences and councils will be neces-
Iii summary, the shippers' positions are that their sary, because the coming into force of the Code, coupled
marine transportation service options should include with the European Economic Community's reservations
a profitable and efficient U.S.-flag fleet. This fleet should to it, will result in the further dumping of liner capacity
be adequate to carry a substantial share of cargo mov- into our already over-tormaged trades, as was discussed
ing in all trades in the United States. Transportation in Chapter 2.
services should be at the lowest reasonable cost. Services
should be primarily tailored to the needs of importers Domestic ("Jones Act") Shipping
and exporters; they are the "users." There is over-
whelming support by the shippers for the reaffirmation The United States began protection of its domestic
of the antitrust immunity and the primacy of the pro- oceangoing shipping through one of the first acts of the
posed Shipping Acts (or their equivalent) over the First Continental Congress. The Cabotage (from the
antitrust laws. French verb caboter-to sail along the coast@ 1.,aw of 1817

Table 5. -Participation in U.S. Trade, 1981 some aspects of this national policy, but they have been
largely unsuccessful.

Millions of tons Percent The principal governing legislation is the "Jones Act,"
section 27 of the Merchant Marine Act of 1920. This
Percentage section details the reservation of coastal, intercoastal,
Total Tons Carried Carried
Type of'Ship World Trade by U.S. Flag by U.S. Flag and non-contiguous U.S. trades to U.S.-built ships
manned by U.S. citizens. A 1950 amendment to this act
Liner ....................................... 59.6 16.4 27.6 provided that these provisions could be waived in times
Non-Liner .............................. 346.5 4.5 1.3 of national emergency. The U.S. Virgin Islands and the
(Mostly Dry Bulk)
Tanker. ........ ......................... 356.8 13.9 3@9 Wake and Midway Islands are exempt from the Jones Act.

Total ............................... 762.9 34.9 4.6 The major part of the U.S.-flag fleet is engaged in
domestic oceangoing trade, the deadweight tonnage
Source: Maritime Administration. 1982. Office of Policy and Admin- being divided among coastwise, intercoastal, and non-
istration, Washington, D.C. contiguous shipping (Table 7). There is no conference
system operating in this trade; the operators are inde-
was designe .d to keep foreign-flag shipping out of these pendent or proprietary (operated by corporations as
in-house shipping). There is liner as well as tramp
trades, reserving them to U.S. ships and seamen. This service, and the fleet includes bulk carriers, tankers,
policy has continued unbroken to the present. Over the conventional, and container ships, and tug-barge
years, there have been attempts to change or modify systems.

Table 6.-Foreign-Flag Ships Owned by U.S. Companies or Foreign Affiliates of U.S. Companies
Incorporated under the Laws of the United States as of January 1, 1982

(in Thousands of Tons)

Bulk & Ore
Total Tankers Freighters Carriers

Country of Number Number Number Number
Registry of ships GRTI DWTI of'ships GRT DWT of ships GRT DWT of ships GIRT DWT

Liberia, ....................... 378 20,708 42,538 242 17,374 36,054 40 281 392 96 3,052. 6,093
Panama' ..................... 95 2,999 5,973 63 2,772 5,626 23 86 91 9 141 256
United Kingdom ....... 69 2,951 5,527 50 2,738 5,215 12 63 60 7 150 252
France ................... 1 1 1,280 2,540 11 1,279 2,540 0 0 0 0 0 0
Federal Republic
of Germany ........... 6 643 1,299 6 643 1,299 0 0 0 0 0 0
Netherlands ............... 6 545 1,080 6 545 1,080 0 0 0 0 0 0
Saudi Arabia ............. 2 251 515 2 251 515 0 0 0 0 0 0
Norway ...................... 10 249 449 10 249 449 0 0 0 0 0 0
Belgiurn._ ........ .... 5 168 292 2 56 99 0 0 0 3 1]] 194
Argentina ..................7 127 214 7 127 214 0 0 0 0 0 0
Denmark ....................5 75 129 5 75 129 0 0 0 0 0 0
Canada ....................... 12 77 110 12 77 110 0 0 0 0 0 0
Australia ....................2 32 52 2 32 52 0 0 0 0 0 0
Honduras' ..................7 47 48 0 0 0 7 47 48 0 0 0
Italy ............................226 44 2 26 44 0 0 0 0 0 0
South Africa .............. 1 19 31 1 19 31 0 0 0 0 0 0
British Colonies ........ 12 19 24 0 0 0 12 19 24 0 0 0
Finland ...........:..........3 8 13 3 8 13 0 0 0 0 0 0
Cos,ta Rica .................3 6 8 0 0 0 3 6 8 0 0 0
Singapore ...................1 2 4 1 2 4 0 0 0 0 0 0
Greece ........................2 7 1 0 0 0 2 7 1 0 0 0

Total ........................... 639 30,239 60,891 425 26,273 53,474 99 509 624 115 3,454 6,795

Gross Registered Tons.
Deadweight Tons.
These U.S.-owned vessels, registered in Panama, Liberia, and Honduras, are the Effective U.S. Control (EUSC) fleet. Agreements between
the United States and these countries exist for for the return of these vessels to the United States in time of national emergency.

Source: Maritime Administration. 1982. Data Sheet-January 1, 1982. Office of Trade Studies and Statistics, Washington, D.C.

Table 7.-U.S. Domestic Oceangoing Fleet' east was dropped. Crude oil in excess of what could be
stored and processed on the West Coast has been shipped
via the Panama Canal (either by ship or from "ship to
Thousands of Tons ship" via a trans-isthmus pipeline) to Gulf Coast ports.
Gross While peak production in Alaskan oil from the Prudhoe
Number of Registered Deadweight Bay will be reached by 1985 to 1986, the ships devoted
A rea Vessels Tons Tons to this route may continue to be used to support other
Coast%vise ............................... 94 1,507 2,577 Alaskan oil development.
I n te rcoa s ta I ............................ 80 2,549 5,002 Coal transport for power generation also may inc Irease
Non-WntigLIOLIS .................... 78 2,426 4,562 coastwise tonnage as is already beginning in the North-
Total ....................................... 252 6,482 12,141 east United States. While domestic dry bulk transport
has been a very small segment, the future coastwise
Does not include Great Lakes, inland waters, or military shipping. transport of coal may add tonnage in this trade. Most
Source: Maritime Administration. 1982. Office of' Trade Studies and probably this will be in the area of tug-barge systems
Statistics, Washington, D.C. between major coal terminals and power generation/
industrial plants-the maritime equivalent of "unit
trains" on land.
What are the characteristics of the U.S. reserved
trades? First, the majority of this carriage is liquid bulk At present, it is difficult to estimate whether or ii ot
cargoes with about 80 percent of U.S.-flag tanker ton- increased general freight carriage will take place in
nage in our domestic trade. Second, the trend is towards domestic ocean shipping. Increased fuel costs for
an increasing percentage of Jones Act cargoes being trucking; the slow-down in expansion of the Nation's
moved by tug-barge transportation. freeway system; the projected state of the main trunkline
railways; and the anticipated trend toward concentrating
The domestic oceangoing trade shipped in 1980 was container cargoes in Spec 'ialized regional port complexes
about equally divided between the coastwise and may stimulate the development of coastwise distribu-
non-contiguous trades, with a small amount carried tion systems. Offsetting this will be the added costs of
in intercoastal trade. Specifically, in 1980 non-contiguous developing the specialized marine transportation assets
was 194.1 million short tons, coastwise was 171.8 mil- and the investments needed to develop secondary ports
lion short tons, and intercoastal was 4.5 million short outside the major regional port complexes.
tons.
Many of the shipping assets used in coastal trades
We find the smallest eleriient of domestic shipping tend to be older vessels that could not be competitive
in the intercoastal trade between the Pacific and Atlantic or efficient in overseas trading. However, the U.S.-Puerto
and Gulf coasts. It is only about I percent of the total Rico (non-contiguous) trade has been marked by a wide
tonnage shipped. One of the original purposes for the degree of service and technological innovation. For
United States to complete the Panama Canal in 1917 example, the Ro-Ro vessel, designed to allow trucks to
was to provide a convenient sea transportation tie among drive on and off with trailers of cargo, was first utilized in
the three U.S. coastal areas. Today, however, U.S.-flag this trade.
shipping in intercoastal trades accounts for only about
3 percent of all Panama Canal tonnage shipping of all There have been attempts to modify provisions of
nations. the Jones Act for special cases. Within the past two years,
Cargo tonnage in the coastwise trade has remained there was a move in Congress to permit shipment of
relatively constant over the past 20 years and now repre- lumber in foreign-flag ships from the West Coast to
sents a little less than half of the total domestic ocean- U.S. Atlantic ports. Proponents of the move have been
going tonnage. The largest coastwise traffic movement is unable to generate Congressional support. On the other
between Atlantic and Gulf Coast ports. side of the issue, temporary waivers were made in 1978
The non-contiguous trades serving the continental and 1981 to permit two passenger ships (originally U.S.
United States and Alaska, Hawaii, Guam, and Puerto built), the INDEPENDENCE and the CONSTITUTION,
Rico equal about 52 percent of the dome Istic tonnage of to come back under the U.S. flag in domestic service
cargoes. This is the fastest growing segment of the three (Hawaiian island service) after having been operated
Jones Act trades. Most of this growth can be attribut- by a foreign-flag operator since 1974. The waivers were
ed to the development of the Alaskan oil trade. actually private bills passed by Congress.
With the advent of Alaskan oil in 1978, there has been The Secretary of Transportation has the power to sus-
a fairly rapid growth in petroleum tonnage. The voy- pend the Jones Act and to allow subsidized U.S.-flag
ages have been longer than first planned, since the idea of ships, intended for foreign trade, to participate in the
an Alaskan oil terminal and pipeline connection to the reserved trades for up to six months out of the year.

*Similarly, the Secretary of the Treasury may grant a Tug and Barge Operations
statutory or discretionary waiver of the Jones Act for
foreign-flag vessels on the basis of national defense. Tug-barge systems have become important in the
Although neither instance is common, there have been domestic trades where their small crews, high capacity,
cases in recent years of U.S.-flag ships moving from the and shallow drafts have made them competitive in
foreign sector to the domestic sector, particularly in the the Alaska-North Slope, U.S. West Coast/Hawaii, and.
Alaska oil trade. on the U.S. East Coast/Puerto Rico routes. Capacities
are large, up to 18,000 dwt for an oil barge, 370 forty-
Although such suspension of the Jones Act could mean foot trailers for a Ro-Ro, and some 5,500 dwt for a break-
possible short-term lowering of freight rates and wider bulk vessel. Ice-breaking and semi -submersible barges
markets for the U.S.-flag foreign carrier, some other have been developed for specialized trade routes and
consequences should be pointed out. Ships for foreign cargoes. Tug-barge systems have substantially lower
commerce have been eligible for both CDS and ODS; those operating costs because of their reduced fuel consump-
engaged in domestic trade (a "monopoly" for U.S. tion and smaller crews. A tug-barge Ro-Ro system with a
operators) are not; instead, they rely on cabotage. if sus- capacity equal to a large Ro-Ro ship (about 11,000 dwt) is
pension of the Jones Act were to become easy, cabotage operated by a crew of 8 as opposed to a crew of 32 on
also would become accessible to subsidized carriers. the ship. In addition, the barges are not affected by the
Under such conditions, we could see a more competi- Port and Tanker Safety Act of 1978 in terms of either
tive and uncertain domestic shipping market affect- segregated ballast tanks, crude oil washings, or inert
ing both shipping services and the shipbuilding industry. gas systems-all significant cost factors.
Relaxation or elimination of the protection of the Barges usually fill up their space before their dead-
Jones Act could result in immediate lower shipping costs weight tonnage capacity is filled, that is, they are vol-
in domestic trades. Foreign operators could compete ume, rather than weight limited. Hence, it is feasible
freely and with their generally lower operating costs to use large bulk carrying barges to carry commodities,
(often through subsidy from their government) and more such as coal, into the shallow ports of the United States.
modern equipment, the costs to both shipper and con- Such systems may provide a solution to the U.S. port
sumer would be reduced. But, in the long run, the overall capacity problems caused by the forecast surge of coal
impact on U.S. national security would be unfavorable, exports.
because the majority of our shipping tonnage is in this
trade. A reduction of this tonnage would reduce the Tug-barge systems are substantially cheaper than con-
number of vessels and the pool of trained mariners need- ventional ships but slower. Moreover, where conven-
ed in case of national emergency. in a more limited case, tional. ships do not have to pay much attention to inclem-
the same argument of national security versus free mar- ent weather, barges must slow down. insurance for
ket advantage prevails here. break-bulk cargo moving on barges is higher than when
However, in October 1980, Presidential Candidate it moves by conventional ship.
Ronald Reagan said: Although the highest present potential for tug-barge
The preservation of coastal trade, presently systems lies in the domestic trades where high fuel costs
embodied in the Jones Act, has been a part of have made truck and rail transport relatively more
this Nation's maritime policy since its begin- expensive, tug-barge systems may be used in interna-
ning. The Reagan Administration will not sup- tional trade. Extension of tug-barge systems into the
port legislation that would jeopardize this international trades would increase the cost of shipping
policy. by barge, requiring, among other things, larger crews
for the longer distance operations.
The Reagan Administration has kept this promise. How- In case of a national emergency, tug-barge systems
ever, challenges may continue to come from Congress could take over coastal and non-contiguous routes to
(and perhaps other Federal agencies) in the name of relieve other ships for naval auxiliary and other defense-
opening these trades up to subsidized operators under related duties.
foreign flags.

Offshore Oil and Gas Operations

Under a recent ruling, the Supreme Court upheld MARAD's The domestic shipping sector contains the only flour-
decision to admit the VLCC STUYUESANT to the domestic oil trade ishing segment of the U.S. maritime industry-the
permanently in exchange for the repayment of'its Construction Dif-
offshore services fleet. This service industry, which came
ferential Subsidy Plus interest. Thus, MARAD is authorized to permit ainto existence with the Gulf of Mexico oil activity in
vessel to operate in the domestic trades permanently in exchange
for the repayment of' a vessel's Construction Differential Subsidy plus the 1950s, is growing at a rate of 10 to 15 percent per
interest. year and consists of about 4,000 U.S.-flag or controlled

ships in worldwide operations. Most of these ships were services sector. These units represent considerable capital
built in U.S. shipyards, and, as of mid-1982, there were investment and a significant part of the U.S. merchant
an additional 200 under construction. Shipyards invol- marine.
ved in this sector have built and sold vessels for foreign The U.S. offshore service sector is highly com petitive
operators at highly competitive prices and without sub- domestically and internationally-in the latter area the
sidy. Although some Title XI financing has been obtained main competitors are British, French, Canadian, Swe-
(Currently $150 million), this offshore service fleet, dish, and Norwegian companies. The offshore service
representing about $8 billion in construction value, is fleet has been a healthy and growing segment of the U.S.
largely privately financed. About 200 companies are
engaged in the U.S. offshore service sector offering ships maritime industry. It provides seagoing employment,
for charter to the offshore petroleum and construction supplies a competitive marketing base for shipyard
industries. work, and is the undisputed world leader in its field.
The industry has developed without subsidies and, under
As of' October 30, 1982, the offshore petroleum indus- existing policies and regulations, has succeeded in
try had 117 fixed platforms and 156 mobile drilling rigs competing in world markets. Recently, some temporary
operating in U.S. waters. Of this number, 165 are offshore weaknesses have developed resulting from the state
Louisiana and 58 off Texas. In addition, there are 19 or our economy and the world oil surplus, both serv-
jackLlps, 4 submersible rigs, and I semi -submersible ing to slow the rate of growth of this sector. Moreover,
rig under construction in U.S. yards. In the international there also are potential problems on the imposition of
shipyards, 45 semi -Submersible rigs, 40 jackups, and 8 new domestic and international rules and requirements
drill ships are under construction. Ancillary to the for ship construction, manning, and operations that can
petroleum industry are offshore construction and result in increasing capital requirements and manning
pipeline activities. For example, this work requires
specialized equipment vessels, such as pipeline bury problems for vessel operators. Nevertheless, the long-
barges, workover units, derrick barges, and pipeline term trend for the offshore service industry steers toward
material barges, all of which are served by the offshore continued growth.

Chapter 5
The Land-Sea Interface
in Marine Transportation

The Hub of Maritime Commerce .................................................. 39
Ports, Harbors, and Terminals ...................................................... 41
The Federal Role in Pcr+. Development ......................................... 44
Shipyards ........................................................................................ 45

CHAPTER 5
THE LAND-SEA INTERFACE
IN MARINE TRANSPORTATION

The Hub of Maritime Commerce metallurgical coal destined for Europe, Japan, and Latin
America. Considerable quantities of steam and metal-
A haven from winds and waves, a shelter to ships lurgical coal also have moved via the Great Lakes to Can-
and seamen, and a hub of maritime commerce-the port ada. Major coal shipping ports are Philadelphia, Balti-
joins the land to the sea. As the land-sea interface, ports more, Hampton Roads, Mobile, and New Orleans, and
integrate marine transportation systems with inland the Great Lakes ports of Superior, Toledo, Astabula, San-
transportation modes, such as rail, trucking, and inland dusky, and Conneaut.
waterways. America's seaports also provide the sup- Since the fall of 1979, however, the complexion of
porting industrial base for construction. and repair of the overseas coal market has changed radically with
marine shipping systems. the sudden and continuing upsurge of U.S. steam coal
With foreign trade accounting for an increasing exports to Western Europe. Whereas, in 1978, U.S. steam
proportion of the country's economy, the importance coal exports to non-Canadian destinations amounted
of' the port needs no elaboration, The United States is to a mere 311,000 tons, in 1979, they jumped to 2.5 million
the world's leading supplier of coal and agricultural tons, and, in 1980, to 15 million tons. Heavier than
commodities and ranks with the Federal Republic of expected metallurgical coal movements brought U.S.
Germany and Japan as major exporters of manufactured overseas exports to 72.8 million tons in 1980, up 84
products. At the same time, the United States has become percent over 1979. That huge volume stretched the
increasingly dependent on other nations for many essen- capacity of our major coal loading ports to its practical
tial raw materials, the most important of which is limit, producing a heavy backlog of colliers and cost-
petroleum. ing shippers millions of dollars in demurrage fees.
For many agricultural exports, there is simply no eco- America's dependence on imports is equally impor-
nomical alternative to ocean transport. Farm com- tant. About 45 percent of the U.S. petroleum supply
modities in one form or another are shipped through comes from abroad. Although conservation and increas-
virtually every port in the United States. Grain is export- ing resort to non-oil energy alternatives has caused a
ed mostly out of the Gulf, Great Lakes, and the Pacific modest reduction of U.S. petroleum imports, substan-
Northwest, and to a lesser extent through such East Coast tial tonnages will continue to be imported for years to
ports as Philadelphia, Hampton Roads, and, Baltimore. come. The situation concerning imports of natural gas
Hampton Roads and James River, Virginia, and the is ambiguous; some projections estimate growth from
North Carolina ports of Wilmington and Morehead City 1.4 trillion cubic feet in 1980 to 2.6 trillion cubic feet in
account for most of this country's tobacco exports. Meat 1990, 30 percent of which would be in liquified form
and meat products flow in greatest quantity through transported in specially designed tank ships called Liqui-
the Port of New York although sizeable tonnages also fied Natural Gas (LNG) carriers. However, higher cost
are handled by the ports of Philadelphia, Norfolk, Gulf- of imported liquified natural gas compared to domes-
port, Los Angeles, Long Beach, and Oakland. Cotton is tic natural gas, even with deregulation, does not sug-
shipped through the ports of New Orleans, Galveston, gest this rate of growth.
Houston, Long Beach, Oakland, and San Francisco. Much Crude oil and various petroleum products-gasoline,
of' the rice we export is handled by the ports of Lake jet fuel, residual fuel oil, kerosene, and so forth-are
Charles, Louisiana, and Stockton, California. Florida and handled in significant quantity by virtually every major
California ports lead in the export of fruits, vegeta- commercial port in the United States. Leading petroleum
bles, a nd juice. import centers are the ports of New York, the Delaware
The United States has been the world's foremost coal River, the Mississippi River from Baton Rouge to the
exporter fbr more than 30 years. Until very recently, Gulf, the Texas Gulf Coast, Los Angeles, and Long Beach.
much of that exported overseas has been high-grade Unloading terminals for liquified natural gas are located

4ith'i

@g!

IV-

For more than three centuries, our Nation's ports have served as commercial gateways linking land and sea.

CREDIT: Institute for Marine and Coastal Studies, University of Southern California.

at Everett, Massachusetts; Cove Point, Maryland; Elba Most significant has been the rapid takeover of the
Island, Georgia; and Lake Charles, Louisiana. It should general cargo trades by containerships and other irt-
be noted that only the Everett and Lake Charles Ter- termodal vessel types. Because of their greater carrying
minals are now receiving liquified natural gas. capacity, superior speed, and ability to dramatically cut
In addition to the substantial foreign cargoes, con- the time required to load and discharge cargo, container-
siderable traffic moves in the domestic U.S. and Great ships are far more efficient than conventional freighters.
Lakes trades, all of which likewise depend on the same Sea transport of containers worldwide exceeded 36.5
port services and facilities. Expanding trade has creat- million twenty-foot equivalents (TEUs: 20-foot length
ed steadily growing demand on U.S. ports for new and equivalent unit containers, a standard unit of measure
enlarged cargo handling facilities. for ship capacity) in 1980. Nearly a quarter of this vol-
ume was handled at U.S. ports. Containerships now
Dramatic developments in marine technology in dominate the general cargo trades between the major
the past two decades also have significantly affected industrial nations and are rapidly entering others,
marine transportation. The relatively small and un- particularly those serving West Africa, East Asia, and
difTerentiated merchantmen that plied world trade the Middle East.
routes during the immediate post-World War 11 era have The world bulk fleet also has grown significantly in
been largely replaced by huge crude carriers, contain- size, carrying capacity, and sophistication. This is
erships, LNG carriers, refrigerator ships, and a variety particularly evident in the tankers and other liquid bulk
of' other vessel types designed to serve specialized trades. carriers designed to carry asphalt, liquified natural
Computers and satellites have revolutionized vessel gas, chemicals, mollasses, phosphorous, liquified pe-
ol)erations and management. Ships have become larger
4
Oli AN@

and much more expensive to operate, requiring equally troleum gas, wine, solvents, and sulfur.
sophisticated ports to keep them moving on schedule The dry bulk trades also are affecting the character-
with minimum toss of time. Their size requires deeper istics of the land-sea interface. Growth of the dry bulk
and Nvider navigation channels to reach the ports. trades-particularly grain, coal, ore, and phosphates-is

dorninated by bulk carriers, and so-called OBOs (ore/ State and local port authorities and by the private sec-
bulk/oil carriers), i.e., combination carriers capable of tor. The cash value of these marine terminals is estimated
carrying either oil or dry bulk cargo. About 75 percent to be $40.4 billion and the replacement cost at about
of' the vessels currently engaged in the world coal trades $54 billion.
are bulk carriers, nine percent OBOs, and only 17 percent Containerization has revolutionized the handling of
conventional cargo vessels. Sixty-thousand deadweight general cargo at all major U.S. ports. Forty percent of
tons is roughly the median size for current coal ship- the investments made by ports in new and improved
ments; this is the maximum tonnage vessel (Panamax) facilities between 1973 and 1978 went for intermodal
that can pass fully loaded through the Panama Canal. terminals, and that mostly to accommodate containers.
These "Panamaxers" are the typical collier sizes that The most modern container terminals are fully automat-
carry coal out of the major U.S. East and Gulf Coast coal ed, with computers controlling traffic flows to and from
loading ports. The average size of the long distance coal pierside. Well over half the general cargo handled at
shipments is 100,000 dwt. Relatively few coal shipments most major U.S. ports is containerized, and this trend
move in ships of greater than 150,000 dwt, although, is accelerating.
that could change significantly in the years ahead as
world coal trade expands. It should be noted here that Investments in port development have resulted in
of' the world fleet of over 4,800 dry bulk ships, only 20 improved efficiency, particularly in container opera-
are under the U.S. flag; most of the U.S. vessels are over tions. Using conventional break-bulk methods, it might
30 years old. take an hour to load or discharge 10 tons of cargo. A
containerized operation can handle 30 tons in 10 min-
utes or less.
Ports, Harbors, Iand Terminals Data gathered by the Pacific Maritime Association
The U.S. port infrastructure consists of 189 seaports shows that the per ton cost of longshore labor at West
located on the Atlantic, Pacific, and Gulf coasts, and Coast ports dropped from $4.64 in 1967 to $3.31 ten years
on the Great Lakes. Of the 20 largest cities in our Nation, later, and tons of cargo handled per longshore hour
all but four have major harbors. Our ports contribute increased from 0.837 to 4.699. This has had a marked
about $35 billion to our GNP and have gross sales and effect on port labor forces. The longsbore registry of
services of $66 billion per year according to 1980 MARAD persons employed at the Port of New York, for exam-
figures. These ports are administered and, in most cases, ple, fell from 24,000 in 1967 to 10,500 in 1978. That
operated as publicly owned enterprises by local or State decrease of 55 percent contrasts with a 10-percent
entities. There is a partnership between local port increase in tonnage moving through the port. Ports have
authorities and the Federal Government. The prin- thus demonstrated their ability to handle increased cargo
cipal Federal partner has historically been the U.S. Army flows faster, more efficiently, and at a lower cost This
Corps of' Engineers (Civil Works), which has had the strengthens the competitiveness of U.S. products abroad
national responsibility for maintenance of harbors, and lowers the cost of imported goods to the American
rivers, and waterways. The Corps performs much of the consumer.
maintenance dredging and debris clearance either But the challenge continues. MARAD anticipates sub-
through use of its own assets or through contractors. stantial growth in both the foreign and the domestic
This partnership is the essence of our national seaport ocean trades over the next decade. Overall, U.S. port
system. The "rules" of the partnership, which have been cargo volume is expected to increase by 32 percent to a
established' by tradition, have generated a Federal total of 2 billion tons by 1990.
Government role to build and maintain navigational To achieve economies of scale, cargo ships of the future
channels (i.e., provide access) and a non-Federal role
that provides for, and operates, the shoreside cargo han- are almost certainly to be larger and more complex than
dling facilities. those of the present day. MARAD visualizes the pros-
pect of containerships in the 6,000 to 10,000 TEU range
U.S. ports have responded to technological and com- (compared to a 1982 maximum of 2,400 TEU) by the
mercial challenges by investing billions of dollars iri end of the century. Dry bulkers will increase in length,
new and improved cargo handling facilities, including draft, and carrying capacity. Cargo handling equipment
wharves, docks, transit sheds, storage areas, container will change.
yards, cranes, and other equipment. From 1946 through U.S. ports, in MARAD's view, will have to adapt to
1978, non-Federal U.S. seaport entities invested $4.9 the proliferation of larger ships with drafts over 65 feet; a
billion in landside infrastructure. For the 1973-1978 growing number of container ships, and the expanding
period alone, that amounted to $1.7 billion. In 1981, the trades in crude petroleum, liquified natural gas, iron
U.S. deepwater port industry consisted of 1,456 mari- ore, grain, bauxite, alumina, phosphates, and other dry
time terminals located at 189 ports and offering 2,939 bulks. Meeting those challenges will necessitate heavy
deep-draft berths, virtually all of which is owned by investment in port infrastructure in the decade ahead.

CREDIT: The Port of New York Authority.

The shift to containerization in the U.S. linear trades has led to aramatic changes in U.S. ports. At present,
more than half of the general cargo handled at most major ports is containerized. Modern container ter-
minals are fully automated, with traffic flows controlled by computer. Containers are quickly shuttled around
terminal yards and are whisked to and from ships in a matter of minutes.

CREDIT: Transportation Institute, Washington, D.C.

Specifically, according to MARAD, that would include and maintained ship channels, seaports simply can-
the following new U.S. berthing facilities; 27 for break not function and develop. Even the best port facilities
bulk, I I I for containers, 10 for grain, 15 for coal, 12 for are no good if the ships cannot get to them. It is not
ore, 25 for other dry bulk, 22 for petroleum, 6 for LNG, now merely a question of more vigorous maintenance
and 19 for other liquid bulk, with capital requirements of existing ports or getting new improvement projects
totaling over $5 billion. started. The idea of "scale" in port operations is changing
Although most U.S. ports are efficient and use many with larger, specialized vessels being built for the world's
of Ithe latest cargo handling technologies, they have been fleets. Owing to their size, they tend to be more effi-
caught up in the lag between revenues from operations cient carriers per unit of cargo, but they require deeper
and the faster moving costs of maintenance and im- harbors and often need specialized terminal facilities.
provements. The added specter of reductions in Federal Since World War 11, few U.S. ports have been improved
investments in port maintenance leads to some trou- by dredging to any appreciable extent. Except for main-
bling financial concerns for our Nation's port authori- tenance dredging of existing ports, not a single new sea-
ties. Moreover, the present world economic slump has port dredging project has been authorized by Congress
tencled to depress revenues. since 1976 despite the fact that ships have been getting
The ports face a difficult task. Many public port generally larger, and U.S. waterborne commerce has
authorities operate close to the break-even point; some expanded dramatically.
lose money from marine terminal operations. Many are According to the American Association of Port
required by State laws to be self-supporting. For others, Authorities (AAPA), a major dredging problem is the
access to State and local government financial resources is time required to obtain project approval. The intricacy
becoming more difficult. To an increasing extent, these of the Federal authorizing process is growing. With the
public agencies are being forced to rely on their own necessity for port dredging projects to conform to often
earnings and bond/credit ratings to raise the capital complex environmental standards and the increasing
they need for improvements. number of Federal, State, and local agencies that must
Shnilar to all other industries, the port industry has comment, or provide some form of approval, it is often
been hit hard by inflation. For example, 10 years ago, years before the Corps of Engineers can proceed with
it cost a U.S. port $1,500 a r,inning foot to build a 103-foot its work. Local project sponsors and the Corps also must
dock. Today, costs would _xceed $6,000 a running foot. consider the comments of environmental groups and
Container cranes, priced in the $500,000 range in 1970, other groups; at times, legal challenges have delayed
now sell for $3 million or more. Terminals that once project implementation for years. Some port experts
cost $160,000 an acre to develop would now range in now estimate that today it will take about 25 years from
the neighborhood of $500,000. Not only have prices concept to completion of a major dredging project. Other
increased, but investment capital is expensive and diffi- major problems are the absence of the necessary funds
cult to find. In addition, operating expenses have for dredging projects and the disposal of dredge spoils.
increased rapidly, partly in response to higher energy The dredging dilemma is threatening the viability
prices. Inflation undermines the port industry's ability of our national port system. Based on a survey of 19
to maintaiii efficient operations and simultaneously U.S. ports, the AAPA concluded that navigation chan-
raises the capital needed for facility modernization and nel limitations have resulted in the loss of 25 million
expansion. tons of cargo at a cost of $3.4 billion.

Complicating the situation further is the impact of Congestion is another problem in our ports. In 1980,
Federal laws and regulations that affect many facets Japanese coal buyers paid demurrage fees totaling more
of' port management and contribute to the costs of ports. than $45 million to port authorities for ships detained
From 1970 through 1976, according to MARAD, $194 at U.S. coal ports awaiting berths to load their cargoes.
million dollars per year was expended by U.S. local public Although this situation has eased, this tends to discour-
ports in compliance with Federal environmental, cargo age customers when there is an option to choose another
security, and employee health and safety standards. supplier in another country.
MARAD further stated that mandated costs represent
eight percent of the annual capital budgets and six Ship schedules for arrival in port are not always
percent of available operating funds of U.S. public ports, precisely adhered to. One storm at sea, or other event
and more than half of past mandated costs and 75 that bunches up ship arrivals, can result in a backlog in
percent of future mandated costs incurred by these ports the port. in the coal area, for examplie, when the ships
are related to environmental protection laws. begin to come in all at once, there has often been little
communication between the various coal brokers, or
Dredging, navigational aids, and mapping represent traders, as to the scheduling of the ships and, thus, load-
the Federal Government's traditional contribution to ing is hampered. And program flexibility to shift cargo
the U.S. port system. Without adequately constructed from one port to another does not exist. If a ship has

contracted to take a certain volume of coal at a given Whether we use small or large ships, the efficiencies
port, the railroads are moving the coal to that port, and in the terminals must be improved to avoid the prob-
the ship has to go there. It is virtually impossible to lems caused by the congestion we had in 1980. Our ports
reroute large volumes of coal.on the rails. In addition, have handled an effective total capacity of 313 million
many of the terminals are proprietary, owned by either tons of coal per year. This divides into roughly 120.9
the coal company or the railroads themselves. There- million tons for the East Coast, 110 million for the Gulf, 4
fore, coal is invariably not routed to an underutilized million for the West Coast, and 79.4 million for the Great
competitor's port terminal to take up the slack from a Lakes. A great deal of port improvement in terms of
congested one. coal moving, loading, and handling equipment is cur-
This problem is amplified by deregulation of the rail- rently underway. Preliminary MARAD estimates for
roads which, under the Staggers Rail Act of 1980, have coal capacity in 1987 are: 258.4 million for the East Coast,
gained a large measure of freedom to route shipments 214 million for the Gulf Coast, 97 million for the West
however they choose. According to AAPA, the routing Coast, and 79.4 million for the Great Lakes. It should
decisions of the railroads essentially control the flow be noted that interlake coal movement (domestic) is
of coal through specific ports. 70.5 million tons at present. The key point is, howev-
er, that in either case the ports will be able to handle
Congestion, with long waiting time, also ]ends value to the projected coal exports adequately within four or
the positioning of the ship. As the ship works its way five years, perhaps even in a shorter time period.
LIP the waiting line, the value of its cargo space increases As mentioned earlier, a shift is expected to "super
because its position in the waiting line has improved. colliers" in the 120,000 to 150,000 dwt range. To accom-
The operator's decision to stay in line affects rates, since modate such ships, a 55-foot channel would be needed.
it means much shuttle traffic and ballasting. These rate The present controlling depth in most major U.S. ports
effects will, in turn, increase the landed price and, hence, is 40 feet, or less. The Interagency Coal Export (ICE)
reduce the competitiveness of U.S. coal sales. Task Force has suggested that no blanket recommen-
As mentioned earlier, heavier than expected U.S. coal dation for dredging be given, but rather the decision
exports in 1979-1980 produced a heavy backlog of col- to dredge should be made on a port-by-port basis. The
liers and tremendous congestion in U.S. ports. The main Possibilities of offshore coal ports and the development
reasons for this congestion were the lack of loading of wide-beamed, shallow-draft large'bulk carriers
capacity and the relative inexperience of the coal traders also were mentioned in the report. Slurry pipelines
faced with a rapidly expanding market. By mid- 1982, between shore and offshore terminal moorings, while
the congestion problem had eased. New loading capacity not suggested by the Task Force, offer further possibilities
is being added and, increasingly, more coal is moving of overcoming harbor depth limitations.
on long-term contracts, thus eliminating some need for
coal brokers. At the same time, the brokering system
has adjusted and become more efficient. The Federal Role in
With the congestion in the traditional coal ports, much Port Development
of' the trade was moved over the Great Lakes. Although
this has added to costs, it has provided an alternative The most pressing problem facing the port industry
to waiting in line on the East Coast. Because of access today is the precipitous withdrawal of Federal par-
limitation owing to the depth of the St. Lawrence ticipation from its traditional role of providing adequate
seaway, vessels entering the Great Lakes are usual-
ly under 30,000 dwt. However, the lower St. Lawrence access to the ports now threatened by the Reagan
(Sept Iles) has deep water, which could facilitate the Administration. In that eventuality, the ports would
loading of very large bulk carriers up to 160,000 dwt. have to assume a major share of the financial burden
Plans are underway for terminals in, Europe, some themselves. Legislation under consideration addresses
Pacific nations, and the United States for the efficient port problems and includes various degrees of cost
handling of super colliers (ships in the 100,000 dwt plus recovery.
range). The obstacles will be access to our ports by the Federal participation in dredging and other deepwater
more efficient deep-draft ships. We would expect the navigation projects has depended on local agreement
development of' wide-beam shallow draft vessels to to provide easements, rights-of-way, land, and disposal
overcome this obstacle, otherwise it may be necessary areas, and to satisfy other requirements that have effec-
for massive dredging and deepening of the channels. tively forced non-Federal participants to shoulder more
Although money can be saved in the ocean transpor-
tation by using large vessels, dredging harbors is than 15 percent of the total project costs. To that extent
extrernely expensive. A major question is whether to the ports have, in fact, been cost sharing channel devel-
recoup these costs through a user fee or any other opment and maintenance with the Federal Government
method. for many years.

Given current fiscal and political realities, the port trucking access be expanded to fit projected growth? is
industry generally recognizes that changes in the Fed- there sufficient land behind the port available for devel-
eral dredging program are inevitable and, in many ways, opment of terminals, storage, and processing activities?
desirable. The existing system, with its lengthy and com- And, where they are factors, can riverine and inland
plicated process of' authorization, reviews, and appro- waterway systems effectively mesh with deepwater
priations is cumbersome, time consuming, and an shipping systems? A trend towards fewer, more efficient
economic burden. The industry is particularly united port complexes will provide problems for existing,
oil the need to reform the permitting process-or the smaller ports. Interport relations in terms of compet-
need for last tracking. ing ports, Federal-port interactions, and collection (shar-
But funding is something else. According to the AAPA, ing) of user fees will cause difficult ne gotiations for the
the port authorities realize that revision of the funding affected parties in the next few years. Yet, some adjust-
mechanism is inevitable. To the extent that they speed ment appears to be indicated.
up the availability of funds and guarantee their source,
such revisions are welcome. The port authorities dis- Shipyards
agree, however, oil the method by which that funding
should be raised; those representing the large number The U.S. active shipbuilding base comprises 27 ship-
of medium and smaller sized ports argue that the money building and repair yards (see Table 8), employing a total
should come from a uniform nationwide system of user of about 112,000 people.* In addition, there are exten-
fees. To do otherwise, they fear, would cause a diver- sive allied and dependent industries producing ship
sion of' traffic to their larger and more affluent rivals. components; the estimated ratio of direct yard work-
Authorities of' the larger ports object to a uniform fee ers to these workers is over I to 3. Thus, the allied indus-
oil the grounds that it would force them to subsidize tries represent a work force of about a quarter million
port developments at the smaller ports; they argue that people. Of the 27 shipyards in this active base, 7 are
fees should be based on port-specific costs, with cost only building Navy ships*and 12 are solely engaged in
recovery charges reflecting the costs incurred at the spe- repair work. Recent statements by the Administrator
cific port. Efforts are underway to reconcile the differing of MARAD indicate recognition that some of the yards
views of' the large and small port coalitions, but, at this may go out of business in the next 2 years. As a result,
writing, no consensus has been reached. we face potential deterioration of our shipbuilding base.
The Nation's security depends on an efficient and geo- Employment of skilled workers devoted to merchant
graphically dispersed port system. Major military and ship construction has dropped from a high of 35,000 in
naval installations are located at ports on every seacoast. 1976 to 10,000 today. In 1982, the order book for mer-
Government vessels share the same channels and chant vessels comprised 35 ships, valued at $1.8 billion
anchorages provided under local sponsorship for com- and constructed in 12 yards. Most are to be delivered
mercial shipping. In times of war or declared national by the end of the year, leaving only 15 vessels in the
emergency, ports can be required to give the Department yards. Few new orders are expected.
of' Defense priority use of terminals. Thus, the main-
tenance and modernization of our Nation's ports has At the same time, there are 93 ships being built fbr
direct, long-term defense benefits. the Navy in 12 yards with a total contract value of $11
The traditional policy of the Federal Government has billion. Orders on hand ensure deliveries for the Navy
through 1987 and the new naval buildup of the Reagan
been one of neutrality in matters affecting inter-port Administration calls for about 150 more ships. Although
relations. There have been some suggestions of cost- there will be heavy demand on the building base, it will
sharing between ports. Wealthier ports may be able to be unevenly distributed; about 75 percent of the work
absorb the extra costs that will be involved, but other will go to four yards.
ports that cannot obtain the funds for essential navi-
gation improvements could be placed at a competitive Apart from construction for the merchant marine and
disadvantage. the Navy, there is other marine construction, such as
offshore drilling rigs, barges, and tugs. This segment is
A difficult fundamental issue in the development of very active, with deliveries extending into 1984, even
our national port system is how many ports, and what though the current recession in drilling operations owing
kinds, are needed to maintain present and forecast ton- to the "oil glut',,,has caused a temporary slowdown in
nages? There is some question whether or not the present the offshore industry.
number of ports is appropriate or whether the United
States should be moving to fewer, more efficient ports.
Aside from national security and military needs, this
would be dependent upon the efficiency of the land-sea The active shipbuilding base is composed of those shipyards
constructing new ships and/or seeking new construction orders. Total
interface components in the port region. Can rail and shipyard employment is about 160,000.

Table 8.-The Active U.S. Shipbuilding Base

Shipyard Location Coast

Alabama Dry Dock, ............................................................................ Mobile, Alabama Gulf
American Ship Building' .................................................................... Lorain, Ohio Great Lakes
Avondale' ............................................................................................ New Orleans, Louisiana Gulf
Bath Iron Works' ................................................................................. Bath, Maine East
Bay Shipbuilding3 ................................................................................ Sturgeon Bay, Wisconsin Great Lakes
Bethelehem SteeP ............................................................................... San Francisico, California West
Bethelehem Steel' ............................................................................... Sparrows Point, Maryland East
Equitable Shipyards' ........................................................................... New Orleans, Louisiana Gulf
General Dynamics, Electric Boat',' .................................................... Groton, Connecticut East
General Dynamics' ............................................................................. Quincy, Massachusetts East
Halter Marine' .................................................................................... Mobile, Alabama Gulf
Ingalls" ............................................................................................... Pascagoula, Mississippi Gulf
Levingston Shipbuilding' ................................................................... Orange,Texas Gulf
Lockheed- .......................................................................................... Seattle, Washington West
Marinette Marine ............................................................................... Marinette, Wisconsin Great Lakes
Maryland Shipbuilding' ..................................................................... Baltimore, Maryland East
National Steel' .................................................................................... San Diego, California West
Newport News',' ................................................................................. Newport News, Virginia East
Norfolk Shipbuilding' ......................................................................... Norfolk, Virginia East
Pennsylvania Shipbuilding ................................................................ Chester, Pennsylvania East
Peterson Builders' .............................................................................. Sturgeon Bay, Wisconsin Great Lakes
Tacorna Boatbuilding .......................................................................... Tacoma, Washington West
Tampa Shipyards' ........... ....-..... --- ................ ---- ........................ Tampa, Florida Gulf
Todd' .................................................................................................... Galveston, Texas Gulf
Todd' .................................................................................................... Houston, Texas Gulf
Todd 1,1 .........................................................; ........................................ San Pedro, California West
Todd',' .................................................................................................. Seattle, Wa shington West

I 11iincipal producers.
Currently doing naval constrLICtiOu Cully.
CLIH-Cutl@' doing repair work only.

NOTE: As of October 1982, the uUmber ofernployees in the active U.S. shipbuilding base was 112,374.

Sources: U.S. Navy. 1982. U.S. Shipbuilding and Repair-Importance of Industry Health to National Security. Prepared for the Assistant
Secretary of the Navy (Shipbuilding and Logistics), Washington, D.C.

Maritime Administration. 1982. Office of'Maritinie Labor and Training, Washington, D.C.

Shipbuilders COLHICil of America. 1982. Washington, D.C.

Because of the long leadtimes involved in the planning trial support base for shipbuilding has been deteri-
and construction of sophisticated naval vessels, the orating. Purchase of foreign components is often the
impact of' the new building program will not be felt only choice. This development not only affects ship-
for at least three years. Meanwhile, the industry needs building but all defense procurement. It may be very
to find orders for the building of merchant ships. The difficult for the U.S. industrial sectors with these ship-
yards estimate that they will lose about 30,000 work- building capabilities to gear up to meet the national secu-
ers, or one-third of the labor force because of the rity goals enunciated by the current Administration.
near-term lack of orders. The overall impact, over the With respect to repair work, the United States should
3 years, including secondary effects in allied industries, have a relatively new Navy and some newer ships in
could be a loss of about 90,000 jobs. The Department of the merchant fleet. Therefore, big repair and modi-
Defense, through the Military Sealift Command, is fication programs to keep the fleets in use as long as
SUpporti I119,increased construction of commercial-type possible are not expected until the 1990s or later. At
vessels for its use in military readiness. Whether or not that time, we may not have the industrial base to han-
the numbers of these vessels and the attendant repair dle a large backlog of yard work. As part of its "mari-
business will help offset lack of commercial orders is time policy" (Phase One), the Administration has
not clear. proposed that the ad valorem duty (of 50 percent) for
the cost of overseas repairs on U.S.-flag ships be elim-
There are several reasons for the shipyard situation. inated. The original purpose of this duty was to reserve
The U.S. yards are not able to compete in the interna- work for U.S. repair yards, except in emergency situa-
tional market, because many foreign yards are selling tions where the tax was then waived. This, coupled with
at below cost with approval and indemnification by the intent to permit building commercial vessels abroad
their governments. The lower purchase prices abroad and still enable the builder to receive operational sub-
cannot be offset by CDS in this country, which provides a sidy, has provided a double blow to the U.S. shipbuilding
consequent incentive for U.S. operators to build abroad. base. This is a major problem facing the future of the
Furthermore, extremely low foreign credit terms for entire U.S. maritime industry.
ship buyers (often 5 to 9 percent) provide another level of
foreign subsidy for ship sales.* Another concern pertains to the Navy's own ship-
building base, that is, its own yards. The Navy has not
Because foreign yards receive more orders, they can built any ships in its yards for several years and now
build in longer. series than can U.S. yards with advan- uses them only for repair and conversion work. The
tages accruing in capital investment and in serial pro- facilities in this category could provide a surge capability
duction efficiencies. Because U.S. yards are not producing in time of emergency. But the capability is slowly dis-
ships in long production series, construction time is usu- appearing as the Federal Government gradually. disposes
ally, but not always, longer than abroad. in addition, of naval shipyards. Such was the fate of our yards at
the U.S. shipyard worker very often needs retraining Boston, Brooklyn, Hunters Point, etc.
because of the rapid turnovers that follow from the
uncertain and cyclical nature of the work in this industry. However, if the government decides on reactivating
Training costs for replacing a skilled worker are esti- available Navy shipbuilding capability, construction
mated to average about $25,000 per worker. This nec- costs generally will be higher than those in private ship-
essarily goes into the overall costs/pricing of American- yards. Studies have indicated that, depending on the
built ships. And, although wage costs are becoming more type of vessel, the cost differences range from 18 percent
equal, U.S. yards still have to comply with more. strin- to I 10 percent. These studies were completed by the
gent regulatory requirements and standards than do Shipbuilders Council of America in 1971 and the De-
foreign yards. And these substantially add to the con- partment of Defense in 1972.
struction costs. Of the 27 yards in the civilian shipbuilding base, 12
The long delivery times in U.S. yards are partly caused have been identified by the Navy as being capable of
by the difficulty to obtain, and the slow delivery of, building surface naval ships. In addition, there are two
component materials and parts to the yards. Because other yards for submarine construction and a special
of the decline in maritime opportunities over the past facility, the only one in the country, at Newport News,
10 years, many of the companies that manufacture ship Virginia, for the building of nuclear-powered aircraft
components, the allied industries, are withdrawing from carriers. The shipbuilding industry estimates that a naval
the maritime business and are devoting their resources construction program of about 150 ships over five years
to more stable markets. As a consequence, the indus- will engage a total of 15 shipyards, leaving only 12 to
meet whatever demand may come for merchant ship
construction.* Whether 12 yards will be sufficient for

There is some conwetitiveness on the world market for U.S. yards
in area-, Outside merchant vessel constrUCtiOn. Tuna fishing vessels,
offshore service ships, tugboats, and offshore drilling rigs have been The yards building for the offshore oil and gas industry are not
built in American yards and sold abroad. included in the shipbuilding base as defined here.

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including the General Dynamics shipyard in Quincy, Massachusetts. In the short term, Military Sealift Command
T-ship projects will provide needed work in several yards. However, the general lack of demand for new
commercial ships and the one-year "build-abroad" authority granted for fiscal year 1982 have increased the
risk of closure for a significant number of U.S. yards.

CREDIT: Maritime Administration, Office of Public Affairs, Washington, D.C.

merchant ship construction is dependent upon govern- commercial cargoes for U.S.-flag vessels built in U.S.
ment views on the need for maintaining this national shipyards. This would require Congressional action.
capability. Recent actions seem to indicate acceptance The Adminstration could formally recognize that
of'continued shrinkage. international shipbuilding is not a "free market"
With government-subsidized foreign yards selling and declare that it will aggressively provide com-
merchant ships below their cost, there is little economic parable competitive assistance similar to that
incentive fbr the investor to build at higher prices in received by foreign shipbuilders from their gov-
U.S. yards. However, there seem to be four promising ernments. Such assistance could be in terms of low
developments that could increase orders for our domestic cost loans to ship purchasers, favorable tax treat-
shipbuilding industry. The first is the new Navy con- ment for investments in U.S. yard products, and
struction program that will engage a portion of the aggressive marketing assistance (commercial and
industry. The second, of' importance to the remaining political) by our government for our shipyards. Such
yards, is that it' the United States responds to the aids are contrary to a free market philosophy, but
UNCTAD Code by increasing the number of its bilater- we need to keep in mind that this business is not a
al trade agreements, then U.S.-flag shipping could carry free market arena for reasons outside the control
40 percent of' the U.S. liner trade. Because U.S.-flag of U.S. Government trade policies. The United States
operator participation in our liner trade is currently 27 cannot change the practices of many nations that
percent, there would then be a better base for the build- choose to subsidize; effective competition requires
ing of more merchant ships. The third is U.S.-flag doing business on a comparable basis.
participation in the expected coal bulk trade through a It is regrettable that the "buy foreign" authority comes
national cargo reservation policy. Fourth, is the action at the expense of our domestic shipbuilding industry,
by the Navy to lengthen its one- to three-year charters to but NACOA believes the ship operators and the ship-
five years, arid, in some cases, 25 years-the virtual life of yards cannot be handcuffed together as was the case in
the vessel. Strong incentives for more construction are the past when both CDS and ODS were in full force.
provided, because the charter agreements can be used The'ship operators' problems in upgrading ship assets
in securing loans for shipbuilding. in the short term and those of the shipbuilder in mak-
As we noted earlier, there are also counter signals, ing a yard more competitive are simply on two very
The Senate maritime authorization bill for fiscal year different time scales. But the release of the U.S. operator
1983 would have extended the ability of U.S.-flag from building in U.S. yards must result in an added
operators to build vessels in foreign yards, put them obligation for the U.S. Government to develop rapid,
under the U.S. flag, and be eligible for operational sub- positive, and effective renewal programs for our domes-
sidy for an additional year. in addition, this bill would tic shipbuilding industry. The Committee was encouraged
have removed the U.S.-built restriction on the use of by the various modest MARAD programs that are
CCF assets. The House/Senate compromise bill eliminat- intended to stimulate efficiency and productivity
ed the U.S.-built restriction waiver for Capital Construc- in American yards. Especially promising are the tech-
tion Fund assets but included the one-year extension nology and management skill transfer programs from
of' ODS eligibility for foreign-built vessels. With this efficient foreign shipyards. Surprisingly, these initiatives
provision, replacement needs for U.S. operators could have shown the productivity potential of the Ameri-
be met by purchasing cheaper vessels, at lower inter- can shipyard worker to be very high and the industrial
est rates, than would be possible in the United States, base to be fairly up-to-date. Thus, the solutions to better
It' such legislation is passed by the 98th Congress, the and more competitive shipbuilding seem to lie in the
President will probably sign the bill into law, because areas of ship design, construction methods, and better
the build-fbrejgn idea also is embodied in the Admin- overall management of the yards. it has been estimat-
istration's maritime policy statements. However, ed that very little new high cost capital equipment would
there seem to be four possible offsetting actions that, be required; it is more a matter of designing and build-
if' they occur, could modify this authority with possible ing the vessels more efficiently through better man-
benefits to the U.S. shipbuilding base: agement.
� The industry could convince Congress that further The Committee also notes a recent interest by foreign
extension of this authority (fiscal year 1984 and investors in cooperative ventures with U.S. shipyards.
beyond) is detrimental to the maintenance of the In the case of Japan, this would immediately give 15
minimum national shipbuilding base for national to 20 years of management and technical upgrade to
security needs. the U.S. shipyard partner. it also would help to ensure
� The Department of Defense could increase the market shares for the ships produced by the yard,
purchase of U.S.-built commercial-type vessels because all the investors would be motivated to be
for military sealift and other government needs. profitable.
� The government could follow the example of other The Committee hopes MARAD will be able to accel-
inaritinie states and reserve some percentage of erate and increase its efforts in this area of foreign coop-

eration. Implementation of better design, construction, many of our yards are forced to close from lack of
and management techniques, similar to those used in business.
Japan, must be implemented in U.S. yards before too

Chapter 6
The Crosscutting Areas

The Intersect .................................................................................. 53
National Defense Requirements .................................................... 53
Personnel ........................................................................................ 55
The U.S. Coast Guard ..................................................................... 56
other Regulatory Activities ........................................................... 58
Tugs and Salvage ............................................................................. 59
Science, Technology, and Education Support ............................ ... 60

CHAPTER 6
THE CROSSCUTTING AREAS

The Intersect In non-NATO conflicts, the availability of the 400
merchant vessels promised by our Nato allies would
This chapter covers those marine transportation be in doubt. The United States has over 40 treaty rela-
operations and support activities that interact with tionships for helping to defend overseas allies. Pru-
U.S.-flag maritime interests throughout the world. Such dent planning suggests that we also must consider how
areas as national defense, regulatory responsibilities to support their needs in time of emergency outside
of the U.S. Coast Guard, seagoing manpower, and educa- the NATO alliance. Perhaps the depth of concern about
tion and training are all examples of "crosscutting the adequacy of America's sealift capabilities for defense
areas." Essentially, these are activities that accompany needs is contained in the following quote from a speech
or follow our merchant marine wherever it is or made by the Commander, Military Sealift Command,
wherever it goes. Vice Admiral Kent J. Carroll before the New York
Propeller Club on April 28, 1982:
National Defense Requirements Our Nation faces disaster if it doesn't come
up with a plan and policy to restore the mari-
The "Declaration of Policy" statement introducing time industry to vigorous health. our merchant
the Merchant Marine Act of 1936 emphasized national marine capability is so spartan that we can-
defense as a priority role for the U.S. merchant marine. not meet projected -worldwide military de-
The intent of the various Congresses and Adminis- mands without a.m8sive commitment of allied
trations has been clear and consistent, But how well resources ... and we can't be sure when the
does the United States meet these mandates today? next conflict breaks out that it will be in an
This area is of primary concern to our Committee. area where we can count on allies.
In World War 11, the United States produced and The assets available for military sealift come from
operated the largest merchant fleet in the history of three assured sources and a fourth of doubtful utility.
seafaring. About 1,700 U.S.-flag ships served under These are:
naval control to provide the primary logistic support 1. Military Sealift Command (MSC). This con-
for our war effort. During the Korean war, a U.S.-flag sists of government- owned and operated ships (about
fleet of 400 ships was dedicated to this effort, repre- 80) together with a number of -ships under charter to
senting 80 percent of the logistic cargo support for the MSC (about 50). As we note later, this fleet is now
our forces. However, this was only 17 percent of the being expanded through increased government invest-
vessel tonnage in our merchant marine in the 1950s. ment and incentives with benefits to the civilian
In Vietnam, about 65 percent of the logistic tonnage operator.
was carried in civilian merchant vessels from 1965 to
1972, roughly 35 percent of our U.S.-fiag dry cargo 2. The National Defense Reserve Fleet (NDRF).
fleet. In a more recent non-American case, the The NDRF consists of about 245 vessels, the core of
-Argentina -Britain dispute over the Falkland Islands, which is comprised of 129 World War 11 Victory Ships
3 out of 4 British ships in the Falklands area were that are nearly 40 years old. Activation of this fleet is
merchant ships recalled from commercial activity. estimated to take from 30 to 180 days. This number
Present planning within the Department of Defense . would probably be quite optimistic, because shipyard
calls for a 600 ship requirement to support a NATO space, parts availability, and the manpower to do the
conflict through a U.S.-Europe logistic train. There is reactivation and crewing would all be in short supply
considerable discussion as to whether or not sufficient in the time of a national emergency. One effective
vessels would be available in American and other NATO part of the NDRF is a 30-ship fleet of the Ready Reserve
nation merchant fleets to support this requirement. Fleet (RRF). These are relatively new merchant ves-
It is not clear which side may be correct, but the dia- sels that can be activated in 5 to 10 days. Training
logue suggests the situation is marginal at best. exercises have shown the success of the RRF system.

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The Maritime Administration maintains the National Defense Reserve Fleet as a ready source of vessels for emergency
activation. This fleet consists of 245 ships at three sites: James River, Virginia, Beaumont, Texas; and Suisun Bay, California.
More than half of these ships are World War II Victory ships, such as the BARNARD VICTORY pictured above.

CREDIT: Transportation Institute, Washington, D.C.

3. U.S. Merchant Marine. This would be the and the increased size of vessels lead to less operating
primary source for the surge requirements for mili- cost per unit of cargo and increased vessel productivity
tary sealift in time of national emergency. Through but require sophisticated terminal facilities to achieve
MSC's Sealift Readiness Program, all U.S. owners who these efficiency gains. Hence, the defense utility of
receive ODS commit 50 percent of their tonnage for the fleet decreases as technological progress increases
call up, when requested, in return for priority to carry to meet specialized commercial needs.
DOD cargoes in peacetime. Another problem of divergence of requirements is
A significant problem in considering the 525-ship in the numbers of vessels. The military needs numbers
U.S. merchant marine as a war reserve lies in the diver- to maintain logistic supply lines, because of the attri-
gent paths that ship designs and configurations are tion that will be suffered as a result of hostile action.
taking when considering military versus commercial in the commercial sector the move has been towards
needs. This is especially true for bulk vessels. The pre- fewer ships but with increased overall cargo capacity.
ferred military ship is one that can take aboard outsized Thus, while in many instances the number of "hulls"
and non-standard cargo and one that is not too depen- has decreased, the amount of cargo moved has actually
dent upon specialized handling systems at debarcation increased.
points. on the other hand, commercial ship technol- 4. Effective U.S. Control (EUSC) shipping. As
ogy tends to move towards the highly specialized, larger noted earlier, the EUSC fleet is extensive and consists
vessels. Both the specialization (i.e., containerships) primarily of bulk shipment vessels. According to DOD,

most of these are not militarily useful. There are only 1. Build and Charter. Under this scheme, the U.S.
a few freighters that could be applied to direct military- Navy stipulates its ship requirements and asks
logistic support needs. The bulk vessels could be used private parties to bid on their construction. The
for bulk commodity support of both our economy and winning contractor obtains a charter guarantee
that of our allies in a wartime situation. (usually 5 years) at a rate that covers both invest-
The major concern with this "fleet" is whether ment and operating costs. Ships provided by this
effective U.S. control" is simply an economic term, program are of types generally not available from
existing merchant marine assets. As of March
that is, controlled by U.S. corporations, or whether it 1982, the Navy had acquired 29 ships (28 tank-
is also controllable in the sense of national security? ers and I Ro-Ro) through this program. In Janu-
These ships are crewed by foreign nationals and are ary 1982, the Navy issued a request for proposal
legally operating under the national laws of foreign for the construction of five new 30,000 dwt tank-
states. The fundamental question is whether or not ers. These should be in operation by 1986.
they would get involved in U.S. national emergency 2. Convert and Charter. At present, the Navy has
operations in which they (the foreigners) had no 13 merchant ships under charter as a "Near Term
involvement. Prepositioned Force" located in the Indian Ocean.
In June 1982, Caspar Weinberger, Secretary of These civilian-manned vessels are loaded with
Defense, indicated that the EUSC countries have stated: all the supplies and equipment needed to supply
they will assert no control over the employment of a 12,000 man Marine Amphibious Brigade for a
U.S. ships on the registries; they will not interfere 30-day period. The Convert and Charter Program
with the exercise of emergency authority by the gov- will replace these civilian ships with.converted
ernments of the shipowners; and they would. not inter- civilian hulls that are more suited for this type
pose any objections to the exercise of U.S. requisitioning of use. As with the Build and Charter Program',
authority over U.S.-owned ships. More recently, John private investors will compete for the contracts;
Lehman, the Secretary of the Navy, in response to a winning bidders will receive charters of up to 25
years at a payment rate sufficient to cover hull
question, told a public meeting (June 1982) that yes, acquisition, conversion, and operation. The Navy
indeed, it is still an essential part of our national securi- hopes to charter about 15 vessels under this pro-
ty policy to count on these assets under a foreign flag." gram. The preferred conversion will be to a Ro-Ro
Some planners, however, express doubt and do not type ship.
expect much augmentation from this source. For exam- 3. Fast Sealift Program. This program involves
ple, former Supreme Allied Commander Atlantic, the conversion of eight large SL-7 containerships,
Admiral Issac C. Kidd, Jr., told the Committee on Mer- purchased from Sea-Land Service Inc., to Ro-Ro
chant Marine and Fisheries: ships. These 33-knot ships will be operated by
... That is something less than a completely civilian contractors on long-term charters after
comfortable feeling that one is left with in conversion.
this flag of convenience business; because you These events of the past few years demonstrate an
take a look at the ship's company in those intent by MSC to increase the size of its nucleus fleet.
ships and it is almost totally international in Assets to be added to military sealift capability now
character and more often than not just a very, appear to be on the order of 57 vessels. This is an
very small percentage of those ship's compa- important improvement, but one also must keep in
nies are passport- carrying members of any of mind the relative scale of total requirements-the
the NATO nations. NATO commitment for over 400 ships in time of NATO
conflict.
one would have to ask oneself what would
be the degree of enthusiasm with which the In addition, MARAD and Navy research and devel-
nation owning those passports would have opment efforts are looking at the design of portable
with their nationals involved in any conflict cargo and terminal systems that could be put into
not necessa .rily of their choosing or making. advanced areas to serve the more specialized, sophis-
ticated vessels taken directly from merchant marine
At best, we must view the prospect of returning assets. This would permit greater adaptation of these
these EUSC ships to U.S. control in time of national assets directly to military sealift support than has been
emergency as uncertain, because the system .has never possible in the past.
been tested.

Recognizing the overall deficient situation in meeting
military sealift needs from any or all of the "fleets" Personnel
.mentioned above, the DOD (Navy) has initiated three
programs to add some assets to the MSC logistic fleet. Modern ships are te6hnologically advanced and likely
These programs are: to.be more so in the future. A major trend has been

the reduction of crew size through extensive use of an active willingness to work for improvement of this
autornation but without compromising safety. For industry. Limited, special contract concessions have
example, a World War 11 vintage T-2 class tanker of been given by the unions to operators and to the gov-
17,000 dwt required a crew of 40; modern 400,000 ernment (MSQ for specified charters and operations
dwt tankers can have crews of only 30. in order to achieve competitive or national security
Training, qualification, and certification for offi- advantage for the U.S.-flag operator. These have
cers and crew for complex vessels are areas of potential involved such items as no-strike guarantees, personnel
concern. So far, both management and the various sea- level adjustments, and revision of wage scales. The
going unions for licensed and unli .censed personnel situation is not perfect, but there is movement and
have been able to provide excellent up-to-date train- goodwill on both sides. The unions vigorously support
ing for their members. In addition, the seven mari- the expansion of a U.S.-flag fleet to provide a greater
time academies (I Federal, 6 State-5 saltwater and I job basis for their members.
Great Lakes) have effectively adjusted curricula to meet In the absence of a major expansion of the Ameri-
most of the change in this industry. can merchant fleet, only limited new job opportunities
To simply attract people.to a seafaring career is a for the pool of trained seafarers can be maintained by
primary problem area. The mean age of the American the government's programs with the Military Sealift
seafarer has been increasing. While the need for a mer- Command in chartering from the private sector. A
chant marine must be stressed, not only for defense stricter implementation of existing cargo reservation
but also for economic security and for maintaining legislation for government cargoes, such as U.S. agri-
our way of life, these values alone do not stimulate culIture shipments, also would help in preserving U.S.
recruiting for the life of a seaman. An economically seafaring jobs.
distressed and shrinking industry where seagoing
employment for U.S. citizens has decreased about 65 The U.S. Coast Guard
percent since the mid-1960s, or from 60,000 to 20,000
deepsea billets, does not provide inducement. For those The U.S. Coast Guard plays a major role in the marine
who are recruited, career patterns and opportunities transportation industry. In addition to its more promi-
of a reliable and functioning fleet must be available. nent and traditional missions of search and rescue,
These careers must be perceived as just that, careers. aids to navigation, enforcement of laws and treaties,
Some of the decrease in opportunities for seagoing and polar and domestic icebreaking, the Coast Guard
employment and skilled shipyard employment, as dis- has been tasked with regulatory responsibilities in
cussed in Chapter 5, results from the substitution of commercial vessel safety.
capital for labor. through new technologies that make Over the years, the U.S. Commercial vessel Safety
operations more productive and less labor intensive. (CVS) Program has developed in parallel with similar
Most, however, stems from the loss of the competi- international programs. While international mari-
tive advantage to foreign ship operators and ship- time conventions and treaties were first instituted in
builders and the resulting loss of business. 1914, the advent of the United Nations in 1945 brought
In a presentation on the deployment of U.S. corn- a growing recognition that an international framework
bat power abroad before the Propeller Club Conven- should be established to address maritime matters.
tion in October 1982, Vice Admiral Kent J. Carroll, Of primary concern was a mechanism to improve safety
Commander of the Military Sealift Command (MSQ, of life at sea in an orderly manner. As a result, the
stated: Inter- Governmental Maritime Consultative Organi-
zation (IMCO) (now titled the International Maritime
Why are we in such a mess? One reason is Organization - IMO) was established in 1958 under
that American crew costs continue to be the the auspices of the United Nations and has served as a
highest in the world. Monthly crew costs of focal point for international deliberations on marine
U.S.-flag ships are as much as three times high- safety since that time. IMO has created. a wide range
er than countries with comparable standards of conventions and treaties governing maritime safe-
of living such as Denmark and up to six times ty. To' the extent that the vessel inspection and mer-
more than third world countries such as Korea. chant marine personnel standards are based on interna-
The U.S. seagoing labor unions have actively coop- tional criteria, the worldwide system established
erated with government and management to improve provides a basis for ensuring standard treatment for
the industry. There has not been a major seagoing labor all vessels entering U.S. ports or engaging in world
difficulty in the U.S. merchant marine for nearly two trade.
decades. The recent move of two unions to forego con-
tract pay raises, when requested by former Secretary IMO has expanded to 121 member countries from
of Transportation Drew Lewis, further demonstrates the 1958 membership of 21. The Coast Guard has rep-

resented United States interests at IMO since its certificated by the Coast Guard. Information gleaned
inception. CVS Program personnel from the U.S. Coast from the investigative process is used, when appro-
Guard participate at all levels of IMO. In developing priate, to assist in adjusting the system to prevent
international standards, there must be recognition of similar occurrences in the future.
the fact that the solution of maritime- related safety The CVS Program also includes the administration
has to be addressed in a systematic and coordinated of U.S. vessel documentation laws, for example, the
manner. The tendency to overregulate must be avoided.
In this regard, the Coast Guard's role at IMO is im- issuance of vessel registration forms and official reg-
portant. istry numbers to specified vessels, and the official
repository of legal documents affecting title to ves-
All actions implemented by the Coast Guard to pro- sels, such as bills of sale, mortgage, and notices of
hation serves to estab-
mote maritime safety are based on Federal laws, includ- claim or lien. Vessel documen
ing laws implementing international agreements. The lish a vessel's nationality, its entitlement to engage
CVS Program considers the U.S.-flag vessel from "cradle in particular trades, and its eligibility to be the sub-
to grave." Before construction of a vessel is undertaken, ject of a preferred ship mortgage.
vessel plans are reviewed to ensure compliance with Effectiveness of any safety program cannot be directly
Coast Guard developed standards as well as the stan- measured but must be inferred from a decline in an
dards of recognized classification societies, e.g., Ameri- incident rate relative to previous experiences. Because
can Bureau of Shipping (ABS). The plans are reviewed the Coast Guard collects data only on incidents involv-
for hull structure, propulsion plant, cargo containment ing U.S. vessels or those that occur in U.S. waters, the
and handling, navigation equipment, crew accomoda- measure of effectiveness of a given criterion does not
tions, lifesaving equipment, firefighting capability, reflect an accurate historical incident rate worldwide.
structural fire resistance, and crew operating safety. Additionally, reporting requirements vary between
During the vessel's construction, Coast Guard marine nations, which tends to drive up the statistical inci-
inspectors, or ABS surveyors acting for the Coast Guard, dent rate for those nations with rigorous reporting
conduct on-site inspections at the shipyard to ensure requirements. Finally, incident reports must be trig-
that only approved equipment is installed, that proper gered by some quantitative figure (deaths, dollars, etc.).
construction materials are used, and that all segments of In a period of rapid inflation, incident reports trig-
the vessel are built in accordance with approved plans, gered by specific dollar damage estimates will increase
Under existing laws and regulations, individuals seeking even though the level of safety has not changed within
to build vessels to operate under the U.S. flag must the fleet. Statistically, they provide a negative image
seek plan review and inspection from the Coast Guard of a safety program when, in fact, safety levels may
which is required to provide these services. Once in be steady or improving. Inflation indexing w6uld pro-
service, a vessel is subjected to periodic Coast Guard vide more consistent and comparative statistics.
inspection to ensure maintenance of minimum safety The principal alternatives to solve the problems asso-
standards.
ciated with the assurance of safety of life, property,
The Coast Guard also inspects foreign vessels that and environment as related to American commercial
enter waters subject to U.S. jurisdiction. Under exist- vessels and foreign-flag vessels in U.S. waters are to
ing laws, treaties, and regulations, the Coast Guard rely on the industry (owner/operator/insurer), some
boards and examines all foreign tank vessels upon their form of a Federal regulatory program, or some com-
initial entry and once annually thereafter. bination of the two.

Presently, foreign chemical and hazardous material The overall responsibility for a CVS Program is where
carriers are required to submit vessel plans for approval it should be-in the Federal domain. However, per-
prior to entry into U.S. waters. Upon approval of ves- formance of some operational or inspection functions
sel plans, the vessel is boarded and examined on ini- is feasible by others such as third-party organizations
tial entry, and, barring discrepancies, is issued a "Letter (American Bureau of Shipping), standards setting socie-
of Compliance." The vessel is subjected to annual board- ties (American. Society of Mechanical Engineers, etc.),
ing thereafter. The Coast Guard also performs exami- union safety committees, and ships' officers or employ-
nations, upon application, of foreign vessels for Safe- ees of construction and repair facilities (certified as
ty of Life at Sea (SOLAS) inspections, which are based marine inspectors").
on international standards. In an effort to simplify plan approval and related
The Coast Guard investigates all reportable marine new construction inspection procedures for the ship-
casualties in U.S. waters as well as casualties involv- building industry and shipowners, the Coast Guard,
ing U.S.-flag vessels, regardless of location. It inves- in its CVS Program, has undertaken a plan for coop-
tigates all incidents of acts o-f negligence, incompetence, erative sharing of these activities with the American
or misconduct on the part of personnel licensed or Bureau of Shipping (ABS). The Coast Guard has arranged

to accept ABS plan review and inspection of certain ples of naval architecture, marine engineering, civil
items on vessels under construction which are to be engineering, and allied engineering and scientific disci-
classed by ABS and certificated by the Coast Guard. plines that have proved satisfactory through service
These items include hull structure of conventional ships experience and engineering analysis and research. The
and barges, inert gas systems, crude oil washing Sys- rules are authoritative, impartial, and current. The
tems, and certain piping systems. American Bureau of Shipping (ABS) classifies over 25
The Coast Guard also has certain functions not direct- percent of the free world's tonnage. It is one of nine
ly related to marine safety but which aid the indus- classification societies that comprise the membership
iry. one of these is vessel admeasurement. The admea- of the international Association of Classification
surement tonnage of a vessel (specified dimensional Societies.
characteristics) clet4ines the applicability of various However, there is a different perspective in the classi@,
statutes related to vessel tonnage. Vessel tonnage also fication society's approach compared to that of the
is used to determine locking tolls, canal tolls, wharf- Coast Guard. The Society's perspective is to provide
age rates, and other fees imposed on vessels by vari- surveys for the purpose of underwriting insurance,
ous port authorities. Under current law, the Coast Guard i.e., the purpose is essentially geared to determine risks.
must provide admeasurement services to all U.S. ves- The purpose of the Coast Guard is to provide safety in
sel owners desiring admeasurement. the public interest through enforcement of laws, reg-
Immediate extensive reliance upon ABS is thwart- ulations, and treaties. It should be noted that where-
ed by a specific statutory provision prohibiting charging as ABS is primarily concerned with classed vessels,
the Coast Guard safety overview is concerned with
for admeasurement services. In the interim, until legis- classed as well as unclassed vessels.
lation is passed to repeal the statutory provision, the
Coast Guard will provide owners with an option of A major area of activity for ABS and other classifi-
having their vessels admeasured by the Coast Guard cation societies is the overseeing and implementation
or by ABS. of IMO conventions that affect elements of the industry
The cost of Coast Guard regulations to U.S.-flag ves- in diverse ways. Among these are the Safety of Life at
sels builders and operators is difficult to determine. Sea (SOLAS) international standards. Offshore ships
The most comprehensive document available about are built according to SOLAS standards, which are
costs of maritime- related regulations is a report pre- designed for deep-water, far-from-shore shipping.
Because offshore service vessels are mainly engaged
pared in December 1979 for MARAD, "Cost Impact of in specialized close-in activities, the industry has sought
U.S. Government Regulations on U.S. Flag Ocean Car- relaxation in -the standards from Congress. However,
riers." It examined the total impact, including initial it is argued that vessels operating 3 to 4 miles or more
additional construction costs resulting from increased offshore also need to comply with the stricter safety
technical requirements as well as reporting and admin- measures demanded of high sea vessels, since the most
istrative costs. The report determined that, for those hazardous part of operating a ship is,when leaving or
standards where the Coast Guard is permitted some entering port and when maneuvering in the nearshore
discretion (that is, where the standard is not mandated areas. Nevertheless, the rules have been relaxed by
by law or treaty), the cost is small. in the two cases Public Law 96-378, and the Coast Guard is now required
illustrated in the report (a tank ship costing $45 mil- to inspect these ships with consideration given to the
lion and a container ship costing $54 million), the ship's size, type of operations, and length of voyage.
increased cost amounted to less than one-half of one
percent of the cost (0.31 percent for the tank ship and This situation may eventually change, however,
0.25 percent for the container ship). These figures main- because the IMO's International Convention on Tonnage
ly reflect higher engineering standards than might be Measurement of Ships (1969), which went into effect
found in a non-U.S.-flag vessel. Since the time the July 16, 1982, radically affects all ships, including the
MARAD report was written, IMO efforts to improve offshore service ships. For example, under old mea-
safety standards on all vessels have resulted in man- surement rules, the ship's gross tonnage was based
datory compliance for some of these engineering only on carrying capacity (cargo space). An IMO-
standards. approved interim measure allows offshore equipment to
be built to these present standards until 1994. When
the new convention comes into force in 1994, all spaces
will be measured. The result is that a formerly rated
Other Regulatory Activities 200-ton vessel will in 1994 become classed as a ship
of about 1,350 tons. In effect, the ship becomes six
Classification means that a vessel is built and main- times "larger." This means different construction stan-
tained in accordance with a set of rules and standards dards with higher construction costs. It also affects
set by the classification society. The process by which manning, licensing, and canal fees. On the whole, con-
rules are established and updated come from the princi- struction and operating costs will increase.

In addition, the new IMO convention will impact Until recently, another problem was the ability of
SOLAS ship standards in another aspect. For example, foreign seamen to bring suit in U.S. courts against an
SOLAS currently requires extensive fire fighting equip- American company. U.S. companies involved in off.-
ment for ships over 4,000 tons. An amendment com- shore oil operations in foreign waters employ foreign
ing into force in 1983 will make this requirement appli- seamen, because local government rules require that
cable to aD offshore ships of 500 tons constructed after the crew comprise some percentage of local nation-
1994. When the Tonnage Convention becomes appli- als, commonly 70 percent. In case of injury, these sea-
cable, a tug that presently is 150 tons will be remeasured men can usually seek redress in their local court and
at 500 tons and must thus have the added firefighting can be reimbursed or compensated for injury accord-
equipment, which will raise construction costs by about ing to local customs and ordinances. However, they
20 to 25 percent (from $4 million to $5 million). If the often chose to seek resolution in American courts,
requirement applies to new construction only, then because injury occurred on board a U.S. vessel. If the
there may well be an incentive to postpone new build- U.S. courts agreed to hear the case, these foreign sea-
ing arid extend the life of older (non-complying) vessels. man could receive jury awards that were much high-
Another IMO convention posing problems is the Con- er than those they might have been awarded in their
vention on Standards for Training, Certification, and local courts. As a result, insurance rates and operating
Watchkeeping for Seafarers (1978). This convention and costs increased. The problem was not trivial for com-
panies with large international operations. Legislation
the one on tonnage interact with each other with recently signed into law (P.L. 97-389) prevents . for-
respect to small vessels. One provides for higher crew eign seamen from using U.S. courts unless they are
qualification standards, depending on the vessel's size; unable to file in the local courts.
the other brings the ship into higher tonnages with
corresponding higher standards under the Training
Convention. While relief has been obtained until 1994 Tugs and Salvage
on tonnage, the convention for training, certifica-
tion, and watchkeeping remains burdensome, because it The Coast Guard bears a specific responsibility for
can add to the problems of providing crews with rea- salvage in the United States. The Intervention on the
sonable career patterns. The Training Convention stipu- High Seas Act states that if there is a grave and immi-
)ates, for example, that the sea-time required to qualify nent danger to the coastline of the United States, the
as a ship's master is doubled from three to six years. Commandant of the Coast Guard may undertake any
in the offshore service industry, with vessel work salvage or other action required to save the coastline.
schedules of seven days on/seven days off, six years If the Commandant makes such a decision, then the
sea-time could require 12 years calendar time to qualify Coast Guard would first turn to the private sector to
as a ship's master. Thus, it would be difficult for a ask for salvage.
seaman to think in terms of a seafaring future in this
service with reasonable rates of advancement. The As late as in 1970, commercial salvers were avail-
Training Convention will probably come into force in able along the East and West Coasts of the United
the next 2 to 3 years. States; however, no stand-by salvage capabilities exist
in these ports today. This reflects a worldwide situa-
Other recent laws and regulations greatly affect the tion. In the past, salvage vessels and tugs were deployed
offshore vessel operators. As a result of the various waiting for someone to use their services along the
pollution laws, and more particularly the recently major trade routes of the world. Today, these tradi,-
enacted Comprehensive Environmental Response Com- tional. salvage stations are not occupied, because there is
pensation and Liability Act of 1980, the small vessel not sufficient salvage business to allow a commerical
owner is subjected to higher exposure based on a per tug company to survive on the salvage basis alone.
tonnage basis. Under this Act, vessels carrying "haz- But this was not always the case. Prior to World War
ardous cargoes" are subject to a liability exposure of II, marine peril was frequent, and the concept of dedi-
$300 per gross registered ton (grt) or $5 million, which- cating tugs to accident prone areas was cost effective
ever is greater. Thus, taking a typical offshore vessel for the companies.
of 200 grt carrying hazardous cargo, the liability is $5
million or $25,000 per ton. On the other hand, a ship In the years since World War II, the size and sophisti-
of 16,666 grt and carrying a much greater quantity of cation of ships have increased dramatically, and the
hazardous cargo also would,have a liability of .$5 mil- number of incidents to which the salvage company
lion, or only $300 per ton. Therefore, the liability is can respond has lessened. Of course, this increased
operational safety is a positive factor. Moreover, the
inversely related to the potential for significant salvage awards through the courts in recent years have
pollution in terms of actual tonnage of cargo carried. not been adequate to make the full-time maintenance
Because insurance must be purchased to cover liabili- and operation of a salvage vessel an attractive busi-
ty, there is an obvious impact on operating costs. ness enterprise either in the United States or abroad.

Thus, most towing companies in the world now view What drives the current technological improvement
their salvage capabilities as an additional service to of salvage capability is not the need for salvaging but
their main line of work. the need to tow oil rigs. In response to this demand,
International salvage vessels are not allowed to the capability for salvage operations has grown
work in U.S. waters without authority from a high- enormously, and the structure of the salvage operations
level Customs official in the Treasury Department. has changed as well. As a result, salvage equipment is
The United States appears to be alone in having cabo- often not in place on the tug and is usually stored on
tage applicable to salvage. Hence, the question is-what shore. But, contractual agreements generally provide
to do in the absence of a stand-by, or dedicated, U.S. access to salvage- equipped tugs when the need arises.
commercial capability? The Navy has some capabili-
ty, but the number of its salvage vessels has declined Science, Technology, and
from 60 to 9 over the past decade. These Navy vessels
are based in Norfolk, Virginia, on the East Coast and Education Support
in Pearl Harbor, Hawaii. Some of these also are per- The research and development (R&D) base for the
manently deployed to the Mediterranean Sea and to U.S. maritime industry is small. The highest appro-
the Western Pacific Ocean. Moreover, the Navy capa- priation level for MARAD for R&D was in the mid-20
bility is not always available for Coast Guard (i.e., civil)
use. million dollar range in 1973 and 1974. In the recent
two fiscal years, 1982 and 1983, the amount has dropped
The Coast Guard has maintained a small capability to about one half this amount.
in the past with the commissioning of a few ex-Navy The U.S. maritime industry has been the initiator
tugs, but its mandate is to turn to the private sector to
carry out salvage operations except in life -threatening of practically all major innovations in recent maritime
emergency situations. The industry agrees with the technology. The real concern is where new technical
Coast Guard use of the private sector to fulfill its marine innovation will come from. The financially troubled
salvage needs. During the seventies, the number of U.S. operating companies and shipyards are not in a
oceangoing tugs and tug supply boats more than dou- position to maintain any sort of "far horizon" R&D
bled. Most of these have the equivalent capability of program. The universities and research institutes cannot
the Coast Guard or Navy tugs available 10 years ago. do such work without sponsorship through sources
Furthermore, they are well distributed on all U.S. coasts. that have traditionally come from government.
There is no shortage of U.S.-owned towing and sal- It is a matter of concern that the government appears
vage companies available to provide marine salvage to be reducing this area so dramatically exactly at a
services on all coasts, and the U.S. Navy maintains time when new technologies are needed to help bring
salvage contracts with commercial salvers on all three about better competitive opportunities for the U.S. mer-
coasts to supplement its own limited military salvage chant marine. We may be in the doubtful position of
capabilities.* mortgaging our future exactly at the wrong time. At a
restored level of about 30 million dollars a year, the
In many major ports where naval bases are located, MARAD R&D program could help this industry find
"in-house" tug and harbor support services are operated improved and more productive means of doing its busi-
by the Navy. In the private tug business, there is the ness. R&D provides options and choices and priorities
conviction that commercial firms could easily perform for the future. The MARAD investment in this area
these services at less cost, because they are often could be enhanced by some industrial R&D advance-
operating in the same ports, providing similar services. ment made as a result of the major naval shipbuild-
This is also the case with some other services, such ing program now being undertaken. In addition,
as salvage, where commercial operators believe they MARAD funds are being used to go into partnership
can deliver the required level of service to the Navy with commercial companies on R&D projects on a seed
at lower costs. All of this is consistent with the Reagan money basis. in this way, limited funding can be
Administration emphasis on getting government out extended for maximum impact.
of businesses that can be performed by the private The educational system supporting the U.S. mari-
sector. time industry is generally in good shape. The seven
maritime schools are able to train licensed deck and
engineering officers in sufficient numbers to meet pres-
ent and forecast needs. In fact, at present, the supply
Additional information on the salvage situation in the United exceeds demand due to the decreasing number of seago-
States is contained in a study recently published by the Marine ing jobs in the U.S. merchant marine. Many of the
Board ot the National Research Council, "Marine Salvage in the maritime labor unions operate excellent technical/
United States." operational training schools for their members. The

capacity and coverage of these programs seem suffi- foreign students in these fields but also in research
.cient to meet industry needs. In recent years, several programs. An area where there is an apparent educa-
of these schools have added to their facilities in rec- tional gap is in the management techniques used in
ognition of the increased complexity of the new tech- the marine transportation industry. Within the past
nologies and in expectation that the merchant marine 2 years, several of our universities have begun plans
might be able to get back into a growth situation. to offer advanced degree programs in management
In the areas of naval architecture and marine engi- for the maritime industry. These programs will pro-
neering, schools such as the Massachusetts Institute vide formal educational training for shipping company
of Technology, Webb Institute, University of Michi- operations; terminal operations; port and harbor
gan, and the University of California at Berkeley meet departments; related government agencies; ship-
the needs for this type of trained personnel. In fact, yards; and. maritime labor unions. The ultimate result
much is being done for foreign shipbuilders and should be improved competence and efficiency at all
operators in these institutions, not only in training management levels of this industry.

7,
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@p
"F1 , , @@ --@ @ f--- "r - - -@? -, - , -

.41

V@,

is:
-a5

In the absence of a major expansion of the American merchant fleet, few new opportunities are available for the pool of
trained seafarers. The Nation's seven maritime academies are currently producing a supply of licensed deck and engineering
officers in excess of the demand because of the decreasing number of seagoing jobs in the U.S. merchant marine.

CREDIT: Institute for Marine and Coastal Studies, University of Southern California.
h

Chapter 7
Summary, Conclusions,
and Recommendations

Summary .................... ................................................................... 65
Conclusions .................................................................................... 65
Recommendations .......................................................................... 66

CHAPTER 7
SUMMARY, CONCLUSIONS, AND
RECOMMENDATIONS .

Summary have done little to arrest its rapid decline. Companies
have gone out of business; some of the surviving com-
The Committee finds that the objectives defined by panies are in considerable financial difficulty; the last
the Merchant Marine Act of 1936 continue to be valid two liner vessels built with Construction Differential
goals toward which this Nation's policies should be Subsidy are'expected to be completed next year; and
aimed. It is an equally firm,conclusion of the Com- tens of thousands of jobs have been lost from the U.S.
mittee that despite the more than 46 years since the maritime industry. It would be hard to make a more
passage of' the 1936 Act, these objectives have not been forceful statement on these problems than those made
met. In fact, they may be as remote today as ever. by Presidential Candidate Reagan in August and Sep-
The U.S. merchant marine is far from sufficient to tember 1980 (see Appendices G and H). What remains is
carry a "substantial portion of the waterborne export to see how quickly such intents are translated into
and import foreign commerce of the Unit 'ed States," action by the President and Congress. The industry is
as stated in the 1936 Merchant Marine Act. Futhermore, slipping away, and immediate, firm measures are need-
our merchant marine is capable of serving only in a ed to arrest this trend.
rather limited fashion as a "naval and military auxil- We should note, however, that the sector of the
iary in times of war or national emergency." The bulk U.S. maritime industry supporting offshore oil and
shipping component of the fleet, though largely con- gas development appears to be a healthy, vigorous
structed in the United States, cannot be generally exception to many of the problems encountered by
described as "composed of the the best equipped, saf- the more traditional marine transportation sectors.
est, and most suitable types of vessels." Taken on the While there is currently a slowdown in offshore oil
average, our merchant fleet can be described as too and gas operations because of the oil glut, this is not
few and too old when compared with foreign com- expected to remain a permanent situation for -this seg-
petitors and the stipulations of the 1936 Act. merit of the industry. It seems to enjoy basic good
- health as compared to other parts of the marine trans-
Finally, based solely upon the cost of ship construc portation sector.
tion and repair in the United States as compared with
foreign equivalents, it may be difficult to argue that
our merchant marine is "supplemented by efficient Conclusions
facilities for shipbuilding. and ship repair." In short,
we have failed to achieve most of the objectives estab- Congress and the Administration have continuously
lished nearly a half century ago despite an almost unin-
terrupted program of government financial assistance to stressed that a U.S.-flag marine transportation system,
the industry that has involved substantial expense to with its supporting industrial base, is essential to our
the Nation's taxpayers. Nation's national security in peace and in times of
emergency. Given this policy, NACOA concludes that
The Committee recognizes and endorses recent Con- the present levels of U.S.-flag participation in our trade
gressional and Administration proposed actions, "cata- and the supporting shipbuilding base are critically
logued" in Chapter 1, that could provide significant below that required to meet U.S. needs.
improvement for our marine transportation system. The Committee finds that legislation and Federal
Nevertheless, few of them have come into force of regulations, programs, and subsidy supports have not
law to date. Therefore, the Committee is obliged to had the desired impact on the U.S. marine transpor-
give its summary, conclusions, and recommendations tation industry. By almost any index, this industry
based upon the current situation.
continues to decline in its capability to support U.S.
It is clear that the "fair words and few deeds" of trade and our national security needs. For over 66 years
the many laws now in force, affecting this industry, (since the Shipping Act of 1916), the remedies applied

by the Federal Government have failed to work. It is may reach critically low levels in the yards where work
time for a fundamental new consideration of how to will eventually take place. Some yards may risk clo-
stimulate this sector back into good health. Basic chang- sure in this period.
es in government support and regulation are needed. 1Z 2. The Maritime Administration should initiate dis-
The U.S. marine transportation industry must.com- cussions with the liner operators to encourage
pete in a market where its competition receives a wide early termination of Operating Differential Subsi-
range of direct and indirect support from their respec- dy contracts and eventual elimination of the
tive governments. The freedom of action available to program,
the industry should be increased through the relax- Past negot iations with United States Lines (successful)
ation or elimination of various government- imposed an Id Delta Lines (in process, November 1982) can be
restrictions. In short, increased flexibility is needed useful models where an operator will trade a discount
as much as government funding assistance. Even if on the remaining value of a longer term contract for
government funds were not already severely limited short-term funding gains. The operator gets near-term
by budgetary constraints, it would be this Commit- capital, and the government saves a considerable
tee's conclusion that certain aspects of the subsidy amount of funding, Which had been obligated over a
program that have existed for so many years, and were long-term period. In addition, it will help the Mari-
in fact expanded by the 1970 amendments to the Mer- time Administration to achieve its goal of reducing
chant Marine Act of 1936, are not now and probably the Operating Differential Subsidy (ODS) system while
can never be cost effective. improving its overall administration and efficiency.
Because ODS contracts are legal obligations, with
Recommendations lifetimes of several years, their reduction and "buy
out" can only be done through negotiation with the
As a result of our findings, NACOA recommends: contract holders. There now seems to be a modest trend
in that direction with two of the eight subsidized U.S.
1. The Construction Differential Subsidy program liner companies taking this step.
should be eliminated by Congress through amend- Simple removal of subsidy assistance without a
ments to the Merchant Marine Act of 1936.
simultaneous offset of new remedies and incentives
Although as a practical matter the Construction Dif- could deal a crippling blow to the industry.. It is impor-
ferential Subsidy (CDS) program has now been suspend- tant that these subsidy reductions are phased out at a
ed (zero-budgeted) as the result of the budget process, it rate commensurate with the achievement of benefits
could be reactivated in the future, because the pro- from other actions. Therefore, NACOA recommends
gram is still provided for in the 1936 Merchant Marine the following remedies and incentives for industry
Act. instead of serving to narrow the cost differen- promotion to complement or balance the proposed
tials between the U.S. and foreign shipbuilding in- reductions in direct subsidies and increase flexibility.
dustries, CDS may have accomplished exactly the Because these actions can only become effective over
opposite-preserving, and, in many cases, widening a period of time, their coordination with the recom-
such cost differentials, at significant expense to the mended reductions in subsidy is essential.
U.S. taxpayer. 3. The Maritime Administration should promptly
The impact upon the U.S. shipbuilding industry of provide competitive incentives for U.S. shipyards
phasing out the CDS program might have been unac- to bridge the gap between termination of Con-
ceptable a few years ago. Now, however, the current struction Differential Subsidy and other measures
rebuilding of our naval fleet and the adequacy of the that would offer increased work for U.S. yards.
funds budgeted for that purpose indicate that our ship- The termination of the Construction Differential Sub-
building industrial base will have a significant part of sidy (CDS) program will . have an impact on U.S. ver-
its yards involved. The Committee understands that
while naval orders will help employ and upgrade ship- sus foreign shipyard costs unless other measures are
yards, the fact is that 4 of our 27 yards will get 75 instituted, even for those yards waiting for Navy busi-
percent of this work. Further, only 15 yards are iden- ness to take effect. Foreign governments are not like-
tified as capable of warship construction. Thus, care ly to be accommodating to U.S. yards by reducing the
must be exercised to not let overseas ship orders by wide variety of price subsidies offered to their ship-
U.S. operators force the remaining shipyards, about yards. The United States should seriously consider sim-
44 percent of our total number of yards, to go out of ilar measures to improve the competitiveness of U.S.
business. Moreover, the naval shipbuilding effort is a shipyards subsequent to CDS termination. Among those
long leadtime program, and the work activity within that might be considered are: competitive low cost
the shipyards may be 2 to 3 years away. in the inter- financing for foreigners who buy ships in U.S. ship-
im, there will be a time gap where the level of work yards; special tax incentives for shipyard investments in

productivity, increasing equipment; government 6. U.S. ship depreciation allowances and schedules
assistance in worker training and placement, etc. should be made competitive with those provid-
4a. Congress should enact legislation to authorize ed by foreign governments for their merchant
closed liner shipper conferences and empower fleets.
these conferences to collectively set intermodal Although the Economic Recovery Tax Act of 1981
transportation rates. achieves substantial progress towards this end, a gap
The provisions of such legislation should specifically still exists. The Committee recommendation would
override any conflicting provisions in the Nation's anti- allow the owner of a U.S.-flag vessel, whether con-
trust statutes, with the intent of extending antitrust structed here or abroad, to take depreciation of the
immunity to U.S.-flag shipowners on a basis that puts contract cost of the vessel in an amount up to 25 percent
them at parity with foreign operators in the same in the tax reporting period ending after the date of a
trades. in the Committee's view, this merely recog- binding construction contract and prior to delivery of
nizes the "facts of life" in the liner trades where the the vessel. This provision would recognize, consistent
relevant market place is not free, and the relevant with the practice of most major maritime nations, that
competitive arena, is international in scope. In addition, long leadtimes are involved in the construction of mer-
chant ships, and that the owners of such ships expe-
b. Congress should enact legislation to permit ship- rience substantial investment expense prior to delivery..
pers who consign cargoes to establish "shippers
7a. Congress and the Administration should support
councils" to negotiate collectively with* the liner
continuing Federal investment in major. port
shipping conferences. developments in the national security interest.
5. Given the recent involvement of the U.S. ship-
building industry in the task of rebuilding our Although there should be a move towards greater
naval fleet and given the absence of Construc- investment participation by the ports and the collec-
tion Differential Subsidy funds, the Maritime tion of user fees, there is a legitimate partnership role
Administration should relax restrictions gov- for the Federal Government. Federal expenditures for
erning the current the Operating Differential Sub- channels and harbors should be viewed as a necessary
sidy (ODS) program as follows: investment in national infrastructure similar to the
(a) U.S. shipowners should be permitted to qualify way roads and highways are treated. In addition,
for ODS with respect to foreign-built vessels b. Congress should pass legislation that would
registered under the U.S. flag provided they
otherwise meet the criteria for qualifications, greatly streamline the planning and permitting
process for port improvement developments.
and
Immediate action is needed to reduce the time pres-
(b) U.S. shipowners should not be disqualified ently required to obtain approval for major dredging
from ODS, when they would otherwise quali- projects. With current estimates of 25 years from con-
fy, simply by reason of operating other ves- cept to completion of these projec ts, attracting capi-
sels in foreign-flag shipping activities. tal investment is difficult.
The Committee recognizes that such an authoriza- U.S. Coast Guard reguJations relating to design and.
tion was made for one year as part of the fiscal year standards of construction of us-nag vessels
1982 appropriation for MARAD, that the Senate pro- should be made consistent with the accepted
posed a 2-year continuation through action,on, the standards established by the world's leading clas-
fiscal year, 1983 MARAD authorization, and that the sification societies.
Administration supports the concept. The basic thrust of
this recom Imendation is simply to help assure that The Committee notes that the U.S. Coast Guard has,.
U.S.-flag line operators can upgrade their capital assets begun some movement in this. direction.
(ships) at acquisition costs permitting competitive
9a. The Department of Defense should be encour@,
return on investment against foreign operators. If such
relief is not available, then replacements are not likely aged to continue to shifir to the I Private sector
to be purchased. the ownership of an.d/or the, contract man.-
agement for the major share of,its noncomba.-
This does not contradict our earlier recommenda- tant (sealift and service sup port) ship capacity.
tion to terminate the ODS program. The Committee
believes some interim modifications of the ongoing The Department of Defense would, retain manage-
program are. needed to optimize the competitive ment control of this fleet. through commercial contract
position of the subsidized U.S. liner operators. Such arrangements. Jncluded in this' category are: logi,stic,
remedies would be permitted concurrent with MARAD's support ships, special purpose ships, and port setvic-
efforts to promote early termination of existing con- es assets. Furthermore, in seeking sale -and - charterback-
tracts and not awarding any new ODS contracts. transactions designed to.a&omplish this pu Irpose,

b. The Department of Defense should be urged to formula and does not close its open conference sys-
continue to offer charters of sufficiently long tem for our trade. In this case, the aftermath of the
duration to encourage operators to build or buy Code will be to damage the U.S.-flag merchant marine
vessels through utilizing their own investment even further, through excess foreign tonnage entering
funds. (dumped into) our open conferences.
We are encouraged that recent Defense Department 13. The Title X1 and Capital Construction Fund pro-
contracts have been negotiated for 5-year charters with grams should be preserved by the Maritime
an option for a 5-year renewal. Administration with their benefits remaining
10. The current review of regulations affecting the applicable solely to vessels of U.S. registry
U.S. maritime industry by the Presidential Task constructed in U.S. shipyards.
Force on Regulatory Relief should be expedited. Although recent proposals would extend these
The regulatory structure put upon the U.S. maritime programs to vessels constructed abroad, we believe
industry by our government is costly. A great many such changes are undesirable in light of the extension
reductions can be made without compromising. safe - of the ODS program to foreign-built ships of U.S.
ty, the environment, or accountability to government registry. To extend either the Title XI or Capital
while the cost savings can help the industry's com- Construction Fund programs to foreign-built vessels
petitive position. would simply take the place of benefits that foreign
shipbuilding nations might offer as an incentive to
IL Congress should take the lead in formulating potential U.S. customers.
national cargo policy within an expanded sys- 14. The Maritime Administration should increase
tem of bilateral agreements. . the level of its support for research and devel-
An assured proportion of imports and exports should opment and coordinate its efforts with those
be required to move in U.S.-flag vessels, provided the of the industry.
vessels are reasonably available. This would put the it is here that new developments can help the indus-
United States on a competitive basis with the many try become more productive and competitive.
maritime nations that have similar policies.
12. The Department of State should expedite the The Committee recognizes that some of these rec-
development of an effective response to the ommendations imply costs to U.S. taxpayers. However,
Code of Liner Operations of the U.N. Confer- with the stated U.S. policy that a strong merchant fleet
ence on Trade and Development (UNCTAD). and shipbuilding industry are of high priority for
national security, then the costs for achieving a strong
Advent of the Code is assured even if the United U.S. maritime industry should be considered along with
States does nothing to ensure its share of the 40-40-20 those of the Department of Defense.

REFERENCES AND SOURCES OF DATA

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TRANSPORTATION INSTITUTE. Court Case Cited
1983. Office ol'Government Relations, Washington, D.C.
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(Feb. 27) Washington, D.C. Stat. 357-933.
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VELOCCI, TONY. 1471-1493.
1982. Our Ebbing Mariffine IDdustry. Nation's Business 70(6):34-38. Shipping Act of 1916, 39 Stat. 728, chapter 451, 46 USC 801-842.
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GLOSSARY

Bulk Trade-ocean transportation of either liquid or Deferred Rebate System-device used by closed
dry raw materials in large quantity, without mark conferences to ensure the loyalty of shippers to
or count. member lines. Under this system, a shipper who
Cabotage-reservation of a country's coastal shipping moves all his cargo tonnage with the conference
for its own flag vessels; derived from the French over a period of time is granted a rebate at regu-
verb caboter, to sail along the coast. lar intervals on freight payments made during
Capital Construction Fund-program authorized by the specified period of time.
1970 amendments to the Merchant Marine Act Demurrage Fee-charge for the detention of a vessel
of 1936 which allows U.S. subsidized and unsubsi- in a port, for loading or unloading, beyond the
dized vessel operators to deposit a portion of their time agreed upon.
taxable income into a tax deferred fund for the Dual Rate Contract-exclusive patronage contract, giv-
construction, reconstruction, and acquisition of ing discounts to shippers who agree to ship exclu-
vessels of U.S. registry built in the United States. sively on conference vessels, devised by U.S. con-
The program is intended to remove certain com- ferences as a replacement for deferred rebates.
petitive disadvantages U.S. operators have rela- This type of contract was legalized, subject to
tive to foreign-flag operators. in obtaining the several specific conditions, in the 1961 amend-
capital necessary for ship construction, acquisi- ments to the, Shipping Act of 1916.
tion, and repair. Effective U.S. Control Fleet-U.S. -owned ships reg-
Cargo Reservation-a policy of reserving a percentage istered under Liberian, Panamanian, or Hondu-
of cargo tonnage for transport in a specific coun- ran flag that, because of tacit agreements between
try's flag vessels. the United States and these countries, are con-
Conference-a voluntary association of ocean carriers sidered in contingency plans for sealift require-
providing (shipping) liner service on a particular ments primarily as a source of ships to more
trade route between two or more countries. The essential oil and bulk cargoes in support of the
purpose of a conference is the self-regulation national economy.
of price competition. Essential Trade Route-route determined by the
Conference, Closed-shipping conference to which Secretary of Transportation to be essential to the
membership is restricted. The conference mem- promotion, development, and maintenance of the
bers decide whether other carriers should be foreign commerce of the United States. To be eligi-
admitted. ble for Operating Differential Subsidy funds, a
Conference, Open-shipping conference to which vessel must be operated along an essential trade
membership is open on equal terms to any car-
route.
rier willing and able to provide regular service European Economic Comm unity-official name of
on a trade route. The Shipping Act of 1916 stipu- the Common Market. An economic association
lates that all conferences in U.S. foreign trade
must be open. .. composed of Belgium, Denmark, France, the Fed-
Construction Differential Subsidy-Federal subsidy, eral Republic of Germany, Greece, Ireland, Italy,
provided for by the Merchant Marine Act of 1936, Luxembourg, the Netherlands, and the United
to help make U.S. shipbuilding yards competi- Kingdom. It was established in 1958 to abolish
tive with foreign yards in the construction of barriers to free trade among member nations and
new vessels to be used in U.S. foreign commerce. to adopt common import duties on goods from
Containership-ship designed to carry intermodal con- other countries.
tainers of cargo to be loaded to and from trucks Flag of Convenience-country that offers its regis-
for liner shipping. try to foreign shipowners for a small fee, and
Cross Trade-foreign to foreign trade engaged in by whose regulations governing ships and shipping
national flag carriers. are more favorable to the shipowner than those
Deadweight Tons-a vessel's cargo carrying capacity of his home country; also called "open registry."
in terms of weight measurement, expressed in Gross Registered Tons-weight of a vessel without
long tons of 2,240 pounds. cargo (100 cubic feet = I ton).

Jones Act-section 27 of the Merchant Marine Act centive for conference carriers to secretly undercut
of 1920 which reserves U.S. coastwise, intercoastal, conference rates and suppresses price competi-
and non-contiguous trades to U.S.-built vessels tion among conference members.
manned by U.S. citizens. Ro-Ro-roll -on/roll- off ships designed to allow trucks
Liner Trade-ocean carrier vessels operating on a pre- to drive on and off the vessel with trailers of
determined and fixed itinerary over a given route, cargo.
at relatively regular intervals, carrying general Shippers' Councils-associations of shippers estab-
cargo. lished to more effectively represent their inter-
Merchant Marine-privately or publicly owned ests in consultations and negotiations with
commercial vessels as distinguished from a oceanborne common carriers or conferences of
nation's navy. such carriers. Legislative attempts to establish
Metallurgical Coal-coal used for metallurgical pro- shippers councils in the United States have been
cesses which must be stored in railroad hopper unsuccessful, although they exist in practically
cars so that it can be blended to proper specifi- every other major trading nation. In the United
cations when loaded onto a ship. States, the Federal Maritime Commission is
Military Sealift Command-U.S. Navy owned and responsible for protecting shippers' interests.
chartered fleet of vessels engaged in commercial SL-7-Eight class 7 containerships built in West
services. German and Dutch shipyards for Sea-Land Ser-
National Defense Reserve Fleet-inactive, govern- vices Inc. These high-speed ships (33 knots) had
ment-owned merchant fleet reserved for use in become uneconomical to operate because of
a national emergency. Fleets are maintained at increasing fuel costs and were sold to the U.S.
Atlantic, Gulf, and Pacific sites by the Maritime Navy in 1981 to be converted into high-speed
Administration. logistic support ships.
Operating Differential Subsidy-Federal subsidy, pro- Stearn Coal-coal used for generating steam, which
vided for by the Merchant Marine Act of 1936, has simplier quality specifications that do not
to equalize the disparity in operating costs require blending. It can be stored on open ground.
between those of American ships and their for- Tariff-schedule of rates and charges for services
eign competitors with respect to wages, insur- offered by ocean common carriers. All ocean
ance, and maintenance and repairs not covered common carriers and conferences in U.S. foreign
by insurance. trade must file tariffs with the Federal Maritime
Organization for Economic Cooperation and Devel- Commission.
opment-international organization formed in Title XI-part of the Merchant Marine Act of 1936
1960 to promote the expansion of world trade that provides for Federal ship mortgage insur-
and the growth and development of the world ance to promote private, rather than direct gov-
economy. The 24 member nations include the ernment, financing of vessel construction and
10 European Economic Community countries and reconstruction.
Australia, Austria, Canada, Finland, Iceland, Tramp Ship-freight vessel that does not run regu-
Japan, New Zealand, Norway, Portugal, Spain, larly between the same ports but takes cargo when
Sweden, Switzerland, Turkey, and the United and where it is offered.
States. Twenty-Foot Equivalent Units-volume of a contain-
Over-tonnaging-an excess of vessel tonnage operating ership expressed as the number of standard
along a trade route. 20-foot containers it can carry.
Ready Reserve Fleet-part of the National Defense UNCTAD Code for Liner Conferences-treaty devel-
Reserve Fleet composed of 30 relatively new mer- oped to set up an international framework for
chant vessels. the conduct of maritime liner trade; establishes
Revenue Pooling-revenues earned by individual con- a 40-40-20 formula division for the carriage of
ference member companies serving the same ports conference cargoes, 40 percent to each of the trad-
ing. partners and the remaining 20 percent for
are pooled together and periodically distributed conferences members from other countries. The
among the member companies according to a pre- Code is expected to enter into force in the near
determined schedule. This eliminates the in- future.

Appendices

A. Marine Transportation Panel ......................................................... 75
B. Significant Contributors .................................................................. 76
C. Federal Agency Observers ............................................................... 77
D. Meeting Dates, Speakers, and Presentation Topics ....................... 78
E. Organizations Represented at the Panel Sessions ........................... 82
F. List of Acronyms ............................................................................ 83
G. "A Program for the Development of an Effective
Maritime Strategy" (by Presidential Candidate
Ronald Reagan, September 15, 1980) ......................................... 84
H. "Statement by Presidential Candidate Ronald Reagan
on Shipbuilding" (August 19, 1980) ........................................... 87

APPENDIX A
MARINE TRANSPORTATION PANEL

Chairman

Don Walsh
Director
Institute for Marine and
Coastal Studies
University of Southern California

Panel Members

Michael R. Naess
President
Westminster Ventures, Inc.

Jack R. Van Lopik
Dean
Center for Wetland Resources
Louisiana State university

Panel Staff

Steve Risotto
NACOA Staff

Robert Gary
NACCA Staff

Victoria J. Jones
NACOA Staff Technical Writer/Editor

LCDR Richard D. Wigger
office of Merchant Marine Safety
Headquarters
U.S. Coast Guard

APPENDIX B
SIGNIFICANT CO INTRIBUTORS

Bernhard J. Abrahamsson Albert E. May
Dea n Executive Vice President
GradUate School of International Studies Council of American Flag Ship Operators
Uiliversity of Denver
Robert S. Agman William Mayberry
Co-Director President
Labor- Management Maritime Committee Offshore Marine Services Association

Ernest J. Corrado W. Patrick Morris
Vice President Executive Secretary
American Institute of Maritime Shipping National Maritime Council

Robert Foster
Vice President Russell R. O'Neill
Shipbuilders Council of America Dean of Engineering
University of California at Los Angeles
David A. Leff (Former Chairman, Marine Transportation Research
Executive Director Board, National Academy of Sciences)
Johit Maritime Council
Peter J. Luciano Frank Pecquex
Executive Director Legislation Representative
Transportation institute Maritime Trade Department
AFL-CIO
Sandra I(jellberg
Government Relations Analyst Rexford B. Sherman
Maritime Institute for Research and Director of Research and Publications
Industrial Development American Association of Port Authorities

Henry S. Marcus Ralph A. Vaccaro
Associate Professor of Marine Systems Assistant Secretary
Center for Transportation Studies Gulf Fleet Marine Corporation
Massachusetts Institute of Technology
Alfred Maskin Geoffrey H. Vincent
EXeCLItive Director Managing Editor
American Maritime Association American Waterways Operators, Inc.

APPENDIX C
FEDERAL AGENCY OBSERVERS

Anthony English Richard 0. Thomas
Deputy Director
Concept and Analysis Office Office of Policy and Plans
Military Seallift Command Maritime Administration
U.S. Navy U.S. Department of Transportation
John Gaughn Louis Tippett
Congressional Relations Officer
U.S. Department of Transportation Acting Division Director
Sealift Readiness Division
Duwayne A. Koch Military Sealift Command
Senior Transportation Policy Advisor U.S. Navy
U.S. Army Corps of Engineers
U.S. Army LCDR Richard D. Wigger
John Todd Stewart Office of Merchant Marine Safety
Director Headquarters
Office of Maritime and Land Transport U.S Coast Guard
U.S. Department of State

APPENDIX D
MEETING DATES, SPEAKERS, AND
PRESENTATION TOPICS

Speaker Title of Presentation

September 12, 1980

Richard Thomas ............... ...... of the Maritime Administration's
Director Operations, Responsibilities
Office of Policy and Plans and Authorities
Maritime Administration
U.S. Department of Transportation

November 6-7, 1980

Bruce Carleton ...................................................................... World Trade Perspectives
Transportation Economist
Office of the Special Trade,
Representative

Robert Ellsworth .................................................................. Competition or Rationalization of
Chief Economist Liner Shipping
Office of Regulatory Policy and Programs
Federal Maritime Commission

W. Patrick Morris ................................................................ Maritime Shipping and Economic
Executive Secretary Regulatory Policy
National Maritime Council

Joseph Trojanowski ......... ................................................... Financial Developments in the U.S.
Economist Merchant Marine-Trends Since 1965
General Accounting Office

Bernhard J. Abrahamsson ................................................... A Macroview of World Trade and
Dean Maritime Shipping
Graduate School of International Studies
University of Denver

January 15-16, 1981

RADM W. M. Benkert, USCG (Ret.) ................................... U.S. Liquid Bulk Trades
President
American Institute of American Shipping
Phillip Loree ......................................................................... American Controlled Shipping
Chairman
Federation of American Controlled Shipping

Speaker Title of Presentation

January 15-16, 1981 -continued

CAPT James R. Rowsey ....................................................... Joint Chiefs of Staff Strategic Mobility
Staff, Joint Chiefs of Staff Requirements and Capabilities
U.S. Navy

Peter V. Finnerty .................................................................. Maritime Policy Reform
Vice President for Public Affairs
Sea Land Industries, Inc.

Jack Goldstein ...................................................................... Bulk Trades
Vice President
OSG Bulk Ships

Lawrence O'Brien ................................................................. Congressional Views
Chief Counsel
House Merchant Marine and
Fisheries Committee
U.S. House of Representatives

Jack Sands ............................................................................. Congressional Views
Minority Counsel
House Merchant Marine and
Fisheries Committee
U.S. House of Representatives

Ralph N. Thayer ................................................................... Shippers'View of Maritime Policy
Chairman
Water Freight Transportation
Maritime Committee
National Industrial Traffic League

Wilton Jackson .................................................................... Shipping's Maritime Policy
Manager
Contingency Port Operations
Overseas Marine Division
Dupont Company

John P. Scalley ....................................................................... Shipper and His Problems
Manager (presented jointly with
Export Transportation C. William Neuhauser)
General Electric Company

C. William Neuhauser ......................................................... Shipper and His Problems
Executive Director (presented jointly with Jack Scalley)
National Maritime Council

February 26-27, 1981
Daniel Ziegfeld ..................................................................... Land/Sea Interface, Terminals, and
Assistant Chief Intermodal Facilities
Waterways Management Division
U.S. Coast Guard

Robert C. Waters .................................................................. Adequacy of Intermodal Movements
Professor through America's Ports
George Washington University

Speaker Title of Presentation

February 26-27, 1981 -continued

Herbert Brand ...................................................................... Deep Sea, Coastal, and Inland
Chairman Waterborne Shipping
Transportation Institute

Edward Hood ....................................................................... Ship Construction and Repair Facilities
President
Shipbuilders' Council of America

Ralph A. Vaccaro, Jr . ........................................................... Offshore Workboats/Offshore Oil and
Assistant Secretary Gas Operations
Gulf Fleet Marine Corporation

J. Ron Brinson ...................................................................... Ports, Harbors, and Terminals
President
American Association of Port Authorities

May 14-15, 1981

RADM Kenneth G. Wiman ................................................. National Salvage and Towing Capability
Chief, Office of Marine Environment and Systems
Headquarters
U.S. Coast Guard

RADM Clyde T. Lusk ........................................................... Overview of the U.S. Coast Guard's
Chief, Office of Merchant Marine Safety Commercial Vessel Safety Role
Headquarters
U.S. Coast Guard

J. Todd Stewart .................................................................... UNCTAD Code of Conduct for Liner
Director, Office of Maritime Conferences
Affairs and Land Transport
U.S. Department of State

Howard C. Blanding ............................................................ Role of Classification Societies
Assistant Vice President
American Bureau of Shipping

W. Patrick Morris ................................................................ Update on Pending Legislation
Executive Secretary
National Maritime Council

Miles Greenbaum ................................................................. Impact of Energy Requirements on Ocean
Physical Scientist Transportation and Port Operations
Technology Coordination Office of Fossil Energy
U.S. Department of Energy

Frank Pecquex ...................................................................... Concerns of Maritime Labor
Legislation Director
Maritime Trades Department
AFL-CIO

Brent Stienecker ................................................................... Ocean Towing
Senior Vice President and General Manager
California Division
Crowley Maritime Corporation

Speaker Title of Presentation

January 20, 1982

W. Patrick Morris ................................................................ Information Update on Recent Activities
Executive Secretary of Congress
National Maritime Council

Peter Luciano ......................................................................... Information Update on Administration
Executive Director Activities
Transportation Institute

APPENDIX E
ORGANIZATIONS REPRESENTED
AT THE PANEL SESSIONS

Academic American Waterway Operators, Inc.
George Washington University Council of American Flag Ship Operators
Louisiaiia State University Crowley Maritime Corporation
Massachusetts Institute of Technology Dupon t Company
National Academy of Sciences Federation of American Controlled Shipping
National Research Council
Marine Transportation Research Board General Electric Company
University of California at Los Angeles Gulf Fleet Marine Corporation
Uiiiversity of Denver Joint Maritime Congress
University of Southern California Labor- Management Maritime Committee
Maritime Institute for Research and Industrial
Congressional Development
General Accounting Office National Industrial Traffic League
House Merchant Marine and Fisheries Committee National Maritime Council
Federal Offshore Marine Service Association
U.S. Department of the Army OSG Bulk Ships
U.S. Army Corps of Engineers Sea-Land Services, Inc.
Federal Maritime Commission Shipbuilders Council of America
Office ofthe U.S. Trade Representative Transportation Institute
U.S. Department of Defense Westminster Ventures, Inc.
Office of' the Joint Chiefs of Staff
U.S. Department of Energy Labor
Office of'Plans and Technology Assessment for Joint Maritime Congress
FosIsil Energy Labor- Management Maritime Committee
U.S. Department of the Navy Maritime Trades Department, AFL-CIO
Military Sealift Command
U.S. Department of State National Maritime Council
Office of'Maritime Affairs
U.S. Department of Transportation Research
Maritime Administration Louisiana State University
U.S. Coast Guard Ports and Waterways Institute
Massachusetts Institute of Technology
industry Center for Transportation Studies
Americaii Association of Port Authorities National Academy of Sciences
National Research Council
American Bureau of Shipping Marine Transportation Research Board
Americaii Institute of Merchant Shipping University of Southern California
Americaii Maritime Association Center for Marine Transportation Studies

APPENDIX F
LIST OF ACRONYMS

AAPA ........................... American Association of Port Authorities

ABS .............................. American Bureau of Shipping
CCF ............................... Capital Construction Fund
CDS ............................... Construction Differential Subsidy
CVS ............................... Commercial Vessel Safety
DOD ............................. Department of Defense
DWT ............................. Deadweight Tons

EEC ............................... European Economic Community
EPA .............................. U.S. Environmental Protection Agency

EUSC ............................ Effective U.S. Control Fleet

GNP .............................. Gross National Product

GRT .............................. Gross Registered Tons
ICE ................................ Interagency Coal Export Task Force
IMCO ............................ Intergovernmental Maritime Consultative Organization
IMO .............................. International Maritime Organization (formerly IMCO)
LNG .............................. Liquified Natural Gas

LOS ............................... Law of the Sea
MARAD ........................ Maritime Administration

MSC .............................. Military Sealift Command
NACOA ........................ National Advisory Committee on Oceans and Atmosphere
NATO ........................... North Atlantic Treaty Organization

NDRF ........................... National Defense Reserve Fleet

OAPEC ......................... Organization of Arab Petroleum Exporting Countries

OBO .............................. Ore/Bulk/Oil Carrier

ODS .............................. Operating Differential Subsidy
OECD ............................ Organization for Economic Cooperation and Development
OPEC ............................ Organization of Petroleum Exporting Countries
R&D .............................. Research and Development
Ro-Ro ........................... Roll -on/roll -off ships
RRF .............................. Ready Reserve Fleet
SOLAS .......................... Safety of Life at Sea
TEU .............................. Twenty-foot equivalent units
UNCTAD ...................... U.N. Conference on Trade and Development

APPENDIX G
A PROGRAM FOR THE DEVELOPMENT OF AN
EFFECTIVE MARITIME STRATEGY

Statement by Presidential As I stated in a recent speech in Chester, Pennsyl-
Candidate Ronald Reagan on vania, our shipbuilding industry is vitally important
September 15, 1980 to our nation. Shipyards provide the mobilization base
for future buildups, employ people in every one of
The United States is in trouble. We have watched our 50 states, and are a proven technical training facility
the steady erosion of United States power and the for our youth and minorities in a host of related
decline of our influence during the past few years. industries.
We have watched the Soviet Union and several Third It is difficult for most Americans to conceive of the
World nations take increasingly aggressive actions magnitude of our maritime decline. Three decades ago
against the interests of the United States and our allies, the U.S. was the most powerful maritime nation in
and even against smaller neutral nations. We have the history of the world. Our Navy was over 1,000
lost our place as the logical focal point for Free World ships strong and our merchant fleet carried 42% of
policy and action. the U.S. foreign trade. Today, the Navy is down to
The cost to the United States has been a loss of pres- less than 500 ships, many over-aged. As for commer-
tige and influence, and these, in turn, have had a direct cial shipping, the 500-odd oceangoing vessels flying
negative impact on our economy in terms of increased our flag currently carry less than 5% of our own com-
inflation and our relations with the rest of the world. merce, while 95% of U.S. trade is carried by ships of
other countries, whose availability in time of crisis is
This adverse situation has occurred because of the problematical at best. Even our matchless inland water
lack of leadership within the White House and the transportation system has been allowed to deteriorate
subsequent loss of leadership by the United States as so that today the movement of goods is limited by
a nation. Nowhere is this loss of leadership more evi- antiquated lock systems, silted rivets and inadequate
dent nor more dangerous than in the decline of both harbors. In contrast the Soviet Union has emerged as
our naval forces and our maritime industry. a rapidly expanding maritime force. Since 1950, the
This decline occurs at a time when the United States is Russian merchant fleet has increased from 500 ships
more dependent upon the use of the seas f Ior our with under two-million tons of capacity to over 2,500
political, economic, and military well-being than ever ships totaling almost 20-million tons, of which the
before in our history. Every day, major decisions affect- vast majority are modern ships specifically designed
ing international relations are influenced by the to support military forces. This fleet carries over 65%
of Soviet foreign commerce and, through freight rate
capability or lack of capability of our naval forces. manipulation, an increasing share of the commerce
When we realize that strategic missile submarines are of the free world.
the least vulnerable component of our nuclear deter- Our maritime policy must be an integral part of our
rent force and that our only military capability in the overall foreign policy. It must be well conceived and
volatile Indian .Ocean area is our carrier task groups, admin Iistered in accordance with a consistent, coor-
we can appreciate the importance of naval capability diInated plan. Four years of increasing Soviet bel-
in world affairs. ligerence has been encouraged by a lack of any coher-
The world trades by sea and the United States is ent national policy and continuing vacillation which
the world's greatest trading nation. We are heavily has become the despair of our allies. This inability to
dependent upon ships to bring in foreign goods as project our economic strength and defense mobility
well as petroleum and the raw materials for our indus- in any coordinated manner has critically undermined
tries; and we need ships to carry our manufactured the ability of the U.S. to serve as a world leader.
products and our agricultural and raw material exports Today we see that the Soviet Union-primarily a
to ihe world's markets. land power-has the world's largest navy. The Soviet

Union has more oceangoing surface warships than the can people-had voted funds to build another nuclear-
U.S. Navy. And the Soviets are building new ships at powered aircraft carrier of the NIMITZ class. Yet just
a faster rate than we are. While the U.S. Navy will over a year later Mr. Carter was ordering aircraft car-
complete five major missile warships in the next three riers to the. Indian Ocean and it was from the deck of
years-four of which were ordered for Iran and come the carrier NIMITZ that the ill-fated Teheran rescue
to us by,default-the Soviet Navy will add more than attempt was launched.
five times that number of major missile ships to their Similarly, the Carter Administration opposed the
fleet, several of them nuclear powered. start of a new class of amphibious ships, the LSD 41
In the submarine category the Soviets have about program has been belatedly started, while events in
three times as 'many undersea craft as the U.S. Navy, Iran have now led the Carter Administration to initi-
and significantly more nuclear submarines. This Soviet ate a whole new class of ships to carry Marine tanks
thrust to the sea is qualitative as well as quantitative. and equipment.
For example, the Soviet ALFA-class submarine, now The American Merchant Marine has fared no bet-
in series production, has a titanium hull and can dive ter than the Navy. Although American innovation has
significantly deeper and travel significantly faster than been responsible for most of the major advances in
any American nuclear submarine. shipboard productivity, our foreign competitors have
Similarly, the Soviet merchant fleet is Among the now successfully mastered these advances and are able
world's largest, with almost five times the number of to take advantage of both the American innovation
ships at sea as fly the American flag. These Soviet and the lower priced foreign wage structure. Because
merchant ships vary from small, coastal cargo ships- of the failure of the maritime policy to adapt to sig-
ideal for the smaller Soviet ports and for serving Third nificant changes in the international environment over
World ports-to giant supertankers and container ships. the last ten years, we are in imminent danger of los-
The Soviet penetration of Third World trades gives ing even the minimum level of skilled manpower, man-
them a political and economic presence that ourcur- agement, engineering and component manufacturing
rent leadership fails to appreciate. capability needed to serve in a national emergency
Until the Afghan invasion a year ago, the Soviet and to give us a base on which to expand in time of a
share of American maritime trade was growing at a protracted crisis or conflict. We must be aware of the
faster rate than that of any other nation, while in the example of the Soviet Union, which has grasped the
past decade the U.S. flag share of our own commerce value and relevance of a coherent, focused, and con-
declined by 20 percent, sistent national maritime policy. Their maritime activi-
ties are carefully orchestrated; their maritime resources
The Soviet Union has the world's. largest fishing and supplement and reinforce one another. The time has
ocean research fleets as well, and they are deployed come for the United States to undertake a similar
over the four corners of the world. commitment.
Despite their already massive array of seapower, If the United States is to survive as a viable and
the Soviets continue to expand and improve their ship- progressive nation, we must have the leadership that
yards and related industries while America continues, has been denied to the American people in these vital
to decline. For example, 15 years ago the United States areas. We must develop and undertake a maritime
bad seven shipyards building nuclear-. powered ships polic .y that will (1) demonstrate our understanding of
and submarines. Today we have only two. In the same the importance of the seas to America's future; (2)
period the Soviet nuclear shipyards have increased from reestablish the U.S. flag commercial fleet as an effec-
two to six yards, with just one of those yards capable tive economic instrument capable of supporting U.S.
of building more nuclear submarines each year than interests abroad; and (3) demonstrate America's con-
the rest of 'the world's shipyards combined. And still trol of the seas in the face of any challenges.
the Soviet shipyards are being expanded and improved.
How did we come to this state of affairs? A specific naval-maritime program must be devel-
oped that will:
The answer to that,question unfortunately is all'too 1. Provide a unified direction for all government pro-
clear. It has become apparent that during the past 3-1/2
years the Carter Administration has ignored the les- grams affecting maritime interests of the United
sons of history, turned away from the world as it exists States. We must insure that there is active coop-
today, and failed to understand America's need to use eration between the Navy and the Merchant
the seas. Time and time again the Carter Administfa- Marine and the governmental departments re-
tion has made the wrong decision or simply avoided sponsible for each. We must see that long-range
making any decision at all. building programs for naval and merchant ships
In 1979, Mr. Carter vetoed the defense budget because are established and carried out without falling
the Congress-the direct representatives of the Ameri- victim to petty bureaucratic jealousy. This is the

role of the President, and I shall see that our of moving the goods and commodities of the
maritime policy is coordinated to insure that it nation between all parts of our country. It also
achieves the objectives we set for it. provides a vital link in our international trading
2. Insure that our vital shipbuilding mobilization effort by tying the ports of all four seacoasts,
base is preserved. It is essential that sufficient which includes our Great Lakes, to the produc-
naval and commercial shipbuilding be undertaken ing heartland of the Nation. Again we are paying a
to maintain the irreplaceable shipbuilding mobil- high price for the absence of any coherent national
ization base. Without this nucleus of trained policy.
workers and established production facilities, 7. Reduce the severe regulatory environment that
we can never hope to meet any future challenge inhibits American competitiveness. As foreign
to our security. competition on maritime scene has increased, so
3. Improve utilization of our military resources by have the operational and regulatory restrictions
increasing commercial participation in support on U.S. shipping and shipbuilding. Many of these
functions. The Navy today is facing a critical restrictions increase costs and, in some cases, sim-
shortage of trained personnel. With the commer- ply prevent our ships from competing with for-
cial industry assuming increased responsibility eign ships. There is rarely, if ever, any commen-
for many auxiliary functions, substantial cost sav- surate benefit from these restrictions. Accordingly,
ing can be achieved and a large reserve of man- we will carefully and rapidly review the effect
power can be released to provide crews for a of these- restrictions and sponsor appropriate
growing naval fleet. This is an example of the actions.
means by which we can increase defense mobil- In carrying out these expansive! programs, a coor-
ity without adding burden to the taxpayer. dinated effort will be undertaken to create new jobs
4. Recognize the challenges created by cargo policies for American seamen, shipyard workers, and the thou-
of other nations. The United States has traditional- sands of workers in related indus .tries. These maritime
ly espoused free trade. However, the international
shipping trade is laced with a network of foreign' industries which are vital to our national well-being,
governmental preferences and priorities designed in the past have had an outstanding record of provid-
to strengthen foreign fleets, often at the expense ing not only employment but the training to enable
of U.S. mariitme interests. We must be prepared minorities and the disadvantaged to obtain continued
to respond constructively for our own interests advancement,
to the restrictive shipping policies of other nations.
A major goal of the United States must be to insure This seven-point program will be carefully devel-
that American-flag ships carry an equitable oped and it will be carried out. We cannot expect
portion of our trade consistent with the legiti- others-either allies or adversaries-to respect our
mate aspirations and policies of our trading intcrests if we show no respect or concern for' them
partners. ourselves. The failure to develop and carry out an
5. Restore the cost competitiveness of U.S.-flag effective naval and maritime program will deny the
operators in the international marketplace. It has use of the seas to the United States and, eventually
been American policy since 1936 for the addi- to the Free World.
tional costs of building and operating U.S.-flag
ships to be borne by a system of subsidies to help The erosion of American maritime strength is unnat-
insure the competitiveness of American importers ural, untimely, and endangers the Free World. The
and exporters. But our parity system failed in strategic concepts upon which our military planning
the mid-1970's because most foreign governments is based includes the rapid support to our allies.
moved to protect their own vital maritime inter- The United States has a heritage of the sea that dates
ests after the shipping collapse of the mid-70's. from the first settlement of our country. The oceans-
We must now take corrective action to make cer- and the ships-and men that both build and sail on
tain our merchant fleet and our shipbuilding them-have been a prominent factor in shaping the
industry survive and grow. crucial development of our nation's history. Our eco-
6. Revitalize our domestic water transportation nomic vitality, national defense, and foreign policy
system. The inland water transportation system options will depend increasingly on the use we make
provides an economic and energy efficient method of the sea during the remainder of this century.

APPENDIX H
STATEMENT BY PRESIDENTIAL CANDIDATE
RONALD REAGAN AT THE SUN SHIPYARD IN CHESTERF
PENNSYLVANIA ON AUGUST 19,1980

Shipbuilding, a strong maritime industry and our ships-about 1/3 the total lost-1,787-by our country
national security go hand-in-hand. during World War IL
Those of you who work here in the "Arsenal of As the world's leading trading nation, as an island
Democracy" know that well-here at Sun Ships you of have-nots in the area of strategic commodities, and as
met the challenge during the Second World War when the chief guarantor of freedom of the Western World,
you designed and built 40% of all U.S. Tankers deliv- the U.S. is in dire need of a rational, reasonable and
ered during that war. At your peak you employed some effective maritime policy.
40,000 workers-today that number is closer to 4,000!
Let's begin to move today, in the shadow of these
This is an alarming trend we see throughout the ships, within earshot of you workers and worried
industry. Americans, to put America back in the captains chair
In order to maintain a productive private shipbuild- of world maritime powers.
ing industry, it is projected we need a minimum of Some steps which would revitalize and reinvigorate
116,000 workers. Currently 107,000 are employed by our nation's shipbuilding and maritime industry would
private shipyards. include:
Unless we begin to reverse the trend and get both First, early next year I would convene a conference
Navy shipbuilding on track and develop a national of top maritime and shipbuilding leaders with the
maritime agenda, employment is expected to sink to appropriate members of my administration to explore
75,000 workers by 1983. Such a loss of jobs would also ways and means of addressing the deficiency. The goal
have a serious "spill over" effect on related industries. is to build a merchant marine consistent with our eco-
In short, the 'trigger point' for employment in pri- nomic, trade and national security needs.
vate shipyards able to support overhead, work effi- Second, I would target my Administration to be the
ciency and be financially viable will have been passed- mandate of the Republican platform calling for a
resulting in an unproductive industrial base. 600-ship Navy composed of U.S. built ships quickly
Statistically similar is the fact that out of 25 active as the budget would permit. I would anticipate a
shipyards, only 18 are building ships. This number is sympathetic Senate and House of Representatives and
expected to decline to 15 or 16 by next spring. would work closely with the appropriate Committees
of Congress to see these goals are met.
Should our shipbuilding capability continue to Third, in concert with Congress, I would develop a
decline, America's mobilization potential will be multi-year Naval Investment Program to produce a
seriously undermined because a large reduction in a modern and versatile U.S. Navy capable of meeting
skilled shipbuilding workforce today makes any the global uncertainties of the future. This plan would
increase tomorrow very difficult. This is a dangerous end the vagaries of the past on-again-off again Car-
threat to our national security, jobs and a key U.S. ter plans and provide stability in planning, produc-
industry. tion and workforce in our shipyards.
The truth is, the Carter Administration has no coher-
ent, long-range shipbuilding or maritime policy. Fourth, my comprehensive National Maritime policy
will be targeted toward a greater market share of
America is a maritime nation. Yet our maritime Exports and Imports for U.S.-flag shipping. As more
industry is at a critical stage. Ninety-five percent of cargoes are carried on our own ships, the demand for
our trade moves in foreign vessels-a serious situa- U.S. flag shipping services will increase, and more new
tion. Our active U.S. flag fleet has declined to 533 ships will be ordered from U.S. shipbuilders.

Fifth, these programs will be monitored from the Seventh, in concert with industry and labor, I will
top level of government and our national security develop a phased-in effort to restore international com-
aspects from the National Security Council. Understand- petitiveness of U.S. shipbuilding through tax incentives
ably, the American people are beginning to wonder if such as 10-5-3 technology advances and improved
the U.S. has the necessary thrust to counter the Soviet productivity.
build-up on the high seas, of support pledges of sup- Eight, I will direct a review of regulatory require-
ply when U.S. national interests are threatened. To ments imposed on U.S. shipbuilding (as well as other
feel safe, we have to have the sealift capability to dis- industries) consistent with health and safety. It is esti-
patch military manpower to areas of crisis. mated 14% of the cost, on a value-added basis, in U.S.
shipyards can be traced to U.S. Government regulations.
Sixth, I will appoint only men and women to fed- A "New Beginning"'can and should be forged be-
eral posts which impact directly on shipbuilding who tween a New Aepublican Administration and with U.S.
are people of experience, vision and dynamism. All Shipbuilding, their workers, and their suppliers-to
too often the right people have not been placed in the make the American people safe and secure-to main-
right slots. tain peace on the seas through strength.

DATE DUE

GAYLORDINO. 2333 PRINTED IN U.S.A.

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